February was a mixed month for the financial markets as the US dollar and bond yields bounced back. Stocks and cryptocurrencies wavered as concerns about interest rates rose. At the same time, regulators continued targeting key industries, especially cryptocurrencies. As an agency specialising in financial marketing, our team has rounded up the top regulation changes in February, and now we’re looking at what’s coming up in March 2023.
SEC investigates stablecoins
Stablecoins play an important role in the crypto industry since they make it possible for people to trade in digital assets easily. Tether and USD Coin have a combined market cap of over $100 billion. They are also risky assets, especially when they are not monitored well. One of the biggest crisis in 2022 was the collapse of Terra USD, which led to losses valued at over $40 billion.
In February the SEC said that it was investigating whether stablecoins violated investor-protection laws. Precisely, the SEC is investigating Paxos, the issuer of Binance USD, a leading stablecoin. In February, New York regulators asked Paxos to stop minting the stablecoin. However, analysts and experts believe that the SEC will decide against launching a lawsuit against Paxos and other stablecoin users. That’s because stablecoin holders don’t expect a return on their investment. All they want is the ability to convert their stablecoins to US dollars.
At the same time, the SEC will have to contend with the fact that the Commodity Futures Trading Commission (CFTC) and New York State Department for Financial Services have said that stablecoins were virtual currencies.
A likely remedy is to start regulating these stablecoin issuers like banks. This could include carrying out stress tests and ensuring that funds are audited on a periodic basis.
SEC intensifies its focus on crypto
The SEC, learning from last year’s failures, continued its focus on the crypto industry in February. The regulator focused on staking, which is a popular process in the crypto industry. It settled with Kraken, a leading crypto exchange for $30 million.
The SEC alleged that the company did not follow the right procedure when it offered the service. By not following the right procedure, the SEC alleged that Kraken put customer funds at risk. In a statement, Gary Gensler said:
Today’s action should make clear to the marketplace that staking-as-a-service providers must register and provide full, fair, and truthful disclosure and investor protection.
A complete staking ban would have a major implication of proof-of-stake cryptocurrencies like Ethereum, Cardano, and Solana.
SEC and non-GAAP disclosures
Publicly traded companies are required by law to furnish their investors with financial results every month. In most cases, companies publish GAAP and Non-GAAP results like revenue and EBITDA. The non-GAAP results can be volatile at times. Therefore, the SEC is increasing its focus on how companies calculate their non-GAAP measures. The goal is to ensure that these non-GAAP measures don’t mislead investors. In most cases, companies publish non-GAAP results to paint an extremely optimistic picture about their businesses.
The other important measure the SEC took in February was on ESG reporting. The agency wants to soften planned rules that require companies to report the effects of extreme weather and other costs related to global warming.
FCA targets bloggers
Global regulators are increasingly concerned about the role of social media in the financial markets. Most of them, including those in the United States, UK, and Australia, have announced measures to police the industry.
In the UK, the Financial Conduct Authority (FCA) told technology companies to do more to protect consumers against misleading social media promotions by bloggers and influencers. It also warned unauthorised fin-influencers to think carefully before they promote a financial product or service. The announcement came at a time when the cost of living crisis has pushed more people to risky financial assets. In a statement, the director for markets said:
This year, we will continue to put the pressure on people using social media to illegally promote investments, which put people’s hard-earned money at risk.
FCA to crack down on BNPL
The Buy Now Pay Later (BNPL) industry has grown in the past few years as the cost of living crisis has escalated. However, like other young industries, some analysts caution that the industry does not have enough measures in place to protect customers. The FCA announced measures to regulate the industry in a bid to protect consumers. In a statement, the agency said that the measures will include banning those that don’t follow the law.
People should be able to access affordable credit, but with clear protections in place. That is why these proposed regulations are so important.
Another important regulatory issue by the FCA was on the 11 trillion pound asset management industry. The regulator announced new consultation on how to improve liquidity in the industry. These new rules are a response to last year’s liquidity crisis that happened after the mini-budget.
Emojis count as financial advice
Another important regulatory update came from New York, where a judge ruled that some emojis could count as financial advice. The ruling came as part of Dapper Labs motion to dismiss the amended complaint alleging that its Top Shot moments violated securities laws. Emojis like the rocket, money bags and up-chart could now land financial companies in trouble with regulators. These emojis are prevalent on social media at the moment 📈 🚀💰.
Japan’s FCA focus on ESG
In Japan, the Financial Conduct Authority warned that it will increase its focus on greenwashing by asset managers running ESG funds. The agency is reviewing the industry after Mizuho’s $9 billion failed to provide more information about its ESG funds. The concern is that companies were mislabelling their funds in a bid to attract investments.
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