Regulations Round-Up – October 2022

The financial markets remained extremely volatile in September as central banks continued their hawkish tone. Most central banks, including the Federal Reserve delivered super-size increases in a bid to fight inflation. As a result, all assets, including stocks, cryptocurrencies, and bonds crashed while the US dollar index surged. As an agency specialising in financial marketing, our team has rounded up the top regulation changes in September, and now we’re looking at what’s coming up in October 2022.

Apple delists MT4 and MT5

MT4 and MT5 are some of the most popular trading apps in the world. They are licensed to most forex and CFD brokers. In September, Apple quietly removed the apps from its store. The company did not provide the reason for the removal. However, according to Forbes, it could be because of a cryptocurrency scam known as pig butchering. It also came a few months after regulators sent letters to Google and Apple pressing them to reduce the number of crypto scams in their platforms.

SEC warning on Ethereum

September was an important month for Ethereum as the developers activated the merge. This transition moved it from being a proof-of-work (PoW) platform into a proof-of-stake (PoS) network. A key change is that Ethereum is no longer mined.

Instead, it relies on validators, who confirm all blocks. However, the SEC warned that the new version could be a security because of staking. Staking allows people to generate income by locking their capital. Classification as a security, comes with more risks such as investor-protection requirements that many people believe are incompatible with cryptocurrencies. The SEC has sued Ripple Labs, accusing XRP of being a security.

Jamie Dimon warning on capital requirements

The American banking sector has been under intense pressure in past years following the 2008 financial crisis. One of the challenges they are facing is the restrictive capital requirements they are require to have.

In a statement in September, Jamie Dimon, the CEO of JP Morgan, warned that these requirements were handicapping the banking sector. For example, for a bank with $3.8 trillion in assets, it must set aside $200 billion in additional capital. He said:

“This is bad for America, as it handicaps regulated banks at precisely the wrong time, causing them to be capital constrained and reduce growth in areas like lending, as the country enters difficult economic conditions,”

As part of these regulations, Citigroup announced that it was scaling back the amount it lends to asset managers, including private equity firms. This happened after the bank was designated as a global systematically important bank.

Wall Street banks messaging problems

Large Wall Street banks like Bank of America, Citigroup, and Goldman Sachs agreed to pay $1.8 billion to resolve regulatory investigations over use of messaging applications like Whatsapp and Telegram. In the US, employees of leading banks are not allowed to communicate with each other in working hours using their mobile apps. The banks were also accused of deleting messages, which should have been turned over to regulators. Broker-dealers are required to follow strict record-keeping rules to ensure that regulators can access documents for oversight purposes.

UK moves to deregulation

The UK got a new government in September. In her campaign to Conservative Party members, Liz Truss promised to implement a series of tax cuts and an aggressive deregulation regime. The government has already unveiled aggressive tax cuts that are estimated to cost over 45 billion pounds.

The government is also considering more deregulation policies. For example, it is considering a plan to allow banks to pay higher bonuses to their star traders and bankers. This is a major change since UK banks have been subject to EU rules that restrict banks from paying bonuses that are twice an employees salary. The government hopes to incentivise financial companies like banks to remain committed to the UK. London is facing strong competition from Paris and Frankfurt.

US to add regulations to regional banks

With signs of another recession rising, US regulators are considering more rules to big regional banks like Truist Financial Group, PNC, and US Bancorp. Under these rules, these banks will be required to add financial cushions that could be called on in times of crisis. The steps are intended to address a key challenge that many regional banks have gotten so big and that it could be difficult to wind them down in times of a crisis.

ESMA on DLT regulations

In Europe, the main markets regulator said that securities using distributed ledger technology (DLT) does not require more changes to market transparency laws. The agency said that it will not amend existing requirements on post-trade transparency. It then conceded that the area that needs much more oversight is in other Web3 sectors.

Fed Chair calls for more DeFi regulations

The Decentralized Finance (DeFi) industry has seen robust growth in the past few years. As a result, companies in the sector hold more than $55 billion in assets. Unlike their centralized peers, they are not highly regulated. Therefore, Jerome Powell pressed regulators to consider tightening screws in the industry to prevent major events. He said that:

“The interaction between the DeFi ecosystem and traditional banking system and traditional financial system is not that large at this point. So we were able to witness the DeFi winter that did not have significant impacts on the banking system and broader financial stability.”

The same sentiment was shared by other central bank governors, including Christine Lagarde of the European Central Bank.

MAS commits to FX Global Code

In Singapore, the Monetary Authority of Singapore (MAS) renewed its commitment to the updated FX Global Code. It reaffirmed its adherence to the principle of this code as a market participant. This code sets out principles that promote a fair, liquid, and open forex market. It also encouraged all FX market participants to adhere to this code to promote a fair and open market.

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