Regulations Round Up – July 2023

The financial markets gave a strong performance in June as investors reacted to the decision by the Federal Reserve to pause interest rate hikes. At the same time, cryptocurrencies jumped, even as regulatory concerns continued. As an agency specialising in financial marketing, our team has rounded up the top regulation changes in June, and now we’re looking at what’s coming up in July 2023.

SEC crackdown on crypto

The biggest regulatory stories in June were the lawsuits by the Securities and Exchange Commission (SEC) against Coinbase and Binance, two of the biggest companies in the industry. The regulator accused the two companies of violations, including offering unregulated products in the US.

The SEC is concerned that many crypto tokens are financial securities, which should be regulated just as stocks. Therefore, if the agency’s lawsuit prevails, it means that Coinbase and other American exchanges will need to stop offering many tokens.

At the same time, these companies will need to stop offering staking services to their customers. Staking is a service that lets users deposit crypto tokens and then earn a return. The SEC believes that there could be more disclosures to cushion investors.

It is unclear how these lawsuits will end and the amount of time they will take. However, going by the ongoing SEC vs Ripple suit, there is a possibility that the lawsuits will take a few years to conclude.

TradFi trend continues

Traditional Finance, commonly referred to as TradFi, refers to the conventional financial systems and institutions that have been in existence for decades. These include banks, insurance companies, stock markets, and other regulated financial entities that operate under strict government guidelines.

The next regulatory story was about cryptocurrencies and the SEC. Several well-known companies applied for their spot Bitcoin ETFs. Blackrock, the biggest asset manager in the world, applied for the iShares Bitcoin Trust. Other companies that applied for their spot Bitcoin ETFs are Invesco, WisdomTree, and Fidelity. It is unclear whether the SEC will accept these ETF proposals. For one, most of these companies selected Coinbase, which has been sued by the SEC, as their custodian.

A spot Bitcoin ETF will allow people to invest in Bitcoin without holding the real coin. ETFs are traded just like stocks.

Banks stress tests

The Federal Reserve published their stress tests in the final week of the month. A stress test is where the Fed looks at the financial wellbeing of the biggest banks in the US. It then assesses whether these banks can survive a situation of high unemployment rates and a sharp contraction of the economy.

All banks that were subjected to the test passed it. And as a result, some of them, like Goldman Sachs and JP Morgan, announced that they will boost their dividends. Still, the biggest challenge facing many banks is that their paper losses in the bond market have ballooned to over $500 billion. Most of these unrealized losses are from Bank of America, the second-biggest bank in the country.

FCA listing reforms

The UK has struggled to attract more local and international companies and in the past few years, only a handful of companies have listed in the country. At the same time, some companies have announced plans to shift their listings to the United States. The FCA is working to fix this situation and make the country more welcoming to local and international companies. For example, the FCA has proposed scrapping rules forcing shareholder vote on transactions between UK-listed companies and “related parties.”

The FCA will also scrap the requirement that companies must have three years of audited financial statements. Also, it will simplify plans to fuse London’s standard and premium markets into a single category. However, not everyone is welcoming the new reforms. Ten of the biggest pension firms in the country warned that some of these new rules will damage the market by removing important investor protections. In a statement, the head of the LSE said:

The vast majority of those institutions that are saying ‘We don’t want change’ direct more of their pensioners’ money into companies listed overseas, that have exactly the rules that the FCA is trying to move to, than they do into UK companies. So their actual money isn’t making that point.

EU share trading changes

European authorities reached an agreement to create a real-time database of share trading information, popularly known as a consolidated tape. The tape, when implemented, will offer real-time prices of stock and bond trading information in a single place. While the move was welcome, it left some players in the market disappointed. For example, fund managers wanted the legislation to force exchanges to hand over their data on live market offers.

Like the UK, European authorities want their markets to be on par with those of the United States. In the past few years, many European companies are preferring American stock exchanges compared to their European peers.

FCA targets banks over greenwashing

Financial regulators in the developing world have been highly concerned about greenwashing. In a letter to banks in June, the Financial Conduct Authority warned about greenwashing and conflicts of interest in the sustainable loans markets (SLM). The SLM market links borrowing costs to sustainability targets. As a result, the FCA is worried that banks and other high-emitting companies are using these loans to improve their reputations without setting meaningful climate goals.

These loans have become popular in the past few years. Data shows that over $550 billion SLP loans have been issued across Europe in the past two years.

ASIC warns on greenwashing

Like the FCA, the Australian financial regulator also warned about greenwashing in the country. The head of the agency said that it had secured 23 corrective disclosure outcomes and 12 infringement notices. He said:

While I can’t speak to ongoing actions, I can say that we have further surveillances and investigations afoot.

ASIC is working to prevent greenwashing among companies in the financial services industry. In fact, it has listed greenwashing as its top priority when it comes to enforcement.

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