Regulations Roundup – February 2024

January was an important month in the financial markets as US and European stocks continued soaring. It was also a crucial month for the crypto industry after the Securities and Exchange Commission (SEC) finally gave the green light for a spot Bitcoin ETF. As an agency specialising in financial services marketing, our team has rounded up the biggest changes that happened last month and what’s coming up in February.

SEC approves spot Bitcoin ETFs

The Securities and Exchange Commission (SEC) finally accepted eleven spot Bitcoin ETFs, in one of the most significant regulatory victories for the industry. Some of the top companies that gained approvals to run these funds are Blackrock, Franklin Templeton, Ark Invest, and Invesco, companies that have billions in assets. Bitcoin ETFs have seen strong inflows since going public with Blackrock’s IBIT gaining over $2 billion in assets. Notably, the highly expensive Grayscale Bitcoin Trust (GBTC) had some outflows as investors moved to its cheaper alternatives.

Analysts believe that Bitcoin ETFs will make it possible for big institutional investors to allocate funds to the coin without dealing with wallets. As a result, it could play an important role in balanced portfolios, which have historically included stocks and bonds. The focus now shifts to other crypto ETFs that have been applied. Blackrock and Ark Invest have applied for an Ethereum ETF. This approval will likely be risky because the SEC believes that Ethereum is a financial security because of its staking features.

SEC and Coinbase battle continues

The SEC announced a major lawsuit against Coinbase, the biggest American crypto exchange last year. In that suit, the SEC alleged that Coinbase offered unregistered securities to customers in the country, an allegation that Coinbase rejects. The SEC also filed a lawsuit against Binance, the biggest exchange in the same period. The case between Coinbase and SEC is continuing. In a court filing in January, Coinbase argued that case should be dropped since the crypto tokens it sells are not securities. As a result, the outcome of the filing could have significant implications.

The SEC has had mixed success when arguing that cryptocurrencies are securities. For example, it lost a major lawsuit against Ripple Labs. In that case, it alleged that Ripple Labs sold XRP, which it referred to as a security.

UK and EU fund managers’ access

Other important regulatory news came from Europe, where the UK gave European fund managers access to the UK market. This announcement removed one of the key issues that investors were concerned about after Brexit. In this case, the overseas fund regime (OFR) will treat EU fund managers as its own, meaning that they can have access to the UK market. The affected companies will have 12 months to comply with UK regulations. This is a big move since there are over 8,000 funds with temporary access to the UK, the sixth biggest country by GDP.

SEC rules on SPACs

Special Purpose Acquisition Companies (SPACs) became extremely popular during the pandemic as hundreds of companies used them to go public. Some of the most notable firms that used this route to go public are Virgin Galactic, ChargePoint, and DraftKings.

While some SPAC companies have done well over the years, most of them have underperformed the market. Therefore, the SEC has proposed new rules to align SPACs with IPOs in a bid to promote transparency. The new rules could kill SPACs, which are blank-check companies formed to merge with existing companies. For one, they will ensure that the merging company provide more information similar to those required in companies using the IPO process.

ESMA seeks to boost the IPO market

The European stock market has suffered a bruising IPO drought in the past few years. No major company has gone public in the region. Now, the European Securities Markets Authority (ESMA) is working to boost the number of companies going public as the bloc’s stock market surges, with the Euro Stoxx 50 trading at a record high. In a statement, ESMA’s boss, Verena Ross said:

One of the things we are working on is trying to think about what more we can do to really boost European capital markets to make sure they serve EU companies and investors. On top of that we need to think however more broadly, I believe, into what is ultimately behind supporting effective capital markets that are attractive to investors.

ASIC asks AFS licensees to register

In Australia, ASIC, the regulator asked AFS licensees to register their financial advisors by February 16th. According to its database,  26% of financial advisors who provide personal advice to retail clients had not registered. This registration is important as the regulator seeks to get rid of unscrupulous individuals who have been offering this advice in the country. The statement added:

We acknowledge those AFS licensees who, since late November, have registered their advisers ahead of the requirement commencing. We urge AFS licensees who have not registered their advisers to do so as soon as possible.

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