SEC proposal to enhance protections of customer assets managed by registered investment advisers
The proposed new rules would exercise SEC authority under section 411 of the Dodd-Frank Act by broadening the application of the current investment adviser custody rule beyond client funds and securities to include any client assets in an investment adviser’s possession. As with the current rule, the proposed rule would entrust safekeeping of client assets to qualified custodians, including, for example, certain banks or broker-dealers. If adopted, the changes would amend and redesignate rule 206(4)-2, the Commission’s custody rule, under the Investment Advisers Act of 1940 and amend certain related recordkeeping and reporting obligations.
SEC statements on shortening the settlement cycle
Commissioner’s Caroline Crenshaw and Jaime Lizárraga have both commented on the SEC’s new rule to reduce the securities transaction settlement cycle from two business days (“T+2”) to one (“T+1”)
Lizárraga comments the new rule is “is a significant milestone for our markets…Because buyers and sellers of securities will receive their cash and securities a day earlier under T+1 than they do currently. And because market participants can allocate their capital more quickly and efficiently.
Crenshaw notes “a shorter settlement cycle should reduce the number of outstanding unsettled trades, reduce clearing agency margin requirements, and allow investors quicker access to their securities and funds. Longer settlement periods, on the other hand, are associated with increased counterparty default risk, market risk, liquidity risk, credit risk, and overall systemic risk”.
The date for compliance with the new rule is 14th May 2024.
CEO Of cryptocurrency trading platform pleads guilty to $240 Million fraud
In another blow to the crypto ecosystem, the FBI has announced that Eddy Alexandre has pleaded guilty to fraud. Alexandre was CEO of a purported cryptocurrency and foreign exchange (“forex”) trading platform called EminiFX, which solicited more than $248 million in investments from tens of thousands of individual investors after making false representations in connection with the EminiFX trading platform. Alexandre offered his investors “guaranteed” high investment returns using new technology that he claimed was secret. Specifically, he falsely represented to investors that they would double their money within five months of investing by earning at least 5% weekly returns on their investment using a “Robo-Advisor Assisted account” to conduct trading. He has agreed to pay forfeiture in the amount of $248,829,276.73, as well as restitution in an amount to be specified by the Court. Commodities fraud carries a maximum sentence of 10 years in prison.
Graham Steele speech outlines US Treasury priorities
Steele proposed that significant potential exists to provide a competitive, innovative, and inclusive financial services landscape but that this has to be tempered by safety and soundness, consumer protection, and risk management that prudential regulation and supervision provide.
Steele highlighted three areas currently with regulatory gaps:
- The vulnerability of unregulated stablecoins;
- The limited authority over spot markets for crypto-assets that are not securities; and
- The need for greater visibility into the activities of all of the affiliates and subsidiaries of integrated crypto entities.
He added: “Where existing laws and regulations apply, they must be enforced vigorously so that crypto-assets and services are subject to the same protections and principles as other financial products and services. There is an urgent need for action to protect consumers, investors, and businesses, even as stakeholders and policymakers formulate legislative proposals for comprehensive regulation of crypto-assets.”
Cloud service providers
Steele drew attention to three areas of concern: “insufficient transparency to customers pertaining to operations and operational incidents at cloud service providers (CSPs). A second is unequal dynamics in cloud contract negotiations, which can particularly affect smaller firms. The third is the potential impacts that market concentration among CSPs could have on exposures to operational risk and general sector-wide resilience.” He indicated that the next two years will see Treasury working with a number of regulatory bodies to address these concerns.
A selected summary of key developments for regulated financial institutions
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