Regulations Round-Up – April 2023

March was an important month for the financial markets as the banking sector went through its most challenging phase in over a decade. Top banks like Silicon Valley Bank, Signature, and Credit Suisse collapsed, leaving regulators looking for answers about the situation. Meanwhile, the Nasdaq 100 index moved into a bull market while Bitcoin inched closer to $30,000. As an agency specialising in financial marketing, our team has rounded up the top regulation changes in March, and now we’re looking at what’s coming up in April 2023.

CFTC crypto derivatives

The Commodity Futures Trading Commission (CFTC) made headlines in March when it launched a major lawsuit against Binance, the biggest company in the crypto industry. The lawsuit accused Binance and Changpeng Zhao of offering crypto derivatives services to American customers without registering with it.

According to US law, all derivatives providers in the US needs to register with the CFTC to safeguard their customers. That is important because of the substantial risks involved in the industry.

Binance responded by arguing that it did not provide services through its main platform to US customers. Instead, its services in the country happen through Binance US, which is regulated and compliant with American law.

SEC focuses on staking

The Securities and Exchange Commission (SEC) continued focusing on the cryptocurrency industry in March. Its main focus was on staking, which is a popular approach in the crypto industry. It involves delegating tokens to secure proof-of-stake (PoS) networks like Ethereum, Polkadot, and Cosmos.

In February, the agency settled with Kraken, in a deal that the company paid $30 million, and ceased to provide these solutions. And in March, Coinbase received a letter from the SEC in which it warned that it will bring a lawsuit relating to its staking solutions. If the SEC succeeds, it means that many Americans will not have access to staking solutions, which provides them with yields for owning digital assets. In a statement, the company’s legal officer said:

If needed, we welcome a legal process to provide the clarity we have been advocating for and to demonstrate that the SEC simply has not been fair or reasonable when it comes to its engagement on digital assets.

SEC proposes new rules for financial firms

Cybersecurity has become an important area of focus as geopolitical tensions rise. Many countries, including the US, Russia, and North Korea, are investing heavily to gain an edge in the industry. Financial companies could be hurt by cybersecurity issues. In a statement, the SEC announced new cybersecurity rules for brokers and asset managers.

The new rules mean that these companies will need to inform their customers when there is a data breach in their institutions. This notification will need to happen no more than 30 days after the breach happens. Further, the rule will be accompanied by other expansions to the 24-year rules that govern financial firms’ protection of customer data.

Tougher banking rules

The collapse of Silicon Valley Bank and Signature were partly attributed to lax regulations in the banking sector. Critics cited a law change that happened in 2018 during the Donald Trump’s administration. These rules exempted banks of a certain size from strict financial regulations that govern the country’s biggest banks like Goldman Sachs and Morgan Stanley.

The White House and other regulators called for more banking rules to target banks with between $100 billion and $250 billion in assets. These rules mean that these banks, which are about 20, will go through annual stress tests and more capital and liquidity requirements. Further, the administration asked regulators to complete unfinished rules from the Dodd-Frank financial rules. Specifically, the rules will curb compensation packages that encourage excessive risk-taking.

FCA focuses on greenwashing

Greenwashing has become a popular feature in the financial industry these days. It refers to a situation where companies boost their green credentials to attract more investors. In a statement, the Financial Conduct Authority (FCA) warned index providers like FTSE and MSCI that they were fuelling greenwashing. The warning came after the regulator identified widespread failings with environmental, social, and governance rules. In its statement, the regulator said:

One of our observations was that the subjective nature of ESG factors and how ESG data and ratings are incorporated into benchmark methodologies could increase the risk of poor disclosures.

Currency swap pricing change

Another major regulatory update in March was the proposed move from the London Interbank Offered Rate (LIBOR). In the past, pricing of currency swap were offered by LIBOR, which has been criticized for years.

Therefore, as part of remedying the situation, the industry will transition to the Secured Overnight Financing Rate (SOFR) after this date. SOFR is a broad measure of the cost of borrowing cash overnight collateralized by Treasury securities. SOFR includes all trades in the Broad General Collateral Rate plus bilateral Treasury repurchase agreements.

FCA warns on payment services

The FCA warned that it will shut down payment companies that offer banking solutions. In a letter to 291 chief executive officers of such companies, the regulator warned that it will shut down these companies unless they fix their unacceptable risks to customers and the wider system. In a statement, the director of payments at the FCA said:

The FCA remained concerned that many payments firms do not have sufficiently robust controls and that, as a result, some firms present an unacceptable risk of harm to their customers and to financial system integrity”, adding that the cost of living crisis had exacerbated “the risk of customer harm.

SEC and earnings manipulation

American publicly-traded companies are required by law to publish their results every quarter. These firms tend to be under so much pressure from their shareholders to meet regulations. In a statement, the SEC warned that it will crack down on earnings manipulation by companies seeking to meet their targets. This will see the agency bring more lawsuits against companies it believes manipulate their earnings reports. As an agency specialising in financial marketing, our team has rounded up the top regulation changes in March, and now we’re looking at what’s coming up in April 2023.

ESMA targets copy trading

Copy trading has become a popular service offered by forex and CFD brokers. It makes it possible for inexperienced traders to copy trades from highly-experienced traders. In a statement, the European Securities and Markets Authority (ESMA) warned that it will introduce new rules to govern the service in a bid to protect customers. It will ensure that copy trading services works in compliance with existing MIFID regulations.

If you enjoyed our Regulations Roundup April 2023, be sure to hit the share button. Love this type of content and want it for your FX broker or crypto exchange? We hear you. Contact the Contentworks team for financial services content.