Regulations Roundup – June 2020

May was a relatively mixed month for the financial sector. Global stocks continued to rally while key economic data disappointed. The US and China continued their blame game and Hong Kong became another key topic. At the same time, global regulators remained relatively calm, with most of them focusing on their enforcement duties. As a leading financial services agency, our team has rounded up the top regulation updates that happened in May and what lies ahead for June 2020.

ESMA laments on CLOs

Collateralised loan obligations (CLOs) have been in the limelight in the previous month. Investors and other market participants have been worried about how stable they are, especially because of what happened during the past financial crisis. Particularly, they have been worried about the leverage applied by the issuers, the weakening of underwriting criteria, and the overall phase of the credit cycle.

In May, the European Securities Markets Authority (ESMA) released a thematic report on the ratings of these debts. The report focused on whether rating agencies like Fitch, S&P, and Moody’s had the capability of rating these debt obligations. In a statement, Steven Maijoor of ESMA said:

“ESMA’s assessment of CLO credit rating practices highlight a number of supervisory concerns and risks associated with rating this asset class and we expect CRAs to monitor these risks and address them as appropriate. The COVID-19 pandemic poses significant risks for CLO instruments, which will test the rigorousness of CRAs rating methodologies to respond to changing circumstances.”

ESMA extends trade repositories

Securities Financing Transactions (SFTs) are important instruments that help promote transparency in the eurozone. ESMA uses trade repositories (TRs) to asses all SFTs to ensure that they meet the law. All registered TRs must have operational reliability, be transparent, and have the best tools to record and safeguard the transactions.

In a statement in May, ESMA announced that it was expanding the TRs to include companies like DTCC, Univista, Krajowy Depozyt Papierow Wartosciowysch, and REGIS-TR.

MAS supports fintech firms

Singapore, like other countries, has been hit hard by the crisis. While most companies have been affected, the worst-affected have been startup companies. In May, the Monetary Authority of Singapore (MAS) announced that it was setting up a S$6 million fund to support fintech companies in the country. The funds will help these companies maintain their operations. Eligible companies received about $20,000 to use as working capital and about $40,000 for their Proof of Concept (PoC).MAS Chief Fintech Officer said:

“There is a surge in demand in the financial services industry around the region for solutions to address the need for remote digital services amidst the COVID-19 pandemic. FinTech firms have a great opportunity to step up actively during this period to provide these solutions.”

SEC focuses on acquisitions and dispositions of businesses

Apart from normal enforcement, the SEC focused on mergers and acquisitions. In a statement, the regulator changed the disclosure mechanisms for companies acquiring and those being acquired. The new amendments will help facilitate timely access to capital, reduce the complexity and costs of these transactions, and give more information to the two sides. In a statement, SEC chairman said:

“This action, which is designed to enhance the quality of information that investors receive while eliminating unnecessary costs and burdens, will benefit investors, registrants and the market more generally.”

FCA focuses on mortgage payments

The Financial Conduct Authority (FCA) announced new proposals to help many customers who are struggling to pay their mortgages. The regulator extended the period in which people who are struggling to pay their mortgages to October 31. It also asked firms to continue giving payment holidays to people struggling to pay their mortgages. The interim head of FCA said:

“Our expectations are clear – anyone who continues to need help should get help from their lender. We expect firms to work with customers on the best options available for them, paying particular attention to the needs of their vulnerable customers, and to provide information on where to access help and advice.”

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