Greg Kilminster
Head of Product - Content
SFC endorses new ESG code
Hong Kong’s Securities and Futures Commission (SFC) has endorsed a new voluntary code of conduct (VCoC) for environmental, social, and governance (ESG) ratings and data products providers in the region. This industry-led initiative, which aims to strengthen transparency and reliability in the ESG space, was formulated by the Hong Kong ESG Ratings and Data Providers VCoC Working Group (VCWG) and supported by the International Capital Market Association (ICMA).
Some context
In recent years, the demand for ESG data has surged as financial institutions integrate sustainability considerations into their investment strategies. However, concerns about greenwashing and the quality of ESG data have prompted calls for greater oversight and standardisation. To address these issues, the SFC, alongside other key stakeholders, has supported the development of a voluntary framework that aligns with international best practices.
The new code follows a consultation period that concluded in June 2024 and is designed to meet recommendations set out by the International Organisation of Securities Commissions (IOSCO). By ensuring consistency with global standards, the VCoC is expected to foster trust in the ESG market, not just in Hong Kong but across borders.
Key takeaways
Voluntary framework: The VCoC is a non-mandatory code aimed at ESG ratings and data providers operating in Hong Kong. Its objective is to promote high-quality, reliable, and transparent ESG information to market participants.
Public accountability: Providers that sign up to the VCoC are required to publicly share a self-attestation document, outlining their compliance with the code’s principles. This transparency is intended to aid asset managers and other users in conducting due diligence and ongoing assessments of ESG offerings.
Alignment with global standards: The code reflects international best practices, ensuring it is interoperable with ESG frameworks in other major financial jurisdictions. It builds upon IOSCO’s guidelines: widely recognised as the benchmark for ESG data quality.
Gradual implementation: ESG ratings providers and data products providers will have six and twelve months respectively to implement the necessary measures under the code.
Next steps
The SFC encourages asset managers and other financial institutions to consider ESG providers' adherence to the VCoC when selecting products. This, according to SFC Chief Executive Julia Leung, will play a key role in tackling greenwashing and bolstering Hong Kong’s position as a leader in sustainable finance.
As the VCoC comes into effect, further oversight and updates may emerge as both the SFC and the ICMA continue to promote best practices in the ESG market.
Click here to read the full RegInsight on CUBE's RegPlatform
DFSA fines firm for misconduct
The Dubai Financial Services Authority (DFSA) has imposed significant fines on OCS International Finance Limited (OCS) and its CEO, Christian Franz Thurner, following an investigation that uncovered the mismanagement of US$46 million in client funds. The DFSA’s investigation revealed a series of serious breaches, including misleading the regulator and a bank. OCS has been fined US$720,905, while Thurner faces a personal fine of US$186,003 and has been banned from holding any financial services-related role in the Dubai International Financial Centre (DIFC).
A pattern of breaches
The DFSA's investigation highlighted a troubling pattern of misconduct at OCS. Before being fully authorised by the DFSA, the firm mishandled US$46 million of client funds. Additionally, OCS failed to keep these funds in a separate client account, using them instead for unauthorised purposes.
To try to conceal these activities, OCS provided its bank with false documentation, misrepresenting the true nature of its financial dealings. Despite having agreed to void a financial agreement with a client, OCS submitted a falsified version of the agreement to the bank.
Further breaches were uncovered when OCS provided misleading information to the DFSA during the course of its investigation. This included concealing the fact that Thurner had previous convictions and submitting incorrect details about the client’s bank account opening dates. OCS and Thurner also failed to provide the regulator with key bank statements, obstructing the investigation.
Penalties and prohibitions
In addition to the financial penalties, Thurner has been banned from holding any position within a DFSA-authorised entity or carrying out any financial service-related activities in the DIFC. The regulator found that Thurner was knowingly involved in many of OCS’s violations and had actively obstructed the
investigation.
The DFSA stated that these breaches not only violated its principles for authorised firms and individuals, particularly those related to integrity, but also posed a threat to the trust and stability of the DIFC as a leading financial centre in the region.
The DFSA's Chief Executive, Ian Johnston, emphasised the importance of maintaining integrity in the DIFC. He reiterated that the DFSA will continue to take strong action against firms and individuals who fail to uphold high standards of conduct, particularly in relation to the management of client funds.
Click here to read the full RegInsight on CUBE's RegPlatform
SEC enforcement director moves on
The Securities and Exchange Commission (SEC) has announced the departure of Gurbir S Grewal, Director of the Division of Enforcement, with effect from 11 October 2024. Grewal, who has led the Division for the past three years, will be succeeded by Sanjay Wadhwa, the current Deputy Director, who will serve as Acting Director. Sam Waldon, the Division’s Chief Counsel, has been named Acting Deputy Director.
