Regulations Roundup – May 2024

Global regulators continued working in April to address emerging issues in the market. In the UK, the Financial Conduct Authority (FCA) came under pressure from the government and companies for its name-and-shame approach to companies under investigation. The Securities and Exchange Commission (SEC) continued its crypto enforcement rules in the US. 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 May.

SEC Crypto Enforcement

Those working in financial services marketing should be watching The SEC. The SEC has made some aggressive moves in the cryptocurrency space in the past few years. It has sued companies like Coinbase and Binance in this period. In April, the regulator scored a big victory after winning a trial against Terraform Labs, the parent company of Terra Luna, which collapsed in 2022.

The SEC has requested the judge to order Terraform Labs to pay $5.3 billion for the losses caused. In its response, Terraform has said that the amount is unfair since most of the tokens were not sold to Americans. Meanwhile, the SEC also sent requests to companies about their dealings with the Ethereum Foundation. The SEC has been reviewing Ether as it considers several spot Ethereum ETFs that companies like VanEck and Blackrock have filed.

The agency is mostly concerned about Ethereum’s staking features that enable users to generate returns by just holding the token. They do that by delegating their tokens to secure the network. Data shows that users have staked Ether tokens worth almost $100 billion. A move against Ethereum would have major repercussions because of its role in the cryptocurrency industry. It is the second-biggest cryptocurrency in the world and its technology powers most dApps in the sector.

Consensys, a leading crypto software provider, sued the SEC to fend off regulation of the Ethereum blockchain. The company wants the court to rule that Ether was not a financial security. The SEC has already sent a Wells notice to Consensys about its Metamask product.

Meanwhile, the Blockchain Association sued the SEC to challenge its definition of the term dealer. The association argues that the change of definition would capture people who were just trading digital coins. Also, it notes that the SEC did not take feedback from companies in the industry when making the rule.

FCA Mifid Rules On Investment Research

The Financial Conduct Authority (FCA) said that it was considering changing some of the rules in the Markets in Financial Instruments Directive (MiFID) rules. In this case, the agency has proposed measures to ensure that asset managers can pay for their investment research alongside fees for trading.

This means that fund managers can now bundle fees for investment bank research with their trading costs. The move would reverse what MiFID implemented when it ruled that companies should separate the two. These rules were implemented to reduce conflict of interest in the financial market. However, a closer look shows that they have not performed as planned. For example, they have led to less coverage of small UK companies.

All this is happening at a time when the London Stock Market is becoming smaller by the day. Several large companies like Tui, CRH, and Flutter have shifted their primary listings to other exchanges, especially in the United States. Meanwhile, the FCA proposed to name and shame companies under investigation at an earlier stage, a move that was criticised by government officials and companies. The FCA argues that doing that would increase transparency about its enforcement moves. Critics argue that doing that will reduce competitiveness in the UK market and hurt innocent companies.

India’s Derivatives Trading Rule

India’s financial regulator caused uproar in April when it introduced a new rule affecting the forex trading market. The Reserve Bank of India (RBI) said that it would require forex traders betting the rise and fall of the rupee to have underlying assets.

The rule could have a major impact on the forex market in a country where trading volumes surged to over $5 billion in a day. As a result, volumes dropped to about $2.5 billion shortly after the RBI unveiled the proposal and analysts expect the trend will continue unless the RBI intervenes, In a note, an analyst told Bloomberg that the rule would damage India’s reputation:

There seems to be some disconnect between what the regulator thought was very clearly mentioned in the laws and how the market perceived it. This sort of confusion creates a negative image at a global level for India as a jurisdiction.

China Securities Regulatory Commission’s New Rules on Hong Kong

In China, the country’s financial regulator released new measures to promote financial market activities between the mainland and Hong Kong. The agency said that it would support leading mainland companies seeking to list in Hong Kong. It would also boost the mutual recognition of funds between China and Hong Kong.

The CSRC also unveiled new measures such as relaxing standards for eligible exchange-traded funds (ETFs) under the stock connects between Hong Kong, Shenzhen, and Shanghai exchanges.

Hong Kong Bitcoin Approvals

The other important regulatory event in April was the approval of spot Bitcoin ETFs by Hong Kong authorities. HKMA approved funds by companies like Harvest Global, Bosera Asset Management, and China Asset Management. These approvals came a few months after the SEC approved eleven funds from firms like Blackrock, Franklin Templeton, and Invesco.

If you enjoyed our Regulations Roundup May 2024, share it with your network and internal team. Want compliant financial services marketing for your finance brand? Book a free Zoom call with our team.

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