Goldsmith Romero on CFTC enforcement advisory
The Commodity Futures Trading Commission’s (CFTC) Division of Enforcement has published guidance to its enforcement staff on enforcement resolution recommendations to the Commission. The advice provides guidance on determining whether proposed civil monetary penalties are sufficient; when the imposition of a corporate compliance monitor or consultant is appropriate; what the duties and responsibilities of monitors and consultants should be; and whether admissions should be recommended in a particular enforcement action. Commissioner Christy Goldsmith Romero issued a statement to coincide with the guidance in which she lauded the agency’s enforcement staff for their dedication and highlighted the need for stronger enforcement measures to safeguard customers, investors, and markets.
In the statement, Goldsmith Romero commended the CFTC’s enforcement efforts, acknowledging the significant cases brought forth this year as a testament to the team’s commitment. However, she raised concerns about limitations stemming from past cases, which may not adequately address the evolving risks posed by the growing markets and recent market volatility.
She also emphasized the importance of accountability, justice, and deterrence in enforcing regulations and expressed her support for the guidance, advocating for a case-by-case approach in requiring settling defendants to admit their wrongdoing, replacing routine neither-admit-nor-deny settlements.
Goldsmith Romero noted the need for appropriate penalties to ensure accountability and deterrence, especially for well-resourced defendants. She also acknowledged the importance of addressing violations of critical laws (such as Dodd-Frank and Commodity Exchange Act (CEA) requirements and combating recidivism within regulated financial services.
In cases of a broken culture of compliance, Goldsmith Romero supported the advice that the appointment of monitors is an effective tool to signal the seriousness of the issue.
In conclusion, the speaker commended the CFTC’s Enforcement staff for their dedication to upholding market integrity and maintaining investor confidence. They affirmed their commitment to working with the staff in applying the principles outlined in the advisory to specific cases that come before the Commission.
ESMA clarifies MiCA timeline and urges states to act
The European Securities and Markets Authority (ESMA) has requested member states to immediately identify the competent authorities which will be responsible for carrying out the functions and duties required by the Markets in Crypto-Assets Regulation (MiCA), which will come into full force in December 2024. In the letter from ESMA chair Verena Ross, concerns are raised regarding the grand-fathering option that allows member states to offer an extension up to July 2026 for entities already providing crypto services to defer full MiCA implementation. Ross requests that member states consider limiting the grand-fathering period to no more than 12 months to try to enable consistency across the EU more quickly.
Canada adds payment systems to its regime
The Bank of Canada has confirmed the addition of three retail payment systems (Visa Inc’s VisaNet, Mastercard International Inc’s Global Clearing Management System and Single Message System, and Interac Corp’s Inter-Member Network) as prominent payment systems as defined by the Payment Clearing and Settlement Act. As a result of their inclusion each now falls under the regulatory remit of the bank, which requires additional risk controls to be put in place to ensure precaution against systemic or payment system risk.
ASIC outlines retail priorities
In a speech at the 33rd Annual Credit Law Conference, Greg Yanco, Executive Director for Regulation and Supervision at the Australian Securities & Investments Commission (ASIC) presented his view on forthcoming regulatory developments and recent initiatives.
He began by noting that ASIC is committed to improving consumer outcomes within the consumer credit sector, with a specific focus on protecting financially vulnerable consumers and preventing individuals from falling into financial hardship, which he addressed first in his list of initiatives.
- Financial hardship: Yanco emphasized the importance of proactively supporting customers experiencing financial hardship. He reminded the audience that ASIC has urged lenders to communicate assistance processes clearly, train staff to identify hardship cases, and consider individual circumstances to devise sustainable solutions. ASIC, he said, will not hesitate to take enforcement action against non-compliance, as seen in recent civil penalty proceedings against financial institutions like Westpac and a fine earlier in the year against ClearLoans.
