CUBE RegNews: 28th March

Eva Dauberton

Eva Dauberton

News Editor

Due to UK public holidays, there will be no RegNews published on 29 March and 1 April.

We will be back on 2 April 2024.

CP24/4: FCA issues new CP on regulatory framework for PDSs 

The Financial Conduct Authority (FCA) has published a consultation paper (CP) 24/4, which focuses on the regulatory framework for firms providing pension dashboard services (PDSs). This CP, along with CP22/25, takes into account the FCA’s expanded mandate in relation to these firms. 


This comes as a new industry coalition, the Dashboard Operators Coalition (DOC), has been formed by four UK-based potential PDSs providers: Just Group, Legal & General, Moneyhub, and Standard Life (part of Phoenix Group).  

The DOC aims to address the challenges of testing, launching, and improving effective consumer dashboards. 


Some context 

On 20 February 2024, the Financial Services and Markets Act 2000 (Regulated Activities) Order 2024 (the Order) was published, along with an explanatory memorandum. This Order amends the regulatory framework to make operating a PDS, which connects to the Money and Pensions Service (MaPS) dashboards digital architecture, a regulated activity. As a result, the FCA now has the authority to regulate the operators of these dashboards and provide enhanced consumer protections. 

In light of this legislative change, any firm wishing to provide a PDS must meet the following requirements: 

  • Be or become authorised by the FCA. 
  • Obtain permission from the FCA to engage in the newly regulated activity. 
  • Comply with the FCA’s requirements for firms involved in this activity. 


What are the proposals? 

In this CP, the FCA proposes including guidance in the Perimeter Guidance Manual (PERG) to help firms understand the scope of this newly regulated activity and when they need permission to carry it out. Additionally, it suggests changes to the regulatory framework proposals in CP22/25, including: 

  • Requiring firms to present consumers with options for their next steps after viewing their pension data on a PDS 
  • Requiring firms to provide certain communications to ensure consumers exercise appropriate caution when their chosen next step takes them outside the regulated PDS 
  • Revising data export proposals to create a single, consistent method for consumers to share their dashboard data with an FCA-regulated investment adviser. 


Next steps  

The deadline for feedback is 8 May 2024. the FCA aims to publish a policy statement and final handbook text in Q4 2024. 


Click here to read the full RegInsight on CUBE’s RegPlatform  

Australian Court rules against Vanguard for greenwashing 

The Australian Federal Court (Court) has ruled that Vanguard Investments Australia (Vanguard) violated the law by making deceptive claims about certain environmental, social, and governance (ESG) exclusionary screens used in its Vanguard index fund. 


The Australian Securities and Investments Commission (ASIC) initiated legal proceedings against Vanguard on 24 July 2023, alleging misleading conduct regarding the ESG criteria applied to its Vanguard Ethically Conscious Global Aggregate Bond Index (Hedged) Fund. 

It was discovered that the fund’s investments were based on the Bloomberg Barclays MSCI Global Aggregate SRI Exclusions Float Adjusted Index (Bloomberg SRI Index), which Vanguard initially stated excluded companies involved in industries like fossil fuels. However, Vanguard later admitted that a significant portion of securities in the index and the fund were not screened for relevant ESG criteria. 

On March 28 2024, the Court confirmed that Vanguard had indeed violated the ASIC Act multiple times by providing false or misleading information. These misrepresentations were made through various channels, including statements on Vanguard’s website, a Finance News Network interview on YouTube, and a presentation at a Finance News Network Fund Manager Event that was published online. 

The Court will further address the matter on 1 August 2024 to determine the appropriate penalty for Vanguard’s actions. 

Click here to read the full RegInsight on CUBE’s RegPlatform  

US Treasury publishes report on AI cybersecurity risk in the financial sector 

The US Department of the Treasury has published a report on the financial sector’s management of cybersecurity risks specific to Artificial Intelligence (AI). The report offers a comprehensive overview of the current use cases of AI in cybersecurity and fraud prevention. It also highlights the significant opportunities and challenges in that area. 


Key takeaways 

The report outlines the following recommendations for AI use and adoption: 

  • Addressing the growing capability gap and narrowing the divide in fraud data between large and small financial institutions. 
  • Expanding and tailoring The National Institute of Standards and Technology (NIST) AI Risk Management Framework for the financial services sector. 
  • Developing best practices for mapping data supply chains and creating standardised descriptions for AI systems and data providers offered by vendors. 
  • Researching and developing explainability solutions for black-box systems like generative AI. This would involve considering the data used to train the models, as well as the outputs, and conducting thorough testing and auditing of these models. 
  • Creating a set of best practices for less-skilled practitioners on how to use AI systems and role-specific AI training for employees outside of information technology  
  • Creating a common AI lexicon.  
  • Engaging with other countries. 


What’s next? 

In the coming months, Treasury will work with the private sector, other federal agencies, federal and state financial sector regulators, and international partners on key initiatives to address these challenges. 


Click here to read the full RegInsight on CUBE’s RegPlatform  

SEC adopts amendments to modernise internet adviser exemption 

The Securities and Exchange Commission (SEC) has adopted amendments to modernise the rule that exempts internet investment advisers from the prohibition on SEC registration for smaller investment advisers. 


Some context 

Typically, investment advisers are prohibited from registering with the SEC unless they meet certain criteria, such as the assets under management threshold, advise a registered investment company, or qualify for an exemption under SEC rules or statutes. 

However, internet investment advisers have been exempt from this requirement under rule 203A-2(e) of the Investment Advisers Act of 1940 (the “Advisers Act”) (referred to as the “internet adviser exemption”) if they meet specific conditions, including using an interactive website to provide advice to clients. 


