Greg Kilminster
Head of Product - Content
CP 2/24: PRA proposes new rules for solvent exit planning for insurers
The Prudential Regulation Authority (PRA) has released a new consultation paper (CP) 2/24 – Solvent Exit Planning for Insurers. The CP proposes that PRA-regulated insurers should be prepared for an orderly ‘solvent exit’ as part of their business-as-usual activities and have the ability to execute one if necessary. It applies to all PRA-regulated insurers except for those in passive run-off and UK branches of overseas insurers.
Under the proposed rules:
- Firms must prepare for a solvent exit as part of their BAU activities and must document those preparations in a Solvent Exit Analysis (SEA).
- If solvent exit becomes a reasonable prospect for a firm, insurers must prepare a detailed Solvent Exit Execution Plan (SEEP) and monitor and manage a solvent exit.
In the CP, the PRA also highlights that it will be proportionate in its expectations. The greater the assurance that an insurer can achieve a solvent exit, the less involved the PRA would need to be during any exit. As an additional benefit, exit planning by insurers in scope can help identify business areas that may need improvement or adjustment for continued viability, transferability, or saleability.
The proposed rules will be included in a new Preparations for Solvent Exit Part to the PRA Rulebook and a new supervisory statement (SS).
This consultation will close on 26 April 2024.
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FINRA report reveals widespread misleading statements and claims about crypto assets
The Financial Industry Regulatory Authority (FINRA) has issued the results of its targeted exam on communication practices of certain FINRA member firms that actively engage with retail customers regarding crypto assets and related services.
The investigation was focused on ensuring compliance with FINRA Rule 2210, which mandates that broker-dealer communications with the public be fair and balanced and provide a sound basis for evaluating any product or service discussed.
The report revealed substantial potential violations in 70% of the materials reviewed, including false or misleading statements about crypto assets, unclear explanations of how they work, and misleading claims about the extent to which certain assets are protected by the Securities Investor Protection Corporation.
The report also includes some thought-provoking questions for consideration regarding statements or claims and fair and balanced presentation. For example, do the firm’s retail communications concerning a Crypto Asset provide a fair and balanced presentation of its risks? Are technical terms associated with Crypto Assets adequately explained?
Amy Sochard, Vice President of the Advertising Regulation Department, FINRA, said, “Our update on the targeted exam poses questions for firms to consider as they review and supervise their retail communications concerning crypto assets. Any findings of substantive potential violations are evaluated for further review and follow-up, including considering whether to refer to FINRA’s Enforcement Department, as appropriate.”
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HKMA consults on sharing of customer data to fight financial crime
The Hong Kong Monetary Authority (HKMA) has issued a new consultation paper, its first of 2024, seeking views on its proposal to allow regulated firms to share customer account information to help in the fight against financial crime.
The consultation aims to gather opinions on enabling sharing of information related to customers, accounts, and transactions to combat financial crime. The focus is on preventing or detecting fraud and money laundering/terrorist financing activities by allowing firms to alert each other to potential risks.
The consultation highlights the success of public-private partnerships in Hong Kong, such as the Fraud and Money Laundering Intelligence Taskforce and Ant-Deception Coordination Centre. However, it acknowledges too the limitations of these initiatives, particularly in addressing money laundering through networks of accounts controlled by criminals.
To address this challenge, the consultation recognises the growing international trend towards cooperation among private-sector financial institutions and suggests that extending the Financial Intelligence Evaluation Sharing Tool (FINEST) to include personal account information would enhance its effectiveness in preventing and detecting crime, as most accounts involved in money laundering are held by individuals. FINEST was introduced in June 2023 in Hong Kong to facilitate information sharing among regulated firms initially to cover corporate accounts.
Depending on the consultation’s outcome, the Hong Kong Monetary Authority (HKMA) may propose legislative amendments to provide “safe harbour” protection to firms sharing information for the specific purpose of preventing or detecting fraud or money laundering/terrorist financing, ensuring appropriate handling of shared information.
The consultation closes on 29 March 2024.
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SFC priorities 24-26
Hong Kong’s Securities and Futures Commission has published its Strategic Priorities for 2024 – 2026 document which outlines the regulator’s key goals and aims for the period.
Its top four priorities are:
- Maintaining market resilience and mitigating serious harm to its markets: : the SFC is committed to further strengthening the resilience of the city’s financial market and market infrastructure. Maintaining resilience will fortify the foundation for our market to grow further sustainably and safely.
- Enhancing the global competitiveness and appeal of Hong Kong capital markets: Hong Kong needs to stay competitive on multiple fronts, especially by upholding its status as an international asset and wealth management hub and global fund-raising centre, to fully leverage its strengths in supporting Hong Kong’s and Mainland China’s market development.
- Leading financial market transformation through technology and ESG:: embracing financial innovation while upholding market integrity and bolstering Hong Kong’s [position as a sustainable finance hub.
- Enhancing institutional resilience and operational efficiency:: pursuing greater institutional resilience and operational efficiency and ensuring that its financial resources are sufficient for daily operations through robust budgeting and internal controls.
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FINRA issues regulatory notice announcing rules effective dates
The Financial Industry Regulatory Authority (FINRA) has announced the effective dates of two new supplementary materials and the end of temporary relief related to the Regulatory Notice 20-08 (March 2020).
- Supplementary materials effective dates
Rule 3110.19 (Residential Supervisory Location), which sets the rules for private residences where an associated person engages in specified supervisory activities, will be effective on 1 June 2024.
Rule 3110.18 (Remote Inspections Pilot Program), which establishes a voluntary, three-year remote inspections pilot program, will be effective on 1 July 2024.
To facilitate compliance with these new regulations, FINRA will release further guidance with more details on the operational processes for data and information requirements.
- End of regulatory temporary relief
In addition, FINRA has announced that the regulatory relief set forth in Regulatory Notice 20-08 (March 2020) (Notice 20-08 Relief) will end on 31 May 2024.
In light of these changes, firms are encouraged to consult with FINRA’s Membership Application Program (MAP) Group as they consider the materiality of any potential increase in the number of offices or locations.
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NGFS issues explanatory note on NGFS scenarios
The Network for Greening the Financial System (NGFS) has issued an explanatory note on climate scenarios (NGSF scenarios).
The NGFS scenarios were introduced in 2020 and provide a common and up-to-date reference point for understanding how climate change (physical risk) and climate policy and technology trends (transition risk) could evolve in different futures.
Since their publication, the NGFS scenarios have assisted central banks, supervisors and other financial actors in exploring various potential future outcomes of climate change and the transition. The scenario toolkit has been designed to evolve over time, providing an increasing number of options for users to facilitate their adaptations.
The note outlines the purposes and use cases for scenarios and emphasises the need for users to customise the scenarios to suit their specific needs. It also includes a selection of frequently asked questions about the scenarios, which will be updated periodically to reflect the latest developments.
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