Regulations Roundup – July 2019

The finance sector is heavily governed with FX and crypto regulations often taking centre stage. It may be holiday season for many, but the industry certainly isn’t slowing down when it comes to creating and implementing rules. Ice creams and pimms at the ready, here’s the Contentworks Regulations Roundup –  July 2019.

FCA Confirms Rules for CFDs

The Financial Conduct Authority confirmed that it is going to adopt leverage caps for contracts for difference (CFDs), ranging from 2:1 to 30:1. Remember the ESMA (European Securities and Markets Authority) rules from last year? Of course you do. Well these are very similar. Going forward, brokers must close client positions when their funds fall to 50% of the margin needed to keep trades open. They must also ensure they have negative balance protections in place, meaning clients cannot lose more than they deposit. Percentage based risk warnings, already pretty hefty on broker sites, will now be compulsory for retail trading firms.

V20 Summit Results in Crypto Promises

V20, a two-day Virtual Asset Service Providers Summit, concluded at the end of June resulting in a host of promises for the crypto sector that have already piqued interest and will continue to do so over the coming months. Taking place in Osaka, Japan, the conference welcomed policymakers and representatives from major players within the industry in order to “develop a clear road map toward full compliance with a new set of recommendations from the Financial Action Task Force (FATF) for the global regulation of crypto asset transactions.”

As the summit wrapped up, it was announced that a Memorandum of Understanding had been signed by a group of national trade associations representing virtual asset service providers (VASPs). This was “to establish an association to provide a global unified voice for the virtual asset industry.”

Ronald M. Tucker, convenor of the V20 and founder of the Australian Digital Commerce Association (ADCA), said: “We’ve brought everyone on the journey to create a new body that will assist in establishing a means to engage with government agencies and the FATF to ensure our best interests are understood and valued at an international level.”

There are several things that hope to be achieved:

  1. To underpin dialogue with government and regulators to promote VASPs
  2. To support industry-wide information exchange and best practice
  3. To increase industry awareness and its economic value

Signatories for the agreement included the ADCA, Singapore Cryptocurrency and Blockchain Industry Association (ACCESS), Japan Blockchain Association (JBA), Korean Blockchain Association (KBCA), Hong Kong Blockchain Association (HKBA) and Taiwan Parliamentary Coalition for Blockchain & Industry Self-Regulatory Organization. The signing ceremony was witnessed by former FATF President Roger Wilkins AO.

Top tip: Be aware of changing industry regulations by following the news. Social media is a great place to discover the latest updates with useful accounts including @V20 Osaka and @FATFNews.

FATF Publish New Guidance

The end of June also saw new guidelines published by the Financial Action Task Force (FATF) that will have great industry impact. The Guidance on Virtual Assets and Virtual Asset Service Providers require crypto providers to implement the same AML/CFT requirements as traditional financial institutions.

The FATF explained how: “The obligations require countries to assess and mitigate their risks associated with virtual asset activities and service providers,” and “implement sanctions and other enforcement measures when service providers fail to comply with their AML/CFT obligations.” The FATF also clarified how they are also required to “license or register service providers and subject them to supervision or monitoring by competent national authorities,” and “will not be permitted to rely on a self-regulatory body for supervision or monitoring.”

Updated Guidance regulations for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers built upon guidelines set out in 2015. The goal is to enhance financial transparency and set expectations to enforce a level playing field between crypto service providers.

Crypto service providers now need to:

  • Identify who they are sending funds on behalf of, and who is the recipient of those funds
  • Develop processes where they are required to share that information with other providers of virtual assets, and law enforcement.
  • Know their customers and conduct proper due diligence to ensure they are not engaging in illicit activity.
  • Develop risk-based programs that account for the risks in their particular type of business.

These rules were clearly voiced by U.S. Secretary of the Treasury Steven T. Mnuchin who also explained how: “The FATF standards are only effective if jurisdictions around the world actually take measures to implement them.” He continued, “The United States calls on all nations to join us in ensuring the FATF’s standards are implemented globally.”

Top tip: G20 summit leaders support the latest FATF updates but it’s important to follow industry concerns by checking out sites like Bitcoin.com which regularly covers such topics.

Facebook’s Libra Coin Set for Possible Regulatory Gauntlet

Facebook’s Libra coin has been stealing the limelight of late but industry experts expect it to run into regulatory difficulties in the not so distant future. One concern from US lawmakers and global regulators is that Facebook is already too careless with user privacy.

The plan for Libra involves investing customer deposits in government bonds, holding traditional currencies in reserves and offering cross-border services. New Libra coin transactions will require engagement with central banks, financial regulators and enforcement authorities worldwide.

Top tip: Know all the facts by following Twitter news sites such as @Libra_Coin_Club. And @facebook.

CySEC’s Risk-Based Approach to Leverage – and How to Handle It

In our Regulation Roundup for June, we talked about how CySEC was carving its own regulatory path for retail clients  by proposing a three-tiered approached to leverage. This means that different clients with various experience levels will be tiered and able to use different leverage based on criteria such risk appetite, time in the industry, knowledge, market volatility history and annual income or net worth.

In addition to all these measures, CySEC will also hold firm to other guidelines and regulations such as closing out positions beyond 50% margin calls, protecting clients from negative balances and the banning of financial market incentives. Risk warning are also mandatory.

So how can you stay ahead of the curve?

  1. Keep up to date and prepare for the new regulatory environment by ensuring you understand all documentation and how the rule-change will be weaved into your business model.
  2. ESMA’s regulatory standards designed to protect investors will be implemented on 30th July and therefore knowing what’s going on in Cyprus with CySEC and across the EU is a must.
  3. Provide content for clients to showcase your knowledge and reassure them you’re on-the-ball.

July 2019 Events Calendar

  • Barcelona Trading Conference – 10th July
  • CybSec ad Blockchain Health – London – 11th July
  • Fearless in Fintech – San Francisco – 15th July
  • Blockchain World Forum – United States – 25th July

If you enjoyed this Regulations Roundup – July 2019 update, share it with your friends and colleagues. Contact the Contentworks team for financial services content that works.