CFTC consults on investment of customer funds
The Commodity Futures Trading Commission (CFTC) has unveiled a new proposal Investment of Customer Funds by Futures Commission Merchants and Derivatives Clearing Organizations, which aims to make changes to the CFTC’s existing regulations concerning the safeguarding and investment of funds held on behalf of customers participating in futures, foreign futures, and cleared swaps transactions.
The proposed amendments, if adopted, would bring about modifications to Regulation 1.25, specifically redefining the list of permissible investments and introducing related changes and specifications. Notably, these changes would eliminate the current requirement in the Commission’s regulations, which mandates that depositories holding customer funds must provide the CFTC with read-only electronic access to these accounts for futures commission merchants (FCMs) to classify the funds held in those accounts as customer segregated fund accounts.
The comment deadline is 17 January 2024.
BoE and FCA issue discussion papers on stablecoins
The Bank of England and the Financial Conduct Authority (FCA) have published discussion papers setting out proposed regulatory framework for systemic payment systems using stablecoins and related service providers. At the same time, the Prudential Regulation Authority has published a Dear CEO letter on innovative uses of deposits, e-money and stablecoins.
The Bank of England’s discussion paper sets out “emerging thoughts on the regulatory framework for systemic payment systems using stablecoins, ie those used for everyday payments in the UK.” It notes too that the discussion “focuses only on sterling-denominated stablecoins, as the Bank considers these are most likely to become widely used for retail payments. The Bank recognizes the possibility that stablecoins referencing currencies other than sterling could become widely used in the UK and will monitor usage of these.”
The FCA’s paper,Regulating cryptoassets Phase 1: Stablecoins, covers “the proposed approach to regulating fiat-backed stablecoins, which may be used for payments. Under these plans, we will regulate the issuance and custody of fiat-backed stablecoins under the Financial Services and Markets Act 2000, and the use of these stablecoins as a means of payment under the Payment Services Regulations 2017 (PSRs).”
The PRA’s Dear CEO letter meanwhile outlines “how it expects deposit-takers to address the risks that arise from issuing multiple forms of digital money, while welcoming the benefits that could come from innovation in this area. The letter also sets out the PRA’s broader expectations for banks regarding their use of digital money for retail or wholesale innovations, in areas such as operational resilience, anti-money laundering, counter-terrorist financing, and liquidity and funding risks.”
In a separate document considering the joint regulatory approach, it is noted that all three regulators will work to provide further clarity on how the transition between regimes may work in practice and how transition risks would be mitigated. Further detail will also be provided on the process of co-ordination between the regulatory authorities, including the importance of information sharing, to manage a smooth glide path for firms that are transitioning into the Bank’s supervisory remit.
Both discussions have a deadline of 6 February.
AFCA consults on financial advisers’ complaints compensation
The Australian Financial Complaints Authority (AFCA) is consulting on a draft investments and advice related Approach document: the AFCA Approach to determining compensation in complaints involving financial advisers and Managed Investment Schemes.
AFCA’s Approach documents are designed to help complainants and financial firms understand how AFCA deals with common issues and complaint types, and how they make decisions.
The consultation outlines AFCA’s approach to determining compensation in complaints related to Financial Advisers and Managed Investment Schemes. The objectives of the consultation are:
- To help financial firms and complainants understand how the AFCA handles these complaints.
- To explain how AFCA considers liability and compensation when financial advice firms and Responsible Entities are involved in Managed Investment Scheme (MIS) cases, including those that fail or go insolvent.
- To describe the legal principles AFCA considers when determining compensation.
- To emphasize fairness in our approach to these situations.
- To align the ACFA approach with relevant legal principles, regulatory guidance, industry best practices, and codes of conduct.
- To ensure uniform application and comprehension of our approach to these issues.
While the Approach document is new, the actual procedures and principles AFCA follows in these cases are not. It essentially formalizes and explains their existing practices, including the consideration of factors like proportionate liability statutes, when making decisions and assigning compensation for investment and advice complaints.
FCA’s latest financial promotions data
The Financial Conduct Authority has published its latest financial promotions data for the period 1 April to 30 June 2023. The key findings are as follows:
- 1,507 promotions from 54 firms were amended or withdrawn as a result of FCA intervention.
- Retail investments and retail lending were responsible for 70% of those intervention.
- 6,387 reports about potential unauthorized business were received and the regulator issued 400 alerts.
The notification subsequently reminds authorized firms that the Consumer Duty came into force at the end of July and that Policy Statement 23/6, which set out the FCA’s approach to crypto promotions, came into effect on 8 October, with more than 400 warnings being issued in the first few weeks of that date.
The FCA has also updated its complaints data for the first half of 2023 which shows that during that period financial services firms received 1.88m opened complaints, an increase of 5% from 2022 H2 (1.80m)with the following sectors all seeing an increase in complaints compared to the previous period (H2 2022): decumulation & pensions (20% increase ), investments (18%), insurance & pure protection (6%), & banking and credit cards (3%).
A selected summary of key developments for regulated financial institutions
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