Regulations Round-Up – June 2022

May was an eventful month for global assets. The biggest story was the remarkable collapse of Terra and its ecosystem, which cost investors over $40 billion. In the aftermath, investors and other market participants called for more regulatory action on stablecoins, including on holdings disclosures. As an agency specialising in financial marketing, our team has rounded up the top regulation changes in May, and now we’re looking at what’s coming up in June 2022.

Gary Gensler warns of more crypto turmoil

In response to the collapse of Terra LUNA and UST, the head of the Securities and Exchange Commission (SEC) reiterated his worries about the industry. Specifically, he warned that a lot of crypto tokens will fail and that many people will lose most of their holdings. The statement came after the SEC added 20 investigators and litigators to its unit dedicated to crypto and cybersecurity enforcement.

Still, American regulators face the challenge of defining what cryptocurrencies are. As a result, there have been battles among agencies like the Securities and Exchange Commission (SEC) and CFTC on how to regulate these assets.

SEC warning on fund names

The fund management industry is a large one in the United States. As a result, the SEC is tasked with ensuring that companies don’t have misleading names. In May, the SEC announced that it was planning amendments to address change of names in the industry. For example, fund names that focus in a particular type of investment will be required to invest at least 80% of the value of these investments to those assets. Gary Gensler said:

“A lot has happened in our capital markets in the past two decades. As the fund industry has developed, gaps in the current Names Rule may undermine investor protection.”

SEC on ESG rules

A key theme in the financial market recently has been on Environment, Social, and Governance (ESG) rules. In its battle against greenwashing, the SEC has come out with rules that will prevent misleading and deceptive claims by American funds. The new rules come at a time when many firms have been accused of profiting from inaccurate ESG claims. Once unveiled, funds will be asked to be more specific about their ESG specifications.

ASIC binary options intervention order

Regulators have been battling binary options products for a while. They have even been banned in a number of countries, especially in Europe. Australia’s ASIC banned binary options in May 2021 after realising that between 74% and 77% of active traders lost money when trading these options.

At the same time, loss-makers lost $15.7 million compared with $1.7 million profits made by profitable traders. ASIC banned these options until October 2022. In a statement, the regulator said that it would seek to extend the ban until October 2031.

BaFin calls for more DeFi regulations

The Decentralized Finance (DeFi) industry is one of the key sectors in the blockchain industry. While the industry is extremely large, there are concerns about its regulations. In May, a BaFin official called for an innovative regulation for the sector in the European Union. In a statement, Birgit Rodolphe, a member of BaFin said:

“One thing is clear: the clock is ticking. The longer the DeFi market goes unregulated, the greater the risk for consumers, and all the greater is the danger that critical offers that have systemic relevance will establish themselves.”

The statement came at a time when the country’s finance ministry gave the agency more independence in conducting its affairs. The new freedom came at a time when the agency’s reputation was battered following the collapse of Wirecard.

Another notable event was that BaFin announced that it was shelving its planned rules for classifying investment funds as sustainable. The agency cited the impact of the ongoing crisis in Ukraine and the difficulty of classifying these assets in ESG standards.

FCA listing reforms

The UK has had a challenge attracting new public listings in the London Stock Exchange (LSE). In a statement in May, the FCA said that it was planning reforms to boost the number of listings. In one of the rules under consideration, companies wishing to list in the UK will not need to choose between two different segments with different branding and standards. Instead, they will need to select one criteria. The Director of Market Oversight said:

‘The rules for companies who want to list here have not changed since the 1980s. Now is a good time to have an open conversation to make sure our rules are fit for the future, so we have a more accessible, competitive and growing market that is attractive to a diverse range of companies.’

Another key issue by the FCA was on money market funds. The FCA and Bank of England published a joint statement that discussed these investments. Their goal was to assess the state of MMFs and identify some of the likely improvements.

Japan’s FSA study on DeFi

Like other top regulators, those in Japan are also considering the impacts and the future of the DeFi industry. In May, those in Japan delivered a paper in which highlighted the potential risks of the industry. It also highlighted points on stablecoins and the key challenges involved. They are working on regulations to make the industries safer.

MAS partners with SIF

The Monetary Authority of Singapore announced a partnership with the Swiss State Secretariat for International Finance to partner on cross-border data transmission, storage, and processing of data. The goal of this partnership will be to enable data flows within the two countries, support the free choice of location for data storage, and to protect user data.

Hong Kong proposes changes to position limit regime

In Hong Kong, the Securities and Futures Commission (SFC) launched a consultation on the proposed changes to position limit regime for listed futures and options contracts. SFC’s CEO said:

“The position limit regime is essential to prevent the build-up of positions which may threaten the stability of the Hong Kong financial market. The proposed changes will address the needs of the market and better align the regime with the SFC’s regulatory policies and objectives.”

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