Key takeaways

The final changes aim to update rule 203A-2(e) to reflect technological advancements and market changes since its adoption in 2002. This will also align current practices in the investment adviser industry with the limited exemption for advisers who didn’t neatly fit into the framework established by Congress. 

Amendments include: 

  •  Advisers who rely on the internet adviser exemption will be required to provide investment advice exclusively through an operational interactive website at all times when relying on the exemption. 
  • The de minimis exception in the current rule, which allowed advisers relying on the internet adviser exemption to have fewer than 15 non-internet clients in the past 12 months, will be eliminated. 
  • Form ADV will be amended to require advisers relying on the internet adviser exemption for registration to state on Schedule D that they have an operational interactive website, among other things. 


What’s next? 

These amendments will take effect 90 days after publication in the Federal Register. 

Advisers relying on the internet adviser exemption must comply with the rule, including amending their Form ADV, by 31 March 2025. 

If an adviser is no longer eligible for the amended exemption and does not have another basis for SEC registration, they must register in one or more states and withdraw their registration with the SEC by filing a Form ADV-W by 29 June 2025. 


Click here to read the full RegInsight on CUBE’s RegPlatform  

CFPB issues circular on deceptive remittance transfer advertising 

The Consumer Financial Protection Bureau (CFPB) has issued a new circular warning remittance transfer providers that falsely advertising the cost or speed of sending a remittance transfer can violate federal law. The circular includes guidance that applies to both traditional providers of international money transfers and “digital wallets” that offer the ability to send money internationally from the United States. 


Some context 

Under the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act (Dodd-Frank Act), remittance transfer providers are generally required to disclose certain information to consumers prior to payment for a transfer and also when payment is made. 

In addition, remittance transfer providers must ensure that their marketing practices do not violate the prohibition of unfair, deceptive, or abusive acts or practices outlined in the Consumer Financial Protection Act (CFPA). 


Key takeaways  

The circular highlights several marketing practices related to sending international money transfers that may violate the CFPA’s prohibition on deceptive acts or practices. 

These practices include falsely advertising a “no fee” or “free” service, hiding promotional conditions in fine print, and misleadingly advertising the time it takes for transfers to be completed. 


What’s next? 

Moving forward, firms should note the various actions the CFPB has already taken in this field. 

In October 2023, the CFPB issued a consent order against Chime, finding the company made misleading statements in advertisements about the speed and cost of its services. Supervision conducted by the CFPB also found that providers of international money transfers made false and misleading representations about the speed of remittance transfers. 


Click here to read the full RegInsight on CUBE’s RegPlatform  


ESMA issues practical guidance for revised MiFIR transition 

The European Securities and Markets Authority (ESMA) has released a statement to provide practical guidance and support for the transition and consistent application of the revised Markets in Financial Instruments Regulation (MiFIR). This comes in response to the changes introduced by Regulation (EU) 2024/791 (the “MiFIR review”) and Directive (EU) 2024/790 (the “MiFID II review”), which came into effect on 28 March 2024. 


Some context 

Article 54(3) of MiFIR, as amended by the MiFIR review, states that the current delegated acts will continue to be applied until they are revised. 

However, ESMA has received numerous queries from stakeholders regarding the provisions that will apply from the date of the MiFIR review. In order to address these concerns, ESMA recognises the need for public guidance, particularly regarding provisions that are not yet specified in delegated regulations, provisions that differ substantially between MiFIR and the current delegated regulations, and provisions that require an appropriate lead time for IT deployments. 

This statement complements the interpretative draft notice on the transitional provision of the MiFIR review issued by the European Commission and aims to provide practical guidance on key areas to facilitate an orderly transition and consistent application of MiFIR. 


Key takeaways 

The statement covers guidance on equity transparency, non-equity transparency, the systematic internaliser (SI) regime, designated publishing entities (DPEs), and reporting. 

Regarding the volume cap, ESMA confirms that DVC data will continue to be published, with the next publication scheduled for early April. 


What’s next? 

ESMA will develop draft technical standards as required by the revised MiFIR within the set deadlines. ESMA also intends to provide more detailed guidance, including a mapping of the applicable provisions in due course. 

Click here to read the full RegInsight on CUBE’s RegPlatform  

HKMA issues Dear CEO letter on preparation to T+1 

The Hong Kong Monetary Authority (HKMA) has issued a letter to authorised institutions (AIs) reminding them to prepare for the upcoming introduction of the shortened settlement cycle in the US. Starting from May 2024, the standard settlement cycle for most broker-dealer transactions will be reduced from two business days after the trade date (T+2) to one business day after the trade date (T+1).

This change will take effect on 28 May 2024 and applies to various financial products traded in the US, such as equities, bonds, exchange-traded funds, and options. The HKMA also highlights that Canada has announced a similar move, which will be implemented from 27 May 2024.

In light of these developments, the HKMA advises AIs to take the following actions: 

  • Carefully evaluate their capability to settle the relevant transactions on a T+1 basis. 
  • Enhance their operations, systems, and infrastructure before the shortened settlement cycle begins. 
  • Pay attention to their funding arrangements and ensure sufficient funds are available for timely settlement of affected securities transactions. 
  • Raise awareness among their clients about the shortened settlement cycle and its potential implications for them. 
  • Consider deploying additional staff and extending working hours across different functions to handle a possible increase in workload during the initial implementation period. 

The HKMA will continue to monitor the situation closely and may approach individual AIs to assess their readiness for implementing the T+1 settlement cycle. 


Click here to read the full RegInsight on CUBE’s RegPlatform