Regulations Round Up – August 2023

July was an important month for financial regulations as key regulators made crucial announcements. This happened as global stocks surged to the highest level in months while cryptocurrency consolidation continued. 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 2023.

FCA and influencers

A key challenge in the financial industry is the growing influence of social media influencers. A few months ago, Kim Kardashian was fined $1.3 million by the Securities and Exchange Commission (SEC) for promoting a cryptocurrency.

Therefore, regulators have recently announced plans to regulate how influencers use social media to promote financial services. In a statement in July, the Financial Conduct Authority (FCA) said that it would ramp up its efforts to combat illegal and non-compliant financial promotions. The proposed regulations will regulate the information that companies and individuals use when promoting financial products online. In a statement, Lucy Castledine, the director of Consumer Investments at the FCA said:

We want people to stay on the right side of our rules, so we’re updating our guidance to clarify what we expect of firms when marketing financial products online. And for those touting products illegally, we will be taking action against you.

Ripple partial victory

The biggest regulatory story in July was the outcome of the SEC vs Ripple case in the United States. In a statement, the judge overseeing the case ruled that Ripple Labs and its executives had broke the law when raising cash in 2013. The judge also ruled that XRP was not a security.

The latter was important because of the confusion in the industry over the definition of a financial security or digital commodity. Regulators like the Commodity Futures Trading Commission (CFTC) and the SEC have long argued that Bitcoin was a digital commodity. But they questioned whether tokens like Cardano and Polygon were securities.

Therefore, the ruling helped to provide some clarity about which cryptocurrencies were commodities and which were securities.

SEC blasts crypto exchanges

Following the heightened criticism over its role in the collapse of FTX, the SEC has taken an aggressive tone against cryptocurrency exchanges. It recently filed major lawsuits against Coinbase and Binance, two of the biggest players in the industry. In a new report by FT, the SEC had asked Coinbase to halt all crypto trading except Bitcoin.

The SEC continued to criticise exchanges in July. In an interview, Gary Gensler warned that many exchanges were providing securities without following the law. For example, he said that investors were not getting enough disclosures from the exchanges.

He stated that these platforms were often mixing funds and trading against traders in the market saying:

The platforms often are comingling and trading against you and have market makers that are on the other side of your trades. This is a field rife with fraud, rife with hucksters. There are good faith actors as well, but there are far too many that aren’t.

SEC makes AI proposals

Artificial intelligence is one of the fastest-growing themes this year. As a relatively new technology, growing adoption has caught many regulators off-guard. In a statement in July, the SEC proposed a new requirement to address the risks to investors from conflict of interest associated with using predictive data analytics by broker-dealers and investment advisors.

The rules mean that companies will need to evaluate and determine whether the use of certain technologies in investor interactions will have conflicts of interests that benefits companies ahead of the customers. As a result, companies will be required to eliminate or neutralise the effects of these conflicts. Also, it will have them have policies in place to address these issues.

UK banking regulations

Another important event that happened in July was in the UK, after Coutts controversially debanked Nigel Farage. The bank, which is owned by NatWest, decided to remove Nigel Farage as a customer in June. It attributed this to commercial reasons as well as social factors.

Other British banks then rejected Farage as a customer, leading to calls for new banking regulations to prevent people from being denied access to banking services. The proposed rules will make it difficult for banks to debank people. They will also force banks to provide more details about the accounts they deactivate.

FDIC warns banks

Meanwhile, in the United States, the Federal Deposit Insurance Corporation (FDIC) accused some banks of misreporting deposit data. In a letter, the regulator said that some banks had lowered the value of their uninsured deposits. A separate report by analysts at S&P Global noted that some banks had amended their financial statements to lower their uninsured deposits.

The announcement came as the US economy is dealing with the collapse of several banks in the US like Silicon Valley Bank, Signature Bank, and First Republic.

EU targets private credit

The European Union announced new measures to target the $1.5 trillion private credit industry. The bloc wants to limit the use of leverage, which officials believe will lead to more instability. Private debt funds and open-ended credit funds will face limits on the amount of borrowed funds they can invest. These measures will limit the actions of Wall Street firms like Apollo Global, Blackstone, and Carlyle. Regulators are concerned about the risks these companies present to the financial market as they are not regulated like banks.

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