A tenure marked by strong enforcement
Grewal’s leadership of the Enforcement Division has been defined by a robust focus on investor protection and accountability. Under his direction, the SEC recalibrated penalties to ensure they provided meaningful deterrence, addressing emerging risks in the markets while holding issuers, insiders, and gatekeepers accountable for securities law violations. During his tenure, the SEC recommended more than 2,400 enforcement actions, resulting in more than $20 billion in disgorgement and penalties and in excess of $1 billion in whistleblower awards.
A key area of focus for Grewal was tackling misconduct in the fast-evolving crypto sector. His leadership saw the SEC take over 100 enforcement actions against crypto platforms for failing to comply with registration requirements, targeting some of the largest platforms globally. The Division also prioritised protecting investors in private funds, rooting out insider trading, and addressing conflicts of interest and inadequate disclosures.
Leadership changes
Sanjay Wadhwa, who has been with the SEC for over two decades, will take over as Acting Director of the Enforcement Division. Wadhwa has held several senior roles within the Commission, including leading investigations into institutional insider trading and overseeing enforcement efforts that resulted in significant penalties for violations of securities laws. He has been a key figure in implementing the SEC’s enforcement strategy alongside Grewal.
Sam Waldon, who has served as Chief Counsel since 2022, will assume the role of Acting Deputy Director. Waldon brings extensive experience from both his tenure at the SEC and private practice and is known for providing critical legal advice on enforcement matters.
Click here to read the full RegInsight on CUBE's RegPlatform
Bank of England’s Sasha Mills outlines digital asset innovations
In a speech at Digital Assets Week in London, Sasha Mills, Executive Director of Financial Market Infrastructure at the Bank of England, discussed the central bank's approach to supporting innovation in digital assets and payments while ensuring financial stability. Mills highlighted several key initiatives designed to capitalise on emerging technologies, including blockchain and programmable ledgers, as part of the Bank’s efforts to adapt to the evolving financial landscape.
Mills opened her remarks by acknowledging the growing importance of digital assets in the financial system, saying, “Innovations in digital assets and payments are inseparable from the goals we seek to achieve as the UK’s central bank.” She stressed the need for policymakers to stay ahead of these developments, warning that “the speed at which certain markets and activities become systemic may outpace the ability of policymakers to build infrastructures and frameworks to respond.”
The Digital Securities Sandbox
A central focus of Mills’ speech was the launch of the Bank of England’s Digital Securities Sandbox (DSS): “an exciting joint initiative between the Bank and the Financial Conduct Authority.” The DSS is designed to allow innovators to test new technologies, such as programmable distributed ledgers, in a regulated live environment.
Mills noted that the DSS would help address one of the most pressing questions facing regulators: how to keep pace with the rapid innovation in digital assets. “When people ask me how governments and regulators can keep up with the breakneck pace of innovation in industry around digital assets, I immediately think of the DSS,” she said.
The DSS aims to unlock the potential benefits of digital assets for financial markets, such as improved efficiency in reconciliation, trading, and settlement processes. “Small efficiency gains can add up to large benefits in aggregate,” Mills explained, noting that faster, cheaper, and more streamlined processes could benefit participants like pension funds and companies that rely on capital markets for investment. The DSS also opens up opportunities for a broader range of asset classes to be traded, potentially improving market liquidity through innovations like asset fractionalisation.
However, Mills also noted the importance of implementing this technology safely. “The application of programmable ledgers in finance is still relatively new – implementing it in critical financial markets could be risky,” she cautioned. To manage these risks, the DSS will operate in stages, with limits that increase as firms demonstrate higher standards of resilience.
The DSS also marks a first for the Bank by developing regulation within a sandbox environment. This will allow the Bank to shape a regulatory regime that is “innovation-friendly, proportionate, and fit for purpose,” while maintaining monetary and financial stability. Mills also noted that the DSS has been expanded to include non-GBP denominated securities, aligning it more closely with the UK’s multi-currency securities market.
Wholesale payments innovation
Mills also discussed innovations in wholesale payments, emphasising the need for digital assets to be underpinned by compatible settlement systems. The Bank of England is currently engaged in a multi-year programme to enhance its Real-Time Gross Settlement (RTGS) service, with the aim of supporting tokenised asset transactions. “We are enhancing our capability to supply wholesale central bank money for settlement,” Mills explained, highlighting the introduction of Omnibus Accounts, which facilitate settlement backed by central bank money.
