$16m penalty for fraud, misappropriation and false statements
The Commodity Futures Trading Commission (CFTC) has obtained a consent order against Damian Castilla and an order for final judgment against DCAST Capital Investments LLC and Five Traders LLC. The orders resolve a lawsuit filed on May 17th, 2022, and find the defendants guilty of defrauding more than 50 pool participants by fraudulently soliciting investments and misappropriating their funds. The defendants are required to pay $2,687,440 in restitution to the defrauded and $3,350,000 in disgorgement. Castilla has to pay a $3 million civil monetary penalty and DCAST Capital and Five Traders, collectively, to pay a $10,050,000 civil monetary penalty.
Additionally, the defendants are prohibited from further violations of the Commodity Exchange Act (CEA) and CFTC regulations. The orders find that the defendants made various material misrepresentations to pool participants, misappropriated their funds, and failed to register with the CFTC, as required. The CFTC warns that restitution orders may not result in the recovery of lost money due to insufficient funds or assets of the wrongdoers.
Crypto founder guilty of tax crimes
Amir Bruno Elmaani, the founder of the cryptocurrency “Oyster Pearl,” has pleaded guilty to tax offenses before the United States District Court for the Southern District of New York. Elmaani secretly minted and sold Pearl cryptocurrency tokens, causing the price of Pearl tokens to drop, and failed to pay income tax on certain cryptocurrency profits, resulting in a tax loss of over $5.5 million. Elmaani initially attempted to hide his involvement in the fraudulent activity but later admitted to it under his pseudonym “Bruno Block.” Elmaani agreed to pay restitution of at least $5,523,794 and faces a maximum sentence of three years in prison for filing a false tax return and one year for failing to file a tax return.
US Attorney Damian Williams said: “Amir Elmaani violated the duty he owed to pay taxes on millions of dollars of cryptocurrency profits. As he admitted, he also violated the trust of investors in the cryptocurrency he founded. Our Office will continue to bring groundbreaking cases, like this one, to ensure participants in cryptocurrency markets play by the rules.”
Pablo Hernández de Cos Chair of the Basel Committee on Banking Supervision and Governor of the Bank of Spain on recent banking stress
In a speech in Washington DC, Pablo Hernández de Cos Chair of the Basel Committee on Banking Supervision and Governor of the Bank of Spain, addressed recent challenges in the banking sector.
He discussed recent turmoil in the banking system and its implications for banks, regulators, and supervisors. Hernandez de Cos stressed that the need for sound risk management and robust governance practices are critical in times of crisis and he emphasized that these are the primary responsibilities of bank management. The speech also stressed the importance of cross-border supervisory cooperation and the need to preserve the strength and robustness of supervision over time. Finally, it noted that tough supervisory decisions are necessary to avoid banking crises, but the rewards from such decisions are rarely visible, making it critical for all to support the ability of supervisors to exercise their judgment.
Andrew Bailey speech: lessons from recent times
In a wide-ranging speech delivered in Washington DC, Andrew Bailey, Governor of the Bank of England addressed various topics related to monetary policy, financial stability, and the banking sector. He began by acknowledging the challenges posed by the current global pandemic and war in Europe. He noted subsequently that the post-crisis reforms to bank regulation have been effective and the UK banks are well-capitalized, liquid, and able to serve their customers.
On the subject of crypto, Bailey said that for money to function as a means of payment, it requires stability of value, which unbacked crypto lacks.
