Regulations Round-Up – September 2022

The financial markets were volatile in August as the US dollar index surged to the highest point in over 20 years. After soaring to a multi-month high, cryptocurrencies and stocks pulled back sharply as concerns over interest rates remained. As an agency specialising in financial marketing, our team has rounded up the top regulation changes in August, and now we’re looking at what’s coming up in September 2022.

Monetary Authority of Singapore crypto regulations

The Monetary Authority of Singapore (MAS) announced that it was intensifying its cryptocurrency scrutiny ahead of its planned regulations. The regulator sent a questionnaire to companies that hold cryptocurrency exchange licenses.

In it, MAS asked them about the soundness of their operations. It also sought to learn the top tokens owned by customers and the top lending and borrowing counterparties. MAS is encountering a tough balancing act as it seeks to reduce risks faced by retail traders while boosting innovation in the sector.

Liz Truss to shift UK regulations

Liz Truss, the front-runner to become the next British Prime Minister is set to order a shake-up on top UK regulators. According to the Financial Times, Truss will conduct an immediate review of their roles and regulations. The paper said that she plans to merge the Financial Conduct Authority, Prudential Regulation Authority, and Payments Systems Regulator into one agency. The goal is to simplify regulations, bring more clarity, and reduce the overall cost of doing business for companies.

Some regulators have been criticized by the public before. For example, the FCA has been criticized for its past failings such as the collapse of the London Capital & Finance (LCF).

In August, the regulator concluded its six-year review of the collapse of HBOS and recommended no charges, HBOS was a 25 billion pound bank that collapsed during the Global Financial Crisis. Analysts believe that simplifying regulations will attract more international capital to London.

FCA high-risk investments

The Financial Conduct Authority (FCA) published new guidelines to tackle misleading adverts that entice people to invest in high-risk assets. The guidelines mandate firms approving and issuing marketing of these products to undertake more checks to ensure that consumers and their investments are safe. Most importantly, firms will need to indicate stronger risk warnings. It also has an eye on referral bonuses.

In the statement, the regulator said that the new rules will not apply to cryptocurrencies. They will instead apply to other assets that the FCA regulates like stocks and forex. These rules will only apply to digital currencies only when the government and parliament confirms that the FCA should regulate these assets. Sarah Pritchard of FCA said:

‘Our new simplified risk warnings are designed to help consumers better understand the risks, albeit firms have a significant role to play too. Where we see products being marketed that don’t contain the right risk warnings or are unclear, unfair or misleading, we will act.’

Big banks’ use of Whatsapp criticized

US regulators like the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) continued their investigations into leading banks like Bank of America, Deutsche Bank, Morgan Stanley, and Jefferies. The two regulators accuse these banks of letting their employees use personal messaging applications like Whatsapp.

The investigation is on how their employees used highly encrypted applications to discuss investment terms, client meetings, and other business. Under rules, companies are required to preserve and monitor staff communications. As a result, traders are not required to use encrypted apps like Whatsapp and Signal that can delete messages automatically. According to the Wall Street Journal, big banks could be forced to pay $1 billion in fines for these violations.

SEC and CFTC to ask hedge funds to report crypto exposure

The SEC and the CFTC are weighing more disclosure measures that will see hedge funds register their cryptocurrency exposure. According to the SEC, large hedge funds should use the confidential Form PF to confidentially report their digital asset holdings. The SEC and the CFTC are jointly working on broader changes to expand this form to include more assets.

The regulators are concerned that hedge funds are not required to report their crypto holdings in their quarterly forms. They also believe that failure to do so leads to substantial risks in the market. Gary Gensler, the SEC chairman said:

“A very significant part of our financial system is growing—and growing faster, and is about to overtake the entire commercial banking system—that has far less regulation and far less transparency.”

Federal Reserve and its master accounts

The Federal Reserve announced that it will adopt new measures to determine who has access to its payment systems. It issued guidelines for its 12 regional branches to use when evaluating applications for master accounts with the central bank. These are useful accounts that enable banks to move trillions of dollars every day.

Companies in the cryptocurrency industry will now be given access to these master accounts but they will receive a higher level of review.

ESMA and ESG rules

ESG (Environmental, Social, and Governance) is one of the biggest topics in the financial industry. It refers to a situation where companies focus on social, environmental, and governance issues. However, many companies like Deutsche Bank have been accused of greenwashing.

In a statement, Verena Ross, the head of the European Securities and Markets Authority (ESMA), said that ESG rules should be changed. She said that the bloc’s policymakers should work to change or clarify the Sustainable Financial Disclosure Regulations. As part of the amendments in the MIFID regulations, financial firms need to ensure they understand the ESG preferences of retail investors.

Her statement came as many financial companies warned that retail investors were struggling to navigate the complicated world of ESG. Similarly, many asset managers are finding it difficult to interpret these rules.

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