The financial market had several events that attracted regulatory scrutiny in June. The near-collapse of Celsius and the challenges by Three Arrows Capital and BlockFi attracted many regulators. The consensus among some, is that the crypto industry should be regulated in order to protect individual and institutional investors. As an agency specialising in financial marketing, our team has rounded up the top regulation changes in June, and now we’re looking at what’s coming up in July 2022.
MAS to be tough on crypto
Singapore has had relatively lax crypto regulations in the past decade. The country’s leaders wanted to attract crypto companies, mostly from China and other Asian countries. Some of the most prominent blockchain projects that have a strong presence in Singapore are Crypto.com, OKEx, and VeChain.
This approach could be about to change. In a statement in May, Sopnendu Mohanty of the Monetary Authority of Singapore (MAS) said that the regulator will be “brutal and unrelentingly hard” on the industry.
His statement came after MAS co-launched a centre of excellence in the city to work on its central bank digital currency (CBDC). He said that he expects that the currency will be incorporated in the financial industry in the next few years.
FCA to regulate BNPL
The Buy Now Pay Later (BNPL) industry has had a lot of growth in the past few years. BNPL companies allow people to shop and then pay in equal instalments. Recently, however, many players in the industry like Klarna, Affirm, and Zip have come under immense pressure as interest rates have risen.
In a statement in June, HMT said that it plans to bring the industry within the purview of UK’s Financial Conduct Authority (FCA). The proposal will also push companies in the short-term interest free credit (STIFC) to the FCA. These regulations will introduce several points to the BNPL industry. For example, the FCA will regulate all advertising and promotions. It will also apply rules on affordability and treatment of borrowers in default.
Meanwhile, the FCA announced that it will abolish phoenixing by regulated claims management companies. Phoenixing happens when individuals from financial services companies go out of business but reappear later and change companies. The FCA said that its new regulations of the industry will come into force on July 7.
Gary Gensler on cryptocurrency regulations
Gary Gensler continued his focus on cryptocurrencies. In a statement, the chair of the Securities and Exchange Commission (SEC) said that he was looking to strike agreements with other financial agencies. The goal is to prevent companies in the industry from slipping through the fragmented regulatory structure.
One of the main regulators the SEC is looking at is the Commodities and Futures Trading Commission (CFTC). The SEC usually regulates securities while the CFTC typically focuses on derivatives. Therefore, by working together, the SEC and the CFTC will be in a good position to enforce various aspects of the crypto industry.
SEC and PFOF
The SEC made headlines in June when it made an announcement on Payment for Order Flow (PFOF). This is one of the most important features in the financial market since it lets brokers like Robinhood and Schwab route their orders through intermediaries known as market makers. Market makers like Citadel Securities then pay a fee to these companies.
PFOF have made it easier for stock brokers to offer their service for free. Now, the SEC wants to change the business model. In a statement, the SEC wanted to make it possible for brokers to use an auction model where orders are filled by exchanges.
The agency said that such a model will help give customers a better deal. However, many exchanges argue that the model helps to reduce trading cost by removing commissions and by ensuring the customers get a better deal on pricing.
SEC on index providers
Index providers are some of the most important players in the financial industry. Companies like MSCI, Bloomberg, and S&P Global provide indices that are then tracked by all ETF firms. ETFs then own about a fifth of all public companies in the US. In a statement, the SEC said that it was seeking more information on these companies. Its goal is to reclassify them from data publishers to financial advisors. Gary Gensler said:
“The role of [index providers] in today’s markets raises important questions under the securities laws as to if they are providing investment advice rather than merely information.”
ESMA on greenwashing
The European Securities and Markets Authority (ESMA) warned companies to clean up on their climate change policies. The statement was made by Verena Ross, the chair of ESMA, who said that companies should make efforts to avoid misleading disclosures about the greenness of their products.
The agency also guided companies not to mislead investors when using terms like “sustainable”, “ESG”, and “green”. The statement came after DWS, the investment arm of Deutsche Bank was investigated on these claims.
Australia BNPL and crypto regulations
As in the United Kingdom, BNPL has become highly popular in Australia where companies like Zip and AfterPay dominate. In a statement, the new finance minister said that the government will forge ahead with its plans to push the industry under credit laws. The first agenda for the government is to fill the seat that was left vacant when the then chair resigned. After that, the government will press on with regulating the BNPL and cryptocurrency industry. The goal is to protect customers who use these products.
Meanwhile, like ESMA, ASIC focused on greenwashing as it released a statement on how superannuation and managed funds can avoid the practice. It has been a common practice in Australia, where superannuation funds promote funds as being green while they are not.
BaFin on digital securities license
The Federal Financial Supervisory Authority of Germany reminded companies that want to issue digital securities on the upcoming deadline. All companies in the industry are required to register and apply within the new regulations. Companies that fail to register by the deadline will be required to submit a new permit application that includes several requirements like their IT security systems.
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