Eva Dauberton
News Editor
FCA secures funds from illegal investment firm
The Financial Conduct Authority (FCA) has obtained court approval to recover £1.6 million from Argento Wealth Ltd (AWL) and its director, Daniel Willis. This follows civil proceedings initiated by the FCA against AWL and Willis for promoting two alleged unlawful investment schemes. AWL is not an FCA authorised firm.
The FCA's allegations against AWL include unauthorised acceptance of approximately £2.8 million in deposits and facilitating investments in EMB Fund Limited (EMB) in violation of financial promotion restrictions. Willis is implicated in these activities.
Though AWL and Willis have not admitted to the FCA's allegations, they have agreed to remit funds to the FCA for redistribution to investors. However, further court hearings are required to determine the distribution modalities and beneficiaries, a process that may take time.
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SEC fines firm $6.5 million for off-channel communications
Senvest Management LLC, a registered investment adviser, has been fined $6.5 million by the Securities and Exchange Commission (SEC) for failing to maintain and preserve certain electronic communications.
This is yet another case of US regulators cracking down on off-channel communications.
According to the Commission’s order, from January 2019 to December 2021, Senvest employees at various levels of authority engaged in internal and external communication regarding company business using personal texting platforms and other non-Senvest messaging applications, which went against the firm’s policies. Additionally, Senvest failed to properly maintain or preserve these off-channel communications as required under federal securities laws and the firm’s own policies and procedures.
Eric Werner, Director of the Fort Worth Regional Office, said: “The Commission continues to focus on regulated entities’ compliance with the recordkeeping requirements. Adherence to these requirements is essential for the Commission to effectively exercise its regulatory oversight and enforce the federal securities laws.”
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CISA proposes new cyber incident reporting rules for critical infrastructure
The Cybersecurity and Infrastructure Agency (CISA) has published a notice of proposed rulemaking (NPRM) to outline its initial approach to the new reporting requirements under the Cyber Incident Reporting for Critical Infrastructure Act (CIRCIA). These proposals cover a wide range of sectors, including financial services.
Some context
CIRCIA, enacted in 2022, aims to establish a framework for the federal government to consistently gather reliable information on cyber incidents, enhancing their understanding of cyber threats across critical infrastructure.
Under the Act, CISA has been mandated to determine which entities fall under these reporting requirements and the information they must report.
Key takeaways
According to the NPRM, certain entities in critical infrastructure sectors, including financial services, will be required to report any covered cyber incidents and ransomware payments within 24 or 72 hours after discovery, depending on the incident’s nature. They will also be subject to record-keeping obligations. Additionally, the NPRM suggests enforcement measures in case an entity fails to comply.
For financial services entities, CISA acknowledges that they may already have reporting obligations to another federal regulatory agency, potentially resulting in duplicative reporting. As a result, CISA is considering a reporting exception that would allow entities subject to both CIRCIA and another reporting requirement to fulfil both regulations by submitting a single report to the federal government.
Next steps
Comments on the NPRM can be submitted until 3 June 2024, and the final rules are expected to be issued by October 2025.
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FCA publishes results of financial resilience survey
The Financial Conduct Authority (FCA) has published the results of its financial resilience survey carried out in October 2023.
The survey notes the regulator’s commitment, as outlined in its business plan, to reduce any harm arising from the failure of firms, working towards ensuring that:
- Firms ensure safekeeping of client assets and money to minimise loss or diminution risk.
- Firms maintain sufficient financial resources and have an orderly wind-down plan in place.
- Firms are prepared to increase capital or liquidity to withstand economic stresses if necessary.
Around 14,000 responses make up the survey from eight different sectors (buy-side, consumer finance, consumer investments, infrastructure and exchanges, insurance, payments and digital assets, non-bank lenders and administrators and sell-side).
The results of the survey for the period in question are summarised below.
Buy and sell-side businesses have the highest amount of liquidity resources under control, with consumer finance the least. The same pattern is visible for expected cash inflows and cash needs with buy-side estimating the largest difference of around £333,000 between cash inflows and fixed-costs outflows.
Payment and digital asset firms have negotiated more credit/payment extensions than other firms, but this figure was still below 3% of those firms in that sector which responded. Perhaps, unsurprisingly, the same sector reported the lowest net profit, but it was the non-bank lenders group who had the highest proportion of non-profitable firms (44%). This same group, along with the consumer finance firms, reported the highest proportion of firms anticipating a reduction in profits, each around 30%. The non-bank firms also reported the highest aggregate negative impact arising from the current macroeconomic environment.
Buy-side firms reported the highest median revenue, at just under £3m. Consumer finance firms reported the lowest median revenue at around £234k. Consumer finance firms also reported the highest number of firms who had received government-backed loan schemes.
From the beginning of 2024, the financial resilience survey has been replaced with the financial regulatory return.
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ESMA provides interim update on DLT pilot regime progress
The European Securities and Markets Authority (ESMA) has issued a letter to the European Commission, the Parliament, and the Council (ECOFIN) providing an interim update on the progress of the Distributed Ledger Technology (DLT) Pilot Regime. The letter includes information on the current status of applications received by national competent authorities (NCAs) and highlights the challenges and opportunities identified during the first year of implementation.
Some context
The DLT Pilot Regime has been in effect in the EU since 23 March 2023. It aims to develop cryptoassets that qualify as financial instruments and DLT market infrastructures while ensuring investor protection, market integrity, and financial stability.
The DLT Pilot is scheduled to run for a minimum of 3 years, with the potential for extension by the European Commission.
As part of its obligations under the DLT Pilot Regime, ESMA is required to publish annual interim reports to provide market participants with updates on market functioning, address any misconduct by operators of DLT market infrastructures, and update previous guidance based on the advancement of distributed ledger technology. The first report was initially expected to be published by 24 March 2024. However, ESMA has chosen to provide a letter instead, as DLT market infrastructures have yet to be authorised under the Regime.
Key takeaways
The letter primarily offers recommendations to the European Commission to enhance the effectiveness and competitiveness of the regime. These recommendations include suggestions regarding innovative solutions for cash settlement, the use of self-hosted wallets, the scope and thresholds of eligible DLT financial instruments, and the duration of the DLT Pilot Regime.
Next steps
ESMA will continue collaborating closely with the NCAs, including issuing opinions on DLT market infrastructure applications, and publish annual updates.
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FINRA publishes sanction guidelines
The Financial Industry Regulatory Authority (FINRA) has released its Sanction Guidelines, which outline the various disciplinary actions that can be imposed for different violations.
The guidelines do not set specific sanctions but aim to offer guidance to adjudicators to ensure consistency and fairness in their decision-making process. They can be helpful for firms to understand the range of possible sanctions and the factors adjudicators may consider.
These guidelines are effective as of the publication date and apply to all disciplinary matters, including ongoing cases.
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