The financial market was eventful in July as the US dollar surged to the highest level in over 20 years. Stocks rebounded and had the best monthly performance since 2020 while cryptocurrencies regained their $1 trillion market cap. Further, the European Central Bank (ECB) delivered its first interest rate hike in over 11 years. As an agency specialising in financial marketing, our team has rounded up the top regulation changes in July, and now we’re looking at what’s coming up in August 2022.
SEC cracks down on securities
The Securities and Exchange Commission (SEC) has been battling the cryptocurrency industry in the past few years. In December 2020, the regulator launched a major lawsuit against Ripple Labs for raising XRP tokens, which it sees as a security without following the law. The lawsuit has been ongoing since then.
In July, the SEC doubled down on this issue. In an interview with Bloomberg, Gary Gensler, the SEC chair noted that there was a lot of non-compliance in the crypto industry. He noted that many cryptocurrencies that exist are actually securities that should be under its supervision. In one of its key activities, it was reported that the agency was investigating Coinbase, one of the leading exchanges in the industry. The investigation is over the securities that the company offers in its platform.
Meanwhile, the SEC announced that it was working to register all cryptocurrency lenders in the United States. The announcement came after the collapse of several cryptocurrency lenders. Celsius, a company that had over $10 billion in assets filed for bankruptcy. Other firms like BlockFi also came under intense pressure until it was saved by FTX.
ESMA risk indicators for retail investors
The European Securities and Markets Authority (ESMA) published a report on the risks experienced by retail traders and investments. The report on key retail risk indicators (RRI) focused on inexperienced investors, use of digital tools by younger investors, and the ongoing trend of high trading volume during market stress periods.
ESMA has been focused on risks facing traders for a while. For example, MiFID II regulations involved several provisions to protect retail traders like rules on leverage and negative balance protection.
Meanwhile, ESMA teamed up with the European Banking Authority (EBA) to publish guidelines for the supervisory review and evaluation process of investment firms. The new guidelines included provisions on the business model, risks to capital and capital adequacy, and liquidity risk and adequacy.
Consumer Financial Protection Bureau (CFPB) on BNPL
The Buy Now Pay Later (BNPL) industry saw significant growth in the past few years. During this time, companies like Affirm, Klarna, and AfterPay have become major players in the industry. Apple has also integrated the solution in its Apple Pay product.
In a statement, CFPB announced that it was investigating players in the industry. Specifically, it is focusing on how large companies use customer data in processing these transactions. The CFPB is also worried about the rising fees in the sector and concentration by several large players. Other regulators focusing on the BNPL industry are UK’s Financial Conduct Authority (FCA) and Australia’s ASIC.
India and cryptocurrencies
India is one of the biggest economies in the world with a population of over 1 billion people. In the past few years, the country has struggled to deal with cryptocurrencies. As part of handling the sector, the government proposed high taxes for all crypto gains. In July, the government claimed that the Reserve Bank of India (RBI) was advocating for a complete banning of cryptocurrencies. The bank believes that digital currencies are exposing users and the government to significant risks.
As part of its banking oversight, the RBI has pushed banks to have more scrutiny for cryptocurrency transactions. Further, the Internet and Mobile Association of India, which had long advocated for cryptocurrencies warned about their risks. Meanwhile, in a report, the Financial Stability Board, an agency of regulators of G20 countries said that it will unveil rules in the coming months. The report said:
“The recent turmoil in crypto-asset markets highlights the importance of progressing ongoing work of the FSB and the international standard-setting bodies to address the potential financial stability risks posed by crypto-assets, including so-called stablecoins.”
Payments for Order Flow (PoPF) is a major issue in the financial industry. It is a practice that helps many brokers like Robinhood and Schwab provide their services for free. This happens since these companies route their orders through market makers like Citadel. In the United States, the Securities and Exchange Commission has proposed banning the practice.
In July, BaFin examined whether PPOF was a good practice. The report concluded that it had substantial benefits for smaller order volumes. However, for larger order volume and with lower liquidity on reference markets, these benefits were lost. As a result, BAFIN said that it shared concerns by ESMA although it rejected an outright ban. In a statement, the Chief Executive for Securities Supervision said:
“Before imposing a ban on payment for order flow, we as supervisors should first carefully analyse the impacts and consider less restrictive regulatory measures.”
AMF crypto regulations
In France, the financial regulator welcomed the process for creating the European framework for crypto-assets markets. The goal of these regulations is to ensure that the bloc has similar rules to regulate this fast-growing industry. As part of this agreement, the regulations will cover several areas like public offering and admission to trade tokens and stablecoins, provision of services on crypto-assets by providers, and prevention of market abuse.
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