The CUBE RegNews team is taking a break between 26th and 30th June. Your next RegNews briefing will be published on 3rd July.
OCC updates asset management guidance
The Office of the Comptroller of the Currency (OCC) has issued version 1.0 of the Asset Management booklet of the Comptroller’s Handbook. This booklet provides an overview of the asset management business and guidance on sound risk management processes.
This updated booklet expands the audit section to
- clarify the meaning of “significant fiduciary activities” and the OCC’s expectations regarding the frequency of audits under a continuous audit system.
- incorporate guidance on audit oversight, requirements, risk assessment, planning, independence, and reporting expectations.
- add language from 12 CFR 150 that applies to federal savings associations.
- outline audit committee membership requirements and responsibilities.
- clarify determination of audit scope and coverage.
- define a robust, well-documented, risk assessment that supports significant fiduciary activities and development of a meaningful audit plan.
CFTC in ‘pig butchering’ fraud charge
The Commodity Futures Trading Commission has charged California resident Cunwen Zhu and his California-based company Justby International Auctions (Justby). The complaint alleges that Zhu and Justby fraudulently misappropriated over $1.3 million in customer funds intended for digital asset commodity and forex trading. This is CFTC’s first case involving a romance scam, commonly known as “Pig Butchering,” a type of fraud that is growing in popularity.
As alleged in the complaint, Zhu and Justby took part in an elaborate and well-coordinated scheme to defraud customers through digital asset commodity and forex trading. At least 29 customers transferred more than $1.3 million to Justby for the purpose of trading digital assets and forex on supposedly legitimate trading platforms. Instead of using the funds to trade on behalf of these customers, Zhu and Justby misappropriated the customers’ funds.
CFTC charges man with $21m digital asset and forex fraud
A US District Court has issued a final judgment against Florida resident Rico Cox resolving the CFTC’s lawsuit filed on May 31, 2022. The court has found Cox guilty of fraudulently soliciting investments in commodity futures and misappropriating funds from at least 14 pool participants.
As a result of the court’s order, Cox is permanently barred from engaging in any activities that violate the Commodity Exchange Act (CEA). Additionally, he has been ordered to pay $710,667 in restitution, $339,300 in disgorgement, and a civil monetary penalty of $1,017,900.
The court found that:
- Cox falsely claimed he was a successful trader with years of experience trading futures contracts.
- Cox failed to tell participants that in 2016 he was found liable for fraudulently soliciting funds to trade in a managed futures account in a CFTC case against him.
- Cox issued false statements to participants showing false profits purportedly earned with their investments and he grossly exaggerated account balances.
The CFTC cautions victims that restitution orders may not result in the recovery of money lost because the wrong.
JP Morgan fined for email deletion
The Securities and Exchange Commission (SEC) has fined JP Morgan Securities LLC $4 million for a record-keeping failure which led to approximately 47 million electronic communications in about 8,700 electronic mailboxes many of which were business records being deleted.
Section 17(a) of the Exchange Act and Rule 17a-4(b) thereunder requires a thirty-six month regulatory retention period but during a project to delete older materials, JP Morgan’s archiving vendor failed to apply default retention settings which led to the permanent deletion of many emails.
Because the deleted records are unrecoverable, it is unknown – and unknowable – how the lost records may have affected up to 12 civil securities-related regulatory investigations ongoing at the time.
Bank of England enforcement speech
Oliver Dearie, The Bank of England’s Head of Enforcement and Litigation spoke at an event organized by the Financial Services Lawyers Association.
Focusing on the BoE’s recent consultation paper on enforcement, Dearie firstly highlighted some enforcement successes:
- prohibiting five individuals from working in PRA-regulated firms or from the financial services sector entirely;
- imposing fines totaling more than £221 million; and
- taking action under the senior managers regime with fines imposed for both breaches of the Individual Conduct Rules and the Senior Manager Conduct Rules.
Dearie went on to weave five key guiding principles — transparency; learning lessons from experience; maximizing efficiency; furthering statutory objectives and stressing the importance of individual accountability — into the key proposals of the recent consultation:
- creating a consolidated package of enforcement policies;
- clarifying the approach and procedures the Bank would adopt in financial market infrastructures enforcement investigations;
- creating a new early account scheme (EAS) for appropriate cases;
- incentivizing early admissions by subjects through the introduction of an enhanced settlement discount in appropriate cases of up to 50%;
- changing how the BoE calculates the financial penalty for PRA firms to provide more consistency, and to better align this approach with the PRA’s approach to supervising firms; and
- updating the serious financial hardship thresholds at which we will consider a reduction in fines for individuals.
Dearie concluded: “Far from representing a weakening of our enforcement approach our changes are designed to provide clarity and further enhance our robust and successful enforcement record.”
The deadline for feedback to the BoE’s consultation is 4th August.
A selected summary of key developments for regulated financial institutions
Access all of our daily regulatory content by using the login button below.
To find out more about how CUBE can help your business click here.