Bailey also covered the deposit insurance system, which is being reviewed by US authorities and the Bank of England; stress testing, which is essential for assessing and testing for stress but has some difficult issues surrounding how to set the parameters of stress tests; and non-bank finance, which has seen a significant expansion of the landscape of systemic risk since the crisis. Helpfully, the speech concluded with a summary of his main points:
- “I don’t believe we face a systemic banking crisis;
- We must ensure that financial stability continues to mean that monetary policy takes into account financial conditions but does not have to aim off for instability;
- This requires robust structures for financial stability policymaking;
- Central bank balance sheets will remain larger than pre-crisis for financial stability reasons;
- We don’t know yet where central bank balance sheet reduction will need to stop in terms of the necessary level of reserves;
- This will in part depend on the desired future size and make-up of banks’ liquidity buffers;
- Stable coins will need to have the characteristics of, and be regulated as, inside money;
- The key question on retail digital money is can we envisage a demand for it, but we should guard against failure of imagination; and be able to accommodate it within the regulatory framework;
- If retail digital money is part of the future, it would be better not to disturb the need to have both inside and outside money – so we cannot rule out a need for CBDC;
- We will need to revisit the protection of inside money in the form of deposits, especially in smaller banks;
- Stress testing the financial system is crucial, but stress tests will not always deal with Black Swans – that’s why resolution and other policy intervention tools must be in place;
- Non-Bank Financial Intermediation is a very large and heterogeneous landscape – it presents surveillance challenges of both breadth and depth;
- NBFI leverage and inter-connectivity can be hard to map;
- NBFI issues are often inherently cross-border in nature. The role of the FSB is important;
- Macro and micro-prudential policies need also to support lending to and investment in the economy.”
Joint European consultation on the review of SFDR Delegated Regulation
The three European Supervisory Authorities (EBA, EIOPA and ESMA) have published a consultation paper proposing changes to the disclosure framework to address issues that have emerged since the introduction of the Sustainable Finance Disclosure Regulation (SFDR). The authorities are seeking feedback on the amendments that envisage:
- extending the list of universal social indicators for the disclosure of the principal adverse impacts of investment decisions on the environment and society, such as earnings from non-cooperative tax jurisdictions or interference in the formation of trade unions;
- refining the content of other indicators for adverse impacts and their respective definitions, applicable methodologies, formulas for calculation as well as the presentation of the share of information derived directly from investee companies, sovereigns, supranationals or real estate assets; and
- adding product disclosures regarding decarbonization targets, including intermediate targets, the level of ambition and how the target will be achieved.
Delay to new risk management standard in Australia
The Australian Prudential Regulation Authority (APRA) has released an updated timeline for the implementation of the new cross-industry Prudential Standard CPS 230 Operational Risk Management (CPS 230).
CPS 230 is designed to strengthen the management of operational risk in the banking, insurance and superannuation industries.
In response to feedback received during the consultation period, APRA intends to:
- move the effective date for the new standard to 1 July 2025; and
- provide transitional arrangements for pre-existing contractual arrangements with service providers, with the requirements in the standard applying from the earlier of the next contract renewal date or 1 July 2026.
Australian regulator finds superannuation trustee failings
The Australian Securities and Investments Commission (ASIC) has found that superannuation providers are still failing when it comes to communication with scheme members about failed performance tests.
The Australian Prudential Regulation Authority (APRA) is required to conduct an performance test for MySuper products annually. ASIC’s review of the performance tests found that some trustees took a reactive approach to performance test communications or significant events such as mergers and did not have cohesive communications strategies in place. This meant that their communications to members were inconsistent or lacked clarity.
ASIC Commissioner Danielle Press said: “Trustees that fail the performance test need to get the balance right in their communications – they need to be transparent and factual about the performance of the failed product.”
Other areas for improvement suggested include:
- providing consistent messaging about performance across the fund website;
- ensuring that communications about short-term performance, products and mergers are balanced and don’t undermine the fact that the product failed the test; and
- providing clear call-center transcripts for staff to discuss the performance failure or product closure and related options with members.
FCA publishes Handbook Notice 108
The latest Financial Conduct Authority (FCA) Handbook Notice has been published which outlines changes made to the FCA Handbook and other material made by the FCA Board under its legislative and other statutory powers on 30 March 2023. It also refers to the development stages of that material, enabling readers to look back at developmental documents, and consultation feedback.
The Notice also includes all forthcoming dates of FCA board meetings.
A selected summary of key developments for regulated financial institutions
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