CUBE RegNews: 24th May

Greg Kilminster

Greg Kilminster

Head of Product - Content

Because of the UK public holiday, there will be no RegNews published on 27th May. 

We will be back on 28th May 2024. 

FCA speech considers asset management agenda

In a speech at the Bloomberg Buy-side Forum, Ashley Alder, Chair of the Financial Conduct Authority (FCA), outlined the FCA's agenda for the asset management sector. Alder's speech focused on regulatory priorities, challenges, and reforms aimed at enhancing the competitiveness and growth of the UK financial services industry. 

Regulatory framework and competitiveness 

Alder emphasised the importance of a robust regulatory framework in fostering trust and confidence in financial markets, essential for a competitive financial services industry. He acknowledged the evolving relationship between regulation and the recently required secondary competitiveness objectives, highlighting the need for feedback from stakeholders to inform regulatory approaches effectively. 

Smarter regulatory framework (SRF) for asset management 

Alder discussed the FCA's efforts to modernise and enhance asset management regulation through the Smarter Regulatory Framework (SRF). He noted the significance of proportionate regulation tailored to the needs of the UK market, particularly for alternative fund managers. The FCA, he added, seeks to align with EU rules while exploring opportunities for reform to support high standards and international interoperability. 

Non-bank financial intermediation (NBFI) and valuations 

Alder addressed the challenges and risks associated with non-bank financial intermediation (NBFI) and private markets, emphasising the need for effective oversight and data-driven supervision. He highlighted the FCA's supervisory work on valuations and its role in global efforts to improve regulatory frameworks for NBFI activities. 

Retail investments and PRIIPs regulation: Alder discussed the FCA's approach to retail investments, focusing on the need for meaningful cost disclosure and investor protection. He welcomed the revocation of the PRIIPs regulation and stressed the importance of designing a new regime that provides investors with accurate and relevant information to inform decision-making effectively. 

Sustainability disclosure requirements (SDR): Alder highlighted the growing demand for environmental, social, and governance (ESG) disclosures and the FCA's efforts to create a robust disclosure and labelling regime. He underscored the importance of international consistency and cooperation in developing sustainable finance regulations to maximize benefits for consumers and promote market growth. 

Innovation and technology: Alder addressed the opportunities presented by technology, particularly in the area of fund tokenisation. He highlighted the FCA's engagement with industry-led initiatives to explore the benefits of tokenisation and its commitment to reviewing regulatory frameworks to accommodate technological innovations. 

In concluding, Alder reiterated the FCA's commitment to fostering a competitive and sustainable asset management sector. He emphasized the importance of stable markets, effective competition, and regulatory innovation in driving growth and delivering better outcomes for consumers. Alder highlighted key initiatives, such as enabling greater retail access to long-term asset funds (LTAFs) and implementing the Overseas Funds Regime, as part of the FCA's broader efforts to support industry growth and economic development. 

Click here to read the full RegInsight

CFTC’s Ian McGinley discusses enforcements

In a speech at the City Bar White Collar Institute Ian McGinley, Director of Enforcement at the Commodity Futures Trading Commission (CFTC), discussed the evolving landscape of digital asset enforcement. 

Digital asset enforcement trends 

McGinley began by highlighting the substantial growth in digital asset enforcement cases over the past fiscal year, indicating a significant shift in enforcement priorities towards combating illicit activities in the digital asset space. He emphasised the CFTC's commitment to addressing fraud and manipulation cases, which have become increasingly prevalent in the evolving digital asset market. 

Collaboration and priority 

Collaborative efforts between the CFTC and other regulatory bodies, including the Department of Justice, and SEC, have played a crucial role in enhancing enforcement effectiveness and addressing complex digital asset cases. McGinley stressed the importance of cooperative enforcement initiatives in combating cross-border illicit activities and ensuring market integrity. 

Focus areas beyond fraud and manipulation 

In addition to traditional fraud and manipulation cases, McGinley outlined three key focus areas that have emerged in recent enforcement efforts: 

  • Anti-evasion: The CFTC's use of Dodd-Frank Act Regulation 1.6 to combat evasion tactics and unlawful activities aimed at circumventing US regulations was particularly key in the “eye-catching” litigation against Binance. Regulation 1.6 strikes directly at those entities, particularly in the digital space, who may tout that they are not subject to US regulation, including KYC and AML requirements.  
  • Intermediary liability: McGinley noted that there are multiple kinds of activities that require registration as an intermediary. “These activities can include not only offering transactions in digital asset derivatives—which could require registration, but also potentially passing along the instruction to transact or otherwise facilitating a digital asset derivative transaction in some way”. The enforcement actions against intermediaries, such as Falcon Labs, highlight the CFTC's scrutiny of entities facilitating transactions with unregistered and lawbreaking entities. 
  • Compliance obligations: Firms conducting activities requiring registration must adhere to regulatory requirements, including KYC, AML, and supervisory obligations, to ensure compliance with the Commodity Exchange Act and related regulations. McGinley cited the example of Ooki DAO as one where the founders apparently viewed their platform as beyond the law, touting the lack of KYC or AML verification as a feature. The CFTC responded by issuing an order settling charges against the founders and the DAO’s predecessor company and filing a complaint against the DAO itself, ultimately prevailing in a precedent-setting litigation. 

Regulatory landscape and challenges: 

Underpinning these examples, McGinley discussed the regulatory complexities surrounding digital assets, noting the absence of a comprehensive regulatory framework and the challenges posed by rapid technological advancements and market evolution. He emphasized the need for regulatory clarity and proactive measures to address emerging risks and ensure investor protection. 

As the regulatory landscape continues to evolve, McGinley emphasised the critical role of enforcement in deterring misconduct and maintaining market integrity. He highlighted the CFTC's enforcement priorities, including anti-evasion measures, intermediary oversight, and compliance with regulatory obligations, as essential components of a robust regulatory framework. 