- Financially Vulnerable credit consumers: In light of the uncertain economic climate, ASIC remains vigilant about protecting vulnerable consumers from predatory lending practices. This includes unlicensed operators and established entities engaging in poor practices across the credit sector. Recent civil penalty proceedings against entities like Cigno Australia and BSF Solutions underscore this commitment.
- Buy now, pay later regulation: ASIC is actively involved in the regulation of buy now, pay later services as credit products. New regulations, expected to be in force by 2024, will necessitate providers to hold a credit license and comply with Responsible Lending Obligations. These regulations aim to address financial stress reported by a significant number of buy now, pay later users.
- Small amount credit contracts and consumer leases: Yanco noted that ASIC is monitoring compliance with new consumer protections for small amount credit contracts and consumer leases. Reforms from December 2022 include establishing a cost cap on consumer leases and implementing protected earnings regimes to limit repayments based on a consumer’s net income.
- Short-term credit facilities and continuing credit contracts: Two product intervention orders have been issued by ASIC to prevent high-cost services linked to short-term credit facilities and continuing credit contracts. ASIC is hence seeking an extension of these orders and closely monitoring compliance to prevent predatory lending practices.
- Product design and distribution: ASIC is committed to enforcing design and distribution obligations (DDOs) to ensure clear consideration of customer objectives, financial situations, and needs. Yanco reminded the audience that ASIC has commenced civil penalty cases alleging breaches of DDOs, highlighting their commitment to prevent poor consumer outcomes and that the DDO focus has been expanded to include “credit-like” products.
- Scams and Cyber Resilience: ASIC is actively involved in combating scams and enhancing operational resilience against cyber threats. They are contributing to the National Anti-Scam Center and monitoring cyber and operational resilience among regulated entities.
- Target market determinations (TMDs): Yanco reminded the audience that firms should be reviewing their TMDs (documents describing what products are suitable for which consumers) regularly and added that ASIC will be monitoring TMDs more closely in the coming year, with a focus on the retail banking sector. ASIC is particularly concerned, he said, about high-fee basic accounts that are being offered to Indigenous consumers, despite the fact that they are eligible for low-fee accounts. He also noted two areas where TMDs can be improved, including clear descriptions of the key attributes of products and how they are appropriate for consumers and Setting review triggers that are specific and based on objective measures.
- Banking code of practice: He noted a forthcoming consultation to review the current code will be published shortly
- Scams: ASIC is taking a whole-of-economy approach to disrupting scams, with banks playing a critical role. ASIC’s review of the major banks’ scam prevention, detection and response activities found that their approach to scams strategy and governance was variable and less mature than expected. The banks also detected and stopped around just 13% of scam payments made by their customers. ASIC has identified a number of improvement opportunities, including:
- Each bank should have a bank-wide scams strategy.
- Their boards and senior management should have oversight of their scam prevention, detection and response activities.
- These activities should be reviewed regularly to ensure they remain effective and support fair customer outcomes.
- For banks to effectively report on scammed customers’ experiences and outcomes, their systems need to enable analysis of cases from start to finish.
- ASIC is also contributing to whole-of-government initiatives to combat scams, such as the establishment of the National Anti-Scam Center in July 2023. The National Anti-Scam Center will build capability and data-sharing technology to receive reports of scams, distribute data to those who need it most, and analyze and act on the trends sourced from this data to disrupt scams and educate consumers.
- ASIC is calling on banks and other financial institutions to improve their approaches to handling scams. This includes developing and implementing comprehensive scam prevention, detection and response strategies, and providing fair and compassionate support to scam victims.
- Cyber and operational resilience: Noting one cannot discuss scams without reference to Cyber and operational resilience, Yanco ended by saying this will be a key focus for ASIC in the future and that where there are any egregious failures they will take enforcement action swiftly.
Yamco concluded by telling his audience “by working together to improve consumer outcomes, regulators and businesses maintained confidence in a financial system, which – despite these pressures – remained fair, strong and efficient.”
A selected summary of key developments for regulated financial institutions
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