CFTC charges precious metals dealers with fraud
The Commodity Futures Trading Commission (CFTC) has filed a civil enforcement action against Fisher Capital LLC, AMS Consulting Solutions LLC, and Alexander Spellane for perpetrating a precious metals investment fraud targeting elderly people. The complaint charges the defendants with defrauding hundreds of elderly persons into investing more than $30 million in gold and silver coins worth far less than the defendants led victims to believe. The CFTC seeks the return of illegal gains, civil monetary penalties, restitution, permanent registration bans, and permanent injunctions against further violations of the Commodity Exchange Act and CFTC regulations, as charged.
The defendants fraudulently induced investors to liquidate existing retirement accounts, transfer the proceeds into self-directed Individual Retirement Accounts, and invest the proceeds into gold and silver coins. The defendants directed the vast majority of customers’ investments into supposedly exclusive, collectible, or “semi-numismatic” coins at grossly inflated prices that frequently were double or even triple the prevailing market value of those coins.
CFTC charges and settles with Mizuho Capital Markets with $7m fine
The Commodity Futures Trading Commission (CFTC) has issued an order simultaneously filing and settling charges against New York-based, provisionally registered swap dealer Mizuho Capital Markets LLC for trade practice violations of the Swap Dealer Business Conduct Standards in the Commodity Exchange Act (CEA) and CFTC regulations. The violations arise from Mizuho’s failure to make adequate disclosures to customers in connection with certain foreign exchange forward transactions.
FCA and CFTC on digital asset regulation at City Week 2023
Regulation alone cannot mitigate against all of the risks of digital assets. That was one of the key points in a speech by Sarah Pritchard, Executive Director of Markets, and Executive Director of International (Financial Conduct Authority), at the City Week event in London. Other notable points from the speech were:
- Cryptocurrency based crime hit an all-time high last year. Illicit addresses received 20.6 billion dollars over the course of 2022, up from 18 billion dollars in 2020.
- The number of reports to the FCA of cryptoasset scams have progressively increased over the years. In 2019 there were 1,619 reports compared to 6,372 in 2021.
- The FCA expect crypto promotions to be treated on a par with other high-risk investments and failure to comply will be a criminal offense.
- Further consultations will be published on digital assets and DeFi products before the end of the year.
At the same conference, CFTC Commissioner Christy Goldsmith Romero also spoke of the significant risk to customers of digital assets. The commissioner highlighted two specific areas of concern that contribute to financial stability risk:
- Customers of crypto exchanges being unaware that often they do not have control of their assets or bankruptcy priority; and
- Conflicts of interest including vertical integration: “An exchange may also be a market maker, clearinghouse, lender, and/or custodian. These conflicts present significant risk that in a regulated environment would be disclosed and resolved. In an unregulated environment, the full extent of these conflicts may not be disclosed or resolved, which could lead to cascading losses and contagion risk”.
Goldsmith Romero concluded: “Because digital assets cross borders, countering these global risks will require both private sector commitment and international government cooperation and coordination. We are stronger working together. We can leave no safe passage for illicit finance, cyber criminals, fraudsters or those who risk the stability of our global financial system”.
FinCEN publishes annual review
The Financial Crimes Enforcement Network (FinCEN) has published its FinCEN Year in Review for FY 2022. The Year in Review is intended to help stakeholders gain insight into both FinCEN’s efforts to support law enforcement and national security agencies, and how financial information—filed in accordance with the Bank Secrecy Act (BSA)—is used.
Among some of the information in the review:
- $7.7bn was seized in assets
- more than four million suspicious activity reports filed
- The top ten filers of SARs filed more than 50% of all SARs
ESAs call for vigilance in the face of mounting financial risks
The European Supervisory Authorities (EBA, EIOPA, and ESMA) have released their Spring 2023 Joint Committee Report on risks and vulnerabilities in the EU financial system. While the EU financial markets remained stable in the face of recent macroeconomic challenges, the report calls for continued vigilance from national supervisors, financial institutions, and market participants due to mounting risks. The macro environment has worsened due to high inflation and tighter financial conditions, and recent market pressure on banks has highlighted the European financial system’s sensitivity to exogenous shocks. Asset prices have been highly volatile, and liquidity imbalances are a drag on the financial system’s resilience. Geopolitical tensions, environmental threats, and an increase in cyberattacks further complicate the risk landscape.
In response to these risks and vulnerabilities, the Joint Committee advises financial institutions and supervisors to take the following policy actions:
- Remain prepared for a deterioration in asset quality and keep a close eye on loan loss provisioning.
- Consider the broader impact of policy rate increases and sudden rises in risk premia on financial institutions and market participants in (liquidity) risk management.
- Monitor liquidity risks arising from investments in leveraged funds and the use of interest rate derivatives closely.
- Closely monitor the impacts of inflation risk and take it into account in product testing, monitoring, and review phases.
- Pursue prudent capital distribution policies to ensure long-term financial resilience given the uncertain medium-term outlook for profitability.
- Maintain a strong regulatory framework, including faithfully implementing the finalization of Basel III in the EU and avoiding further deviations from EIOPA’s advice on the Solvency II review.
- Enhance risk management capabilities and disclosures for environmental, social, and governance (ESG) risks.
- Allocate adequate resources and skills to ensure the security of information and communication technology (ICT) infrastructures and adequate ICT risk management.
Overall, the Joint Committee report emphasizes the importance of continued vigilance and risk management in the face of mounting risks and vulnerabilities in the EU financial system.
The future of supervisory reporting
Andrea Enria, Chair of the Supervisory Board of the European Central Bank (ECB) has been speaking about the harmonization of supervisory reporting across Europe during the last 20 years. In looking to the future, Enria suggests that a genuinely integrated reporting framework is in reach noting that:
“The latest revisions to the Capital Requirements Regulation, CRR2, provide an important legal basis for tackling the shortcoming I explained: that bank reporting is not harmonized between banking supervision and central banking functions. Article 430c of the CRR2 provide a mandate for the EBA to assess the feasibility of developing a consistent and integrated system for collecting statistical, resolution and prudential data.”
Enria also mentions the new Joint Bank Reporting Committee (JBRC) which, it is hoped, will play a key part in bringing together both the EBA supervisory and resolution reporting framework and central banking data integration to fulfill the integrated reporting framework objective.
Two Dear CEO letters from HKMA
The Hong Kong Monetary Authority (HKMA) has issued two Dear CEO letters to authorized institutions (AIs): one requesting enhanced security controls the binding of payment cards to contactless mobile payment services; the other clarifying the principles that should be applied by banks in the handling of unauthorized payment card transactions.
A selected summary of key developments for regulated financial institutions
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