Regulations Round Up – January 2024

The financial market capped last year well, with American and European equities sitting near their record highs. Cryptocurrencies also continued their uptrend, with Bitcoin rising over 150% in 2023 despite numerous regulatory challenges. As an agency specialising in financial services marketing, our team has rounded up the biggest changes that happened last month and what’s coming up in January.

UK and Switzerland financial services deal

One of the most important regulatory stories was a deal between the UK and Switzerland. The two countries agreed to recognize each other’s financial services laws, easing the challenges that have existed since Brexit happened. This was an important step since it capped about three years of negotiations. Jeremy Hunt, the Chancellor of the Exchequer summarized the deal, saying:

It is an agreement based on deference: Swiss firms can operate inside the UK under Swiss rules and UK firms can operate inside Switzerland under UK rules. This is a light-touch, progressive, future-leaning way of opening access.

No spot Bitcoin ETF yet

The other important regulatory story during the month was the long-running battle about a spot Bitcoin ETF. The Securities and Exchange Commission (SEC) did not provide any new information about it. Still, the agency met with Blackrock, the biggest asset manager in the world with almost $10 trillion in assets. It also met with Nasdaq, the second-biggest exchange in the US after the NYSE. The meeting, which followed a similar one in November, was an important one as the agency assesses the safety of these assets.

The SEC is reviewing Bitcoin ETFs from several companies like Blackrock, Fidelity, Invesco, Ark Invest, and Franklin Templeton. According to Bloomberg, the deadline for this approval is on January 10th. In it, the SEC could reject these proposals, approve them, or delay them again.

Hedge funds and SEC differ on short-selling

The Securities and Exchange Commission has been extremely busy during Joe Biden’s presidency. For example, the agency has proposed ending Payment for Order Flow (PFoF), a process that powers the stock market. It has also unveiled new rules to govern the short-selling market, where investors bet that stocks will retreat. These new rules have not been welcomed by hedge funds, who sued the agency in December.

In their lawsuit, industry groups representing the hedge fund industry, said that the SEC had introduced so many rules without considering their implications on the market. One of the measures the SEC implemented required security lenders to report all loans to short-sellers by the end of the day.

The other rule mandates institutional investors and hedge funds to report short-selling activity that is then shared publicly on an aggregated and delayed basis. In a statement, one of the plaintiffs said:

Despite our best efforts, the SEC decided to ignore the interconnected nature of these two rulemakings and failed to apply a consistent approach or principle to regulating these related markets.

SEC to continue pursuing Binance

The other notable regulatory event in December was also about the SEC. In a statement in court, the agency said that it would continue pursuing the company even after it settled with the Department of Justice (DoJ).

As part of the settlement, Binance agreed to plead guilty, pay $4.3 billion in fines, and oust Changpeng Zhao as the Chief Executive. CZ, as he is popularly known, is now waiting conviction in Seattle.

FCA fines continue falling

Meanwhile, in the UK, the Financial Conduct Authority (FCA) is not issuing as many fines as in the past. In a statement, the agency said that its fines in 2023 came in at 53 million pounds, the lowest level in over seven years. It had issued fines worth 216 million pounds in the previous year. This came in a year when the UK banking sector underwent scrutiny after Coutts locked Nigel Farage’s accounts. In the aftermath, Coutts and its parent company, NatWest, lost their CEOs due to public pressure.

India crypto regulations

India was also in the spotlight in December as the government continued to shine a spotlight on the crypto industry. In a statement, the financial regulator announced that it would block some of the leading exchanges in the country. Some of the affected names are companies like Binance, KuCoin, Huobi, and MEXC Global. The government is concerned that these companies are facilitating money laundering and that they are operating illegally in the country. The statement also added that registration will be mandatory for all companies operating in the country. There are now about 31 such companies.

Argentina deregulation drive

In Argentina, the new president, Javier Milei took measures to deregulate the economy. In a statement, he issued a strike on over 300 mandates that he believed were stifling the economy. He also announced sweeping layoffs in the public sector in a bid to save spending and narrow the deficit. Further, the president also launched a new asset-regularization regime, which included several crypto provisions. He hopes that these regulations will attract more crypto investors in the country.

ESMA highlights leverage risks

The European Securities Markets Authority (ESMA) continued to warn about the risks related to leverage in the financial sector. In a statement, Verena Ross, the head of the agency said that leverage risks had not abated. She said:

My view is that leverage and liquidity risks in funds remain as high as they were [in the past year]. This continues to be an area where we need to monitor very closely and react where we see risks.

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