CFTC enforcement boss on digital derivatives enforcement
In a speech at the Practicing Law Institute White Collar Crime event, CFTC Enforcement Director Ian McGinley spoke about how the CFTC has risen to the regulatory challenge of enforcement in the derivatives markets for digital assets.
McGinley began by reminding the audience of the often-underappreciated role of the CFTC in safeguarding the integrity of derivatives markets. He noted that these markets initially served farmers and ranchers, providing a tool to manage price risks related to various factors such as droughts, storms, and international trade changes. Over time, derivatives markets expanded to cater to manufacturers, pension funds, and financial entities dealing with additional risks like currency and interest rate fluctuations.
McGinley continued developing the historical context of the current regulatory environment. He covered the emergence of “bucket shops” in the 19th and early 20th centuries and traced the evolution of the regulatory framework, noting the passage of key acts like the Futures Trading Act, Grain Futures Act, and the Commodity Exchange Act in 1936. The 1974 Commodity Futures Trading Commission Act solidified the CFTC’s existence as an independent agency and expanded the definition of commodities.
Coming to the present day, McGinley made the following points.
Digital asset regulation: He highlighted the regulatory approach towards digital asset derivatives, which are treated similarly to traditional commodities. Cases involving unregistered exchanges and entities engaging in illegal activities related to digital assets, such as TeraExchange, Coinflip, and Bitfinex, were discussed.
DeFi and regulatory challenges: The emergence of decentralized finance (DeFi) presents challenges to regulators. Cases of DeFi platforms attempting to circumvent regulations were mentioned, emphasizing the need for regulatory oversight in this space.
Spot market enforcement: While the CFTC’s authority in the spot market is limited, the speech cited successful cases against entities like Coinbase and Tether for fraudulent activities and inaccurate reporting, which are crucial to protect market integrity.
Legislative needs: The speech acknowledged the regulatory gap in the spot market for digital assets and suggested the need for legislation to grant the CFTC additional authority.
McGinley concluded by reaffirming the CFTC’s commitment to its mission of ensuring fair and competitive markets, adapting to developments in the digital asset derivatives market, and taking legal action against those attempting to evade regulation.
CFTC Commissioner proposes National Financial Fraud Registry
In a speech at the National Association of Securities Dealers (NASD) 36th Annual Compliance Conference, the Commodity Futures Trading Commission (CFTC) Commissioner Christy Goldsmith Romero has proposed the creation of a National Financial Fraud Registry to help protect investors from fraud. The registry would be a centralized database of all crimes and fines related to financial fraud and would be accessible to the public.
Romero said that the registry would be a powerful tool for deterring fraudsters and protecting investors. She noted that fraudsters are increasingly using technology to target investors, and that the registry would help law enforcement track down and prosecute these criminals.
“What I propose is a coordinated approach by federal leaders to create a single public access point to information on fraud convictions and civil fines. Once established, each federal agency would register its convictions, sentencings, civil fines and resolved enforcement actions. State and local agencies could join to achieve a true national fraud registry ”
In addition to proposing the National Financial Fraud Registry, Romero also discussed other ways that regulators can use technology to protect investors. She said that regulators should use social media to track down fraudsters and warn investors about scams. She also said that regulators should focus on making disclosures more accessible to retail investors.
The registry would be a valuable resource for compliance teams and other financial professionals who are responsible for protecting investors from fraud. The registry would provide a centralized source of information on fraudsters and their activities, which would help compliance teams to identify and investigate potential fraud cases. Commissioner Goldsmith Romero concluded: “Together, federal and state officials can build a safer financial system. One that harnesses the best of technology, while protecting investors and financial stability.”
BIS update on Basel III
The Bank for International Settlements (BIS) has published a press release by way of an update on Basel III progress. The key points of the update are as follows:
- The Basel Committee’s oversight body, the Group of Central Bank Governors and Heads of Supervision GHOS), met on 11th September 2023 to take stock of the lessons learned from the recent banking turmoil and review the implementation status of outstanding Basel III standards.
- The banking turmoil of March to May 2023 was the most significant system-wide banking stress since the Great Financial Crisis (GFC) in terms of scale and scope.
- The GHOS endorsed the Committee’s regulatory stocktake, which underlined the importance of banks’ risk management practice and governance arrangements, strong and effective supervision, and a prudent and robust regulatory framework in safeguarding financial stability.
- The GHOS also endorsed a series of follow-up initiatives, including prioritizing work to strengthen supervisory effectiveness and identifying issues that could merit additional guidance at a global level, and pursuing additional follow-up analytical work based on empirical evidence.
- The GHOS took stock of the implementation status of the outstanding Basel III reforms, which were finalized in 2017. Members have continued to make good progress with implementation, and the GHOS unanimously reaffirmed their expectation of implementing all aspects of the Basel III framework in full, consistently, and as soon as possible.
UK’s NCA publishes ransomware and cybercrime research
The UK’s National Crime Agency has published a new white paper looking at ransomware, extortion and the cybercrime ecosystem.
Published in conjunction with the National Cyber Center, the report considers how the tactics of organized criminal groups have evolved as ransomware and extortion attacks have grown in popularity. Whilst aimed at security professionals, the white paper is a helpful update for compliance teams looking for current thinking and the latest updates on how cybercrime is evolving.
A selected summary of key developments for regulated financial institutions
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