NFA confirms effective date for new requirements on crypto-engaged members
The National Futures Association (NFA) has confirmed that NFA Compliance Rule 2‑51: Requirements for Members and Associates Engaged in Activities Involving Digital Asset Commodities, will become effective on 31st May.
The new rule provides the NFA with the ability to discipline a member or take other action to protect the public if a member commits fraud or similar misconduct with respect to its spot digital asset commodity activities.
SEC improper professional conduct charges
The Securities and Exchange Commission (SEC) has announced that it has settled charges against audit firm Spicer Jeffries LLP and audit engagement partner Sean P Tafaro for improper professional conduct in connection with audits of two private funds. The SEC’s order found that Spicer Jeffries and Tafaro did not implement the planned audit approach to respond to significant fraud risk related to valuation of investments, failed to obtain sufficient audit evidence, and did not exercise due care or professional skepticism. The SEC also found that Spicer Jeffries had a deficient system of quality control that led to failures to adhere to professional auditing standards.
Spicer Jeffries and Tafaro consented to the SEC’s order without admitting or denying the findings. Spicer Jeffries agreed to be censured and to implement undertakings to retain an independent consultant to review and evaluate certain of its audit, review, and quality control policies and procedures. Tafaro agreed to be suspended from appearing and practicing before the SEC as an accountant, with the option to apply for reinstatement after one year. The SEC emphasized the importance of auditors as gatekeepers and stated that it will continue to closely monitor their fulfillment of professional responsibilities, particularly with regard to private funds.
SEC crypto charges
The Securities and Exchange Commission (SEC) has charged the crypto asset trading platform beaxy.com and its executives for failing to register as a national securities exchange, broker, and clearing agency. The SEC also charged the founder of the platform, Artak Hamazaspyan, and a company he controlled, Beaxy Digital, Ltd., with raising $8 million in an unregistered offering of the Beaxy token (BXY) and alleged that Hamazaspyan misappropriated at least $900,000 for personal use, including gambling. The SEC has also charged market makers operating on the Beaxy Platform as unregistered dealers.
According to the SEC’s complaint, Windy Inc. managed the Beaxy Platform and facilitated buying and selling of crypto assets that were offered and sold as securities. The complaint alleges that Windy violated the Securities Exchange Act of 1934 because it acted as an exchange, clearing agency, and broker without registering as such. The SEC also alleges that Murphy and Abbott continued the operation of the Beaxy Platform through Windy after Hamazaspyan resigned following the unregistered offering of BXY and the misappropriation of investor assets, and as such are also liable for operating an unregistered exchange, broker, and clearing agency.
Chairman Gary Gensler said: “We allege that Beaxy and its affiliates performed the functions of an exchange, broker, clearing agency, and dealer without registering with the Commission and complying with clear, time-tested rules governing those activities. Our securities laws for decades have served to protect investors, make capital formation easier and cheaper, and improve our markets. This case serves as yet another reminder to crypto intermediaries that their business models must comply and adapt to the law, not the other way around.”
FINRA publishes new regulatory notice: heightened threat of fraud
The new Notice (RN23-06) provides an overview of some indicators of Automated Customer Account Transfer Service (ACATS) fraud and the practices some firms apply to address it. Whilst the new Notice does not create new legal or regulatory requirements or new interpretations of existing requirements, it does outline some best practice around:
- Verifying Customer Identities for Accounts Established Online
- Verifying Transfer Requests
- Enhancing Review of a Transfer Request
- Escalating to Anti-Money Laundering (AML)
- Investigating Fraud
ASIC CP 369 proposes remaking two class orders
Under the Australian Legislation Act 2003, legislative instruments cease automatically, or ‘sunset’, after 10 years, unless action is taken to preserve them by remaking them. CP369 proposes that Class Orders 13/762, Investor directed portfolio services provided through a registered managed investment scheme, and 13/763, Investor directed portfolio services are both remade.
Class Order 13/762 modifies provisions of the Corporations Act 2001 and provides responsible entities relief from some of the managed investment scheme, fundraising, financial product disclosure and other investor rights provisions.
Class Order 13/763 recognizes that, unlike responsible entities of managed investment schemes, investor directed portfolio service (IDPS) operators do not make investment decisions, as the decisions are ‘investor directed’. It also exempts IDPSs from the requirement to be a registered managed investment scheme
Both will expire in October 2023 if not remade.
The deadline for feedback is 28th April.
EBA consults on amendments to Guidelines on risk-based AML/CFT supervision to include crypto-asset service providers
The European Banking Authority (EBA) has launched a public consultation on amendments to its Guidelines on risk-based anti-money laundering and countering the financing of terrorism (AML/CFT) supervision. The proposed changes extend the scope of these Guidelines to AML/CFT supervisors of crypto-asset service providers (CASPs).
The amendments include guidance on the sources of information competent authorities should consider when assessing ML/TF risks associated with CASPs. They also highlight the importance of a consistent approach to setting supervisory expectations where multiple competent authorities are responsible for the supervision of the same institutions and stress the importance of training to ensure that staff from competent authorities have the technical skills and expertise necessary for the execution of their functions.
Specific AML/CFT guidance for CASPs will be delivered through the forthcoming amendments to the EBA’s Risk Factors Guidelines, the amendments to the Guidelines to prevent the abuse of fund transfers for ML/TF purposes, and new Guidelines on policies and procedures for compliance with restrictive measures.
The consultation runs until 29 June 2023.
FCA chief on asset management and listing reform and ESG labeling
In a speech at the Global Investment Management Summit Nikhil Rathi, Chief Executive at the FCA, said the regulator would consult on replacing the current standard and premium listing segments for shares in commercial companies with a single listing category with one set of requirements. The speech also set out proposals to reform the UK framework for asset management to ensure its proportionality, continued alignment to high global standards and to better support innovation. Rathi also proposed an ESG labeling regime for investment products, citing a survey showing 81% of adults would like the way their money is invested to do some good as well as provide a financial return.
Bank of England PRA letter to PRA-regulated firms and FMIs outlining the thematic findings from the 2022 Cyber Stress Test
The Bank of England and Prudential Regulation Authority have published a letter to PRA-regulated firms and financial market infrastructure firms (FMIs) outlining the findings from its 2022 cyber stress test. The letter addresses several themes: industry coordination; communication; contingencies; mitigants; reconciliation and testing capabilities. The letter concludes: “The results of this test have highlighted the importance of firms planning, preparing, and testing for such situations alongside investment so that the impact on financial stability and any other secondary impacts are minimized. It is important that firms invest in areas which would enhance their capability to respond to and recover from incidents. Investment in suitable mitigants may also be necessary to better manage risks to financial stability during an incident.”
A selected summary of key developments for regulated financial institutions
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