Considering ongoing developments in the digital asset space, Mills noted the need for the Bank to explore how central bank money could interact with new technologies, such as programmable ledgers. One option under consideration is the use of a wholesale central bank digital currency (wCBDC) for settling tokenised transactions. “If central bank money is unable to interact with new technologies, there could be a risk of high-value wholesale settlement activity moving away from central bank money to private settlement assets, weakening financial stability,” she warned.
Looking ahead, the Bank of England is also considering extending the operating hours of its RTGS system and building a synchronisation interface to allow coordination between external programmable ledgers and central bank money settlements. These initiatives form part of a broader roadmap for future changes in the wholesale payments landscape, developed with input from industry stakeholders.
Collaborating with industry
Throughout her speech, Mills emphasised the importance of close collaboration between the Bank of England and the private sector to ensure that innovations in digital assets and payments are introduced safely and effectively. She encouraged the industry to engage with the Bank on its approach to innovation, stating, “We see this as the start of an important conversation with industry, rather than the Bank setting out its end-state view on all things innovation.”
Mills also highlighted the need for a cautious approach to adopting new technologies, recognising both the opportunities and the risks they present. “Innovations in digital assets and payments can help us meet our objectives,” she said, but added that the Bank must “be alive to the risks.”
Conclusion
In her closing remarks, Mills reiterated the Bank of England’s commitment to promoting innovation in digital assets while safeguarding financial stability. She emphasised that the initiatives launched by the Bank, including the DSS and the renewed RTGS system, are crucial steps towards creating a financial system that is both innovative and secure.
“Industry’s engagement on the launch of our Digital Securities Sandbox, the renewal of RTGS, our approach to innovation in money and payments, and experimenting on the best approach to facilitating innovation in wholesale payments, will be crucial to achieving this,” Mills concluded.
Click here to read the full RegInsight on CUBE's RegPlatform
Report recommends improvements in Singapore’s AML framework
In a new report, the Inter-Ministerial Committee (IMC) on Anti-Money Laundering (AML) has presented a comprehensive set of recommendations aimed at reinforcing Singapore’s defences against money laundering. This follows one of the largest money laundering cases globally, uncovered in August 2023, where more than $3 billion in assets were seized, and ten individuals were arrested and convicted. The IMC recognises that ongoing efforts are needed to counter increasingly sophisticated financial crimes.
The IMC was tasked with reviewing Singapore’s AML framework in light of the 2023 case.
Main summary
The IMC’s report is structured around three key pillars of the AML strategy: proactive prevention, timely detection, and effective enforcement. The IMC emphasises the importance of these measures not just as a response to recent criminal activities but as an ongoing, dynamic approach to safeguarding Singapore’s financial integrity.
- Proactive prevention: To prevent illicit funds from entering Singapore’s financial system, the IMC has recommended strengthening the AML obligations of gatekeepers, such as financial institutions, real estate professionals, and corporate service providers. The report also highlights the introduction of the Digital Securities Sandbox—an initiative designed to test innovations like blockchain and distributed ledgers in a regulated environment. This sandbox aims to help the financial sector embrace emerging technologies while ensuring regulatory compliance.
- Timely detection: The report stresses the importance of improving information sharing between government agencies and private sector entities. One key initiative is the Collaborative Sharing of Money Laundering/Terrorism Financing Information and Cases (COSMIC) platform, which allows banks to share information on customers with suspected criminal activity. These measures, combined with enhanced capabilities for data analysis, aim to detect illicit activities early and minimise the impact on the financial system.
- Effective enforcement: The IMC also focuses on tightening enforcement measures. Recommendations include enhancing the penalties for gatekeepers who fail to meet AML standards and improving the tools available to law enforcement agencies. The National Asset Recovery Strategy, published in June 2024, is another critical component of this effort, designed to maximise the confiscation of illicit assets and provide restitution to victims.
The IMC emphasises that while Singapore has a robust AML framework, money laundering remains a global challenge, and bad actors will continuously seek to exploit vulnerabilities. The report concludes that sustained vigilance, regulatory updates, and coordinated actions are essential to maintaining Singapore's reputation as a trusted financial hub.
Click here to read the full RegInsight on CUBE's RegPlatform
ESMA consults on Markets in Financial Instruments Regulation (MiFIR) RTSs
The European Securities and Markets Authority has issued MiFIR: Consultation On The Review of regulatory technical Standard (RTS) 22 On Transaction Data Reporting and On Order Book Data. ESMA is seeking feedback from the industry on the proposed revision of the relevant technical standards RTS 22 and RTS 24.
This CP contains two different parts each covering one draft technical standard: (i) proposed amendments to RTS 22 in relation to transaction reporting and (ii) proposed changes to RTS 24 in relation to order book data.
The deadline for comments is 3 January 2025.
Click here to read the full RegInsight on CUBE's RegPlatform