Regulations Round up – October 2020

Global markets had a relatively weak September as institutional investors returned from summer. The overall stock market, commodities, and digital currencies declined while the US dollar held relatively steady. Meanwhile, regulators continued to work behind the scenes to ensure the overall stability in the market. As a leading financial services agency, our team has rounded up the top regulation updates that happened in September and what lies ahead for October 2020.

SEC and OCC issue guidance on stablecoins

Stablecoins are digital assets that are backed by an asset like gold, silver, US dollar, and even another digital currency. They can be backed by a single asset or a basket of currencies. In September, the Securities and Exchange Commission (SEC) and the Office of Comptroller of Currency (OCC) issued guidance on these assets.

The regulations dealt with whether banks were given authority to hold the assets that back up these stablecoins. In the statement, the regulators said that banks had the authority to hold funds from these issuers of stablecoins. However, the regulators said that banks should follow all protocols to ensure that the funds they receive are well-accounted for. For example, they need to enforce the know-your-customer (KYC) and anti-money laundering (AML) procedures. The statement said:

“Bank management should establish appropriate risk management processes for new activity development and effectively identify, measure, monitor, and control the risks associated with new activities. In particular, reserves associated with stablecoins could entail significant liquidity risks.”

ESMA publishes rules for third-country firms

The European Securities and Markets Authority (ESMA) unveiled the vast MIFID II regulations in 2018. Since then, the regulator has been updating the rules and guidelines of the regulations. In September, it published the final report containing draft regulatory and standards on companies that provide investment services in the European Union by third-country firms. These guidelines are part of the regulator’s goal of reducing risks for investors.

ASIC provides more guidelines on product mislabelling

In Australia, the Australian Securities and Investment Commission (ASIC) announced new measures to prevent product mislabelling. It issued the statement after it identified 14 funds using the term “cash” in a confusing way. It did this after studying 37 managed funds operated by 21 companies managing more than $15 billion of assets. This statement came a few months after the regulator warned about companies that advertised fixed-term investment products and bank term deposits. The statement said:

“Responsible entities must ensure that their products are ‘true to label’ and the redemption terms offered to investors are supported by and consistent with the underlying liquidity of the fund’s assets.”

European Union unveils Digital Finance Package

In Europe, the European Commission adopted the Digital Finance Strategy for the EU. The goal of this package is to give consumers more choice and opportunities in finance and modern payments. In the report, the commission set out four priorities in which it will support digital finance. These includes having a unified regulatory framework, promoting data-driven finance, addressing the key risks in digital transformation, and addressing the risks that emerge from this movement. The report said:

“The proposal clarifies the application of existing EU rules to crypto-assets, introduces a pilot regime for crypto-assets covered by these rules and establishes a new EU legal framework for crypto-assets that are not covered by these rules, based on a taxonomy of definitions of different types of crypto-assets.”

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