In concluding, McGinley offered insights into the future direction of digital asset enforcement, emphasising the need for continued vigilance and adaptability in response to evolving market trends and regulatory challenges. He reiterated the CFTC's commitment to fostering a fair and transparent digital asset market through rigorous enforcement efforts and proactive regulatory measures. 

Click here to read the full RegInsight

OCC enforcement actions for May 2024

The Office of the Comptroller of the Currency has published a summary of its enforcement actions for May 2024. 

The summary includes actions against two banks: Comerica Bank & Trust, National Association and Lemont National Bank. 

Click here to read the full RegInsight

CFTC orders JP Morgan to pay $200 million for oversight failures

The Commodity Futures Trading Commission (CFTC) has acted against JP Morgan Securities LLC, imposing a $200 million penalty for inadequate supervision. The charge stems from JP Morgan's failure to oversee its operations effectively, leading to the oversight of billions of client orders on a US designated contract market. 

JP Morgan admitted compliance and supervision failures, to the facts outlined in the order, and acknowledging its breach of CFTC regulations. The company must pay the penalty, cease further violations, and adhere to specified conditions. 

The case dates back to 2021 when JP Morgan identified surveillance deficiencies while onboarding a new trading exchange. The lapses were attributed to improper configuration of data feeds, resulting in the failure to monitor billions of order messages from 2014 to 2021 on a specific US market. 

Commissioner Kristin Johnson commented on the settlement agreement noting that supervision is crucial for customer protection adding that the settlement reflects the Commission's dedication to enhancing accountability and deterring repeated compliance failures. 

Click here to read the full RegInsight

BIS’ Committee on Payments and Market Infrastructures issues work programme

The Bank for International Settlements' Committee on Payments and Market Infrastructures (CPMI) has published its work programme for 2024-25. Key themes for the forthcoming period are as follows.

Risk management of financial market infrastructures (FMIs). 

The CPMI focuses on managing risks in financial market infrastructures (FMIs) like payment systems and central counterparties (CCPs). This involves implementing international standards and collaborating with bodies like IOSCO and the Financial Stability Board (FSB). 

Key priorities include: 

  • Enhancing FMIs' resilience and recovery, including handling non-default losses. 
  • Improving CCP margining practices. 
  • Reducing foreign exchange settlement risks. 

Enhancement of cross-border payments. 

Improving cross-border payments has been a G20 priority since 2020. The CPMI and FSB developed a roadmap to enhance speed, transparency, and access while reducing costs. A 2022 review led to a plan focusing on: 

  • Payment system interoperability. 
  • Legal and regulatory frameworks. 
  • Cross-border data exchange. 

Digital innovation in payments, clearing and settlement. 

The Committee monitors and assesses digital innovations in payments, clearing, and settlement. Currently, it focuses on tokenisation and cross-border central bank digital currencies (CBDCs). 

Click here to read the full RegInsight

AMF issues annual report

French regulator the The Autorité des marchés financiers (AMF) has issued its 2023 annual report. The report highlights several key themes the regulator is pursuing including: 

  • Focus on being a demanding regulator and a leading financial centre: during the year the AMF opened 60 inspections, including 37 short thematic inspections and 37 investigations. 17 firms were fined a total of €34.94 million. 
  • Leading strong European and international action: the report notes The AMF has particularly worked towards promoting direct European supervision of major pan-European financial players, including in the area of crypto-assets, and relaunching the securitisation market. 
  • Protecting savers: The AMF updated its lists of banned firms and blocked nearly 130 illicit internet addresses in the face of financial scams in which 15% of French people (including 35% of those under 35) became victims. 
  • Promoting more sustainable finance: the AMF prepared for the implementation of the European Green Deal, in particular the Corporate Sustainability Reporting Directive.


Click here to read the full RegInsight

HSBC fined £6.2 million by FCA for mishandling customers in financial difficulty

The Financial Conduct Authority (FCA) has fined HSBC UK Bank plc, HSBC Bank plc, and Marks and Spencer Financial Services plc a total of £6,280,100 for failing to properly treat customers in financial difficulty. These failings occurred between June 2017 and October 2018, during which HSBC did not adequately consider customers' individual circumstances when they missed payments. HSBC was in breach of Principle 3 and Principle 6 of the FCA’s Principles for Businesses, CONC 7.2.1R, 7.3.4R, and 7.3.14R from the Authority’s Consumer Credit sourcebook, and MCOB 13.3.2A from its Mortgages Conduct of Business Sourcebook.

As a result, HSBC sometimes failed to conduct appropriate affordability assessments and took disproportionate actions against those in arrears, potentially exacerbating their financial difficulties. The FCA identified these issues as stemming from flaws in HSBC’s policies, procedures, and staff training, alongside insufficient measures to detect and rectify unfair treatment of customers.

In 2018, HSBC recognised the shortcomings in their approach and reported them to the FCA. The bank subsequently invested £94 million in addressing these issues and provided £185 million in compensation to over 1.5 million affected customers.

Therese Chambers, Joint Executive Director of Enforcement and Market Oversight at the FCA, commented, "People must be able to trust their lenders to treat them fairly when in financial difficulty. By failing to do so, HSBC put 1.5 million people at risk of greater financial harm. It deserves credit for identifying the issue and putting it right. The cost it has incurred in doing so, however, should be a warning to all lenders that they need to understand their customers’ circumstances so as not to make a bad situation worse."

The FCA acknowledged HSBC’s efforts to rectify the situation and took this into account when determining the fine. HSBC's agreement to settle the case resulted in a 30% reduction of the financial penalty, which would otherwise have been £8,971,600.

Click here to read the full RegInsight