Greg Kilminster
Head of Product - Content
FCA proposes new enforcement procedures in CP 24/2
The Financial Conduct Authority (FCA) has issued a consultation paper (CP) 24/2: Our Enforcement Guide and Publicising Enforcement Investigations – a New Approach. The CP outlines proposed changes to the FCA’s enforcement procedures, including the public announcement of enforcement investigations, a new public interest framework to inform decision-making, and revisions to the Enforcement Guide (EG).
The proposed changes will apply to all investigations commenced by the FCA under the Financial Services and Markets Act (FSMA) or other statutory appointments of investigators, including ongoing investigations. The proposals will not affect how the FCA publishes the outcomes of investigations, including when they publish a statutory notice under section 391 of FSMA.
Publishing information about enforcement investigations
The FCA proposes publishing more information about enforcement investigations, including naming the firm involved, announcing when an enforcement investigation has been initiated and providing regular updates on the investigation if it is deemed in the public interest. The FCA will apply a new public interest framework to guide their decision-making when determining the facts, content, and timing of each announcement. However, the FCA does not intend to announce investigations involving named individuals.
Amendments to EG
The FCA also proposes to amend the EG to clarify its approach to announcing and publishing updates on investigations. The amendments will not make significant changes to existing policies in EG but rather remove redundant content and clarify their approach to enforcement action and investigation procedures.
The deadline for responses is 16 April 2024.
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FSB review finds uneven progress in implementing MMF reforms
The Financial Stability Board (FSB) has recently issued the results of its thematic review on money market fund (MMF) reforms. The review assesses the actions taken or planned by FSB member countries in response to the 2021 FSB report: Policy Proposals to Enhance MMF Resilience.
In the published report, FSB recommends that member jurisdictions implement measures to address vulnerabilities in MMFs, as the progress in adopting the proposals has been uneven.
Background
FSB thematic reviews focus on the implementation and effectiveness of international financial standards and policies across the FSB membership in a specific area crucial to global financial stability. Peer reviews follow the objectives and guidelines stated in the handbook for FSB peer reviews.
Note that the published review does not assess the effectiveness of the policy measures in mitigating risks to financial stability, as this will be the focus of separate follow-up work by the FSB in 2026.
Findings
The report reveals that:
- MMFs vary across FSB jurisdictions in their definition, structure, eligible assets, investors, currency denomination (local or foreign), liquidity, and maturity limitations.
- The progress in implementing the 2021 FSB policy proposals has been uneven across jurisdictions. Some jurisdictions have introduced new policy tools or recalibrated existing ones (China, India, Indonesia, Japan, Korea, Switzerland, US), while others are still developing or finalising their reforms (EU, South Africa, UK).
- The main vulnerability identified is the mismatch between the liquidity of MMF asset holdings and the redemption terms offered to investors, making them susceptible to sudden and disruptive redemptions. This is particularly relevant for non-public or non-government bond MMFs that invest in riskier assets, such as corporate debt.
Recommendations
Based on the findings, the FSB has made the following recommendations:
- FSB jurisdictions that have not yet reviewed their policy frameworks should do so and adopt tools to address identified MMF vulnerabilities taking into consideration the 2021 FSB policy proposals.
- If relevant tools, such as minimum liquidity requirements, are already available, FSB jurisdictions should consider recalibrating them to ensure their effective use and to maintain a sufficient level of MMF resilience.
- IOSCO should consider the findings of this review when it revisits its 2012 policy recommendations for MMFs.
Next steps
The FSB will take these findings into account in its monitoring of vulnerabilities and policy tools for MMFs, including enhancements to its annual non-bank financial institutions (NBFI) monitoring exercise aimed at closing data gaps.
It will also consider the results as it prepares to conduct the 2026 assessment of the effectiveness of jurisdictions’ MMF policy measures in mitigating risks to financial stability.
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FINRA calls for greater firm engagement
In a newly published special notice, the Financial Industry Regulatory Authority (FINRA) has requested the input of regulated firms and individuals into its various committees in order that it can benefit from the expertise of industry and other stakeholders.
FINRA has a number of ad hoc committees (which are created by various departments on specific subject-matter issues) and 13 advisory committees which provide feedback on rule proposals, regulatory initiatives and industry issues. The notice encourages the involvement by members across both types of committee. Currently more than 190 industry members and 40 non-industry members serve on these committees and FINRA is keen to ensure “a variety of perspectives by including all firm sizes and business models and individuals with diverse backgrounds, education, cultures, thinking styles and perspectives.”
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NASAA enforcement report 2022/23
The North American Securities Administrators Association (NASAA), an international association of state, provincial, and territorial securities regulators in the United States, Canada, and Mexico, has published its enforcement report for 2023 which contains the responses of securities regulators in 48 US states and territories covering 2022 fiscal and calendar years.
The report highlights a number of key statistics:
- Investigation cases: 8,538
- Enforcement actions: 1,163, 136 of these criminal actions, 59 civil and 825 administrative
- Restitution secured: $702 million
- Fines imposed: $223 million
- Prison sentences (months): 5,337
- Supervised release (months): 9,520
The report also notes a significant shift towards investigating and enforcing cases involving new technologies, particularly digital assets and internet-based products. While past surveys showed a focus on traditional products like stocks, equities, real estate investments, and promissory notes, 2022 saw a notable rise in investigations related to digital assets and online scams. Enforcement actions mirrored this trend, with a substantial increase in actions targeting digital asset investments compared to previous years.
The report notes that state enforcement efforts and inter-regulatory collaborations suggest that these trends will persist into 2024, with digital asset investments and internet-based scams remaining key concerns. Additionally, regulators express apprehension about affinity frauds, commodities, precious metals, and promissory notes. There is also a rising concern regarding scams leveraging artificial intelligence, with a significant portion of NASAA members anticipating it to be a top threat to retail investors in the coming years.
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