October was a good month for the financial markets as cryptocurrencies and stocks staged a strong comeback and the US dollar recoiled. In all, the US dollar index pulled back by more than 4% from its highest level this month. As an agency specialising in financial marketing, our team has rounded up the top regulation changes in October, and now we’re looking at what’s coming up in November 2022.
SEC debates on PFOF
The Securities and Exchange Commission (SEC) has been debating on how to address the controversial Payment for Order Flow (PFOF) situation in the US. In a report, the Wall Street Journal (WSJ) said that the regulator was inclined to propose a mid-point price on trades.
The proposal would require brokers to route small investors’ market orders into auctions where trading brokers will compete to auction them. The auction requirement will apply to orders less than $200k by customers who average less than 40 trades per day.
As part of the proposal, brokers will have a way out, where they will attempt to fill them at the midpoint price or better.
The PFOF model came under scrutiny in 2021 during the meme stock frenzy that happened in the first quarter. At the time, there were calls by politicians to change how the market works in a bid to promote market efficiency and transparency. Presently, brokers like Robinhood use market-makers like Virtu and Citadel Securities to handle trades.
Accountants in the spotlight
The Securities and Exchange Commission (SEC) voted to complete the clawback rule, which was part of the Dodd-Frank Act. The rule will focus on accountants of all publicly traded companies. It will make public companies take back executives’ incentive pay if they found significant errors in financial statements. The goal of this rule is to improve corporate accountability and strengthen investor confidence in corporate reporting. The new rule will go into effect in the next 12 months.
Regulators in the United States and Australia have been dealing with the rising trend of influencers marketing cryptocurrencies and financial products. In October, the SEC and Kim Kardashian reached a $1.26 million settlement to settle that she failed to disclose money she was paid to promote a cryptocurrency.
She was paid $250k to promote EMAX tokens on her Instagram account. According to the SEC, she should have revealed that she was paid by EthereumMAX to promote the coin. In a statement, Gary Gensler said:
“This case is a reminder that, when celebrities/influencers endorse investment opps, including crypto asset securities, it doesn’t mean those investment products are right for all investors.”
MAS proposes crypto rules
In Singapore, the Monetary Authority of Singapore (MAS) published two consultation papers proposing rules to safeguard cryptocurrency investors. One proposal recommended restricting retail investors from borrowing money or using credit cards to buy cryptocurrencies. It also recommended stopping retail trades from lending their digital tokens in search of yields.
Another proposal will force crypto exchanges to test would-be buyers to check whether they understand risks involved. Singapore has long been welcoming to cryptocurrencies. However, several implosions, including Three Arrows Capital, Terra, and Voyager Digital have pushed the regulators to tighten their screws. MAS said that:
“Several misconduct cases have been reported by international media, including where legal proceedings were commenced against entities that did not have sufficiently robust business conduct practices in place.”
SEC cracks down on fund names
The SEC is seeking to change how fund managers name their funds in a bid to promote transparency. It is trying to crackdown on misleading marketing by requiring that funds prove that 80% of their holdings match their names.
The names rule has been in existence for more than 20 years. In this period, it applied to popular names like “bond” and “equity”. Now, the SEC wants to expand it to include other popular names like “growth”, “value, and “core”. In October, over 100 funds and investors have filed for public comments ahead of an upcoming deadline. Opponents argue that there are dangers for tying funds to a specific definition.
UK regulators warn Sunak on independence
The UK had an eventful October as Liz Truss resigned after 45 days. She was replaced by Rishi Sunak, who has vowed to be more fiscally conservative. In a statement, heads of powerful UK regulators warned the new administration to let them remain independent. Their concern was that Sunak was supportive of the Financial Services and Markets bill. The bill will maintain UK’s position as an open and global financial hub and implement outcomes of the Future Regulatory Framework review.
It would also create a secondary mandate requiring regulators to advance the international competitiveness and medium to the long-term growth of the UK economy. In a statement, the head of the Prudential Regulation Authority said:
“Some might think that such a power would boost competitiveness. My view is that through time it would do precisely the opposite, by undermining our international credibility and creating a system in which financial regulation blew much more with the political wind”
FCA focuses on greenwashing
Greenwashing has become common in the past few years as companies and fund managers seek more ESG credentials. Regulators, mostly from Europe and the United States, have been working to limit the practice. In October, the Financial Conduct Authority announced measures to clamp down on greenwashing. It proposed restrictions on fund managers using terms like green and ESG in fund marketing. The FCA said that greenwashing misleads consumers and erodes confidence in all ESG products.
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