UK government announces whistleblowing review
The UK government has launched a review of the whistleblowing framework, seeking views and evidence from whistleblowers, key charities, employers, and regulators. The review will focus on whether the current regime is effective in enabling workers to speak up about wrongdoing and protecting those who do so.
Whistleblowing refers to when a worker makes a disclosure of information which they reasonably believe shows wrongdoing or someone covering up wrongdoing. Workers who blow the whistle are entitled to protections, which were introduced through the Public Interest Disclosure Act 1998 (PIDA). The review will cover central topics including who is covered by whistleblowing protections, the availability of information and guidance for whistleblowing purposes, and how employers and prescribed persons respond to whistleblowing disclosures, including best practice. The evidence gathering stage of the review will conclude in Autumn 2023.
Shoib Khan speech on risks for UK insurance sector
In a speech at the Westminster Business Forum policy conference, Shoib Khan, Head of PRA Strategy at the Bank of England focused on three areas:
- how insurers’ use of models needs to extend beyond model mechanics;
- why assessing the availability of management actions is an important part of stress testing; and
- why all insurers should plan early for an orderly exit.
Khan said: “Every insurer should have a robust and embedded approach to risk management… Indeed, the PRA encourages firms to develop their own internal models, particularly where firms have bespoke risks which are not captured by the standard formula – that’s why we plan to implement a significant streamlining of the rules for internal model approvals, which currently require nearly 200 tests; and instead shift the focus to key principal-based requirements”. He also referred to a forthcoming consultation paper which will “flesh out” the PRA’s approach to exit planning for insurance entities once they decide to stop writing new business.
ESMA publishes MiFID II product governance requirements
The paper summarizes the responses to the Consultation Paper (CP) from July 2022 with proposed draft guidelines on MiFID II product governance requirements, and explains how the responses have been taken into account. The main amendments introduced to the guidelines concern:
- the specification of any sustainability-related objectives a product is compatible with;
- the practice of identifying a target market per cluster of products instead of per individual product (“clustering approach”);
- the determination of a compatible distribution strategy where a distributor considers that a more complex product can be distributed under non-advised sales;
- the periodic review of products, including the application of the proportionality principle.
Preliminary review into SVB failure “textbook case of mismanagement”
In a statement to the Committee on Banking, Housing, and Urban Affairs, Michael S. Barr Vice Chair for Supervision Board of Governors of the Federal Reserve System said: “SVB failed because the bank’s management did not effectively manage its interest rate and liquidity risk, and the bank then suffered a devastating and unexpected run by its uninsured depositors in a period of less than 24 hours”. The statement ges on to discuss SVB’s inadequate risk management whilst it underwent rapid growth but Barr adds: “It is not the job of supervisors to fix the issues identified; it is the job of the bank’s senior management and board of directors to fix its problems.”
CFTC brings charges against Binance
The Commodity Futures Trading Commission (CFTC) has filed a civil enforcement action against Changpeng Zhao and three entities that operate the Binance platform, charging them with numerous violations of the Commodity Exchange Act (CEA) and CFTC regulations. The complaint also charges Binance’s former chief compliance officer, Samuel Lim, with aiding and abetting Binance’s violations. The complaint alleges that Binance intentionally disregarded applicable provisions of the CEA while engaging in a calculated strategy of regulatory arbitrage to their commercial benefit. The CFTC seeks disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the CEA and CFTC regulations, as charged.
SEC fraud charges
The Securities and Exchange Commission (SEC) has filed a complaint charging Aaron Cain McKnight with orchestrating three separate fraudulent investment schemes that allegedly resulted in the theft of more than $8.4 million from at least 28 investors. The SEC also charged a lawyer, his law firm, a promoter, and McKnight’s sister with aiding and abetting aspects of the schemes.
According to the SEC, McKnight allegedly portrayed himself as an experienced professional controlling financial services firms, offering investment opportunities that promised extraordinary returns but that did not exist. He allegedly used his fabricated credentials to raise funds from numerous investors and then used the investors’ money for non-investment purposes, including personal expenses, operation of his outside business, and/or Ponzi-like payments to earlier investors.
The SEC further alleges that lawyer Kenneth Miller and his law firm, Frost & Miller, LLP (“F&M”), substantially assisted McKnight’s first scheme by receiving and immediately distributing over $2 million of investor funds at McKnight’s direction, despite not having a clear understanding of why the funds were sent to F&M or what function the investors expected F&M to serve.
Australian Financial Complaints Authority consults on proposed rules changes
The Australian Financial Complaints Authority (AFCA) is proposing to make a number of changes to its Rules and Operational Guidelines. These changes are designed to implement recommendations of the Treasury-led Independent Review of AFCA.
The proposed changes would affect the following areas:
- The management of unreasonable and inappropriate conduct within the scheme.
- Dealing with complaints where an appropriate offer of settlement has been made or where issues in dispute have been previously settled.
- Excluding complaints lodged by professional or sophisticated investors unless exceptions apply.
- To enhance the visibility, accessibility and performance of the Forward Looking Review mechanism.
- Clarity about the effect of AFCA determinations and how the slip rule works to ensure greater transparency and understanding of AFCA’s decision making.
- Minor changes to definitions and language to update certain areas of the Rules arising from legislative change.
- Minor changes to clarify AFCA’s reporting and transparency obligations.
The consultation period for the proposed changes runs from 27 March to 22 May 2023
A new stage for European banking supervision
The European Central Bank (ECB) is introducing a new supervisory risk tolerance framework to embed agility and a risk-focused approach in its supervision for the long term, according to Andrea Enria, Chair of the Supervisory Board, in a speech delivered at the Handelsblatt Annual Conference on Banking Supervision. The new framework is designed to enable supervisors to better adjust to bank-specific needs, and under the new approach, supervisors will be able to devote more time to address strategic priorities and vulnerabilities that are key for a specific bank. This in turn will allow supervisors to better calibrate the intensity and frequency of their analyzes in line with individual banks’ vulnerabilities and broader supervisory priorities. The approach will also streamline supervisory activities in a proportionate and risk-based manner, reducing the burden for banks. However, Enria noted that the increased scope for discretion must not come at the expense of lowering the consistency of supervision across banks. Therefore, the ECB is also bolstering its internal controls functions to ensure that like risks are treated in a like manner. Additionally, the ECB is taking steps to better explain its general methodologies and individual supervisory expectations, and summarizing key concerns and findings in executive management letters sent to individual banks at the end of the supervisory review and evaluation process. Enria said the ECB places increasing emphasis on a structured escalation of its supervisory interventions where banks’ progress is lagging behind clearly set timelines.
A selected summary of key developments for regulated financial institutions
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