Greg Kilminster
Head of Product - Content
Misleading financial promotions result in fine and ban for LCF Director
The Financial Conduct Authority (FCA) has issued a final notice regarding Floris Jakobus Huisamen, a former director of London Capital & Finance plc (LCF), for recklessly approving hundreds of financial promotions that contributed to thousands of investors being misled.
The FCA had already given LCF a final notice on 11 October 2023 for failing to ensure its financial promotions were fair, clear, and not misleading in contravention of the rules set out in Chapter 4 of the Conduct of Business Sourcebook (COBS), including COBS 4.2.1(1)R (the fair, clear, and not misleading rule).
The current notice deals with Huisamen’s misconduct from 10 February 2017 to 10 December 2018, during which he was knowingly involved in LCF’s breaches while approved by the FCA to perform controlled functions at LCF. He failed to act with integrity in verifying and approving LCF’s financial promotions, which resulted in misleading, unfair, and unclear financial promotions, as described above.
The FCA has fined Huisamen £31,800 and banned him from working in financial services. Huisamen agreed to settle the case and qualified for a 30% discount, without which the penalty would have been £45,500.
It’s worth noting that the Serious Fraud Office is conducting criminal investigations into matters related to LCF, and the FCA has not made any findings regarding whether Huisamen has committed any criminal offences.
Therese Chambers, Joint Executive Director of Enforcement and Market Oversight at the FCA, said, ‘Mr Huisamen should have ensured LCF’s financial promotions were ‘fair, clear, and not misleading’. However, under him, the approval process became an ineffective tick-box exercise – as a result, thousands of investors were persuaded to invest on the basis of highly misleading statements.”
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California DPFI secures $1.5 Million settlement against crypto platform
The California Department of Financial Protection and Innovation (DFPI) has announced that TradeStation Crypto, Inc. (TCI) has agreed to a consent order after an investigation found that TCI engaged in the unqualified offer and sale of securities to retail investors. The investigation was conducted by the North American Securities Administrators Association task force of eight state securities regulators co-led by California and Washington, including Alabama, Mississippi, North Carolina, Ohio, South Carolina, and Wisconsin.
TCI is a Florida-based corporation that provides online digital asset trading accounts for self-directed retail and institutional investors and traders. The platform enables its users to buy, sell, trade, and hold digital assets like Bitcoin (BTC), Ether (ETH), and USD Coin (USDC). Between August 2020 and June 2022, TCI offered a crypto interest-earning program to investors, which paid interest to customers who held digital asset balances in their TCI digital asset trading accounts. This program, known as the Interest Feature, was promoted across California and the United States via the company’s official website and various platforms.
However, during the investigation, it was discovered that the Interest Feature was not offered or sold under any exemption or exception to qualification, which violated the California Corporations Code section 25110.
The California DFPI negotiated a settlement of $1.5 million with TradeStation on behalf of 51 United States jurisdictions.
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ESMA issues statement on reporting requirements under RTS28
The European Securities and Markets Authority (ESMA) has released a public statement on the reporting requirements under the RTS28, in light of the new rules under MiFID II. ESMA expects National Competent Authorities (NCAs) not to prioritise the periodic RTS28 reporting obligation for investment firms until the forthcoming transposition into national legislation in all Member States of the MiFID II review.
Background
RTS28 reports were originally designed to provide investors with information on the execution quality that investment firms have achieved. The newly adopted MiFID II/MiFiR review Level 1 texts have removed the requirement for investment firms to provide this information through RTS28 reports annually. However, investment firms may still need to publish these reports in 2024 and until the directive’s transposition date in their respective Member State.
Therefore, ESMA expects NCAs not to prioritise supervisory actions towards investment firms concerning the RTS28 reports.
Compliance with best execution requirements
In the statement, ESMA also emphasises that the above does not reduce the importance of adhering to the best execution requirements under both the current and reviewed MiFID II framework. Investment firms must strictly abide by the best execution requirements, and NCAs are expected to supervise their compliance.
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ESMA latest Spotlight on Markets newsletter
The European Securities and Markets Authority (ESMA) has published its latest Spotlight on Markets newsletter.
The newsletter covers:
- The consultation package related to the Markets in Crypto Assets Regulation (MiCA).
- A reminder of the requirements that apply when posting investment recommendations on social media.
- ESMA’s first risk monitoring report of 2024
- The report on the EU alternative investment funds (AIFs)’ market
- The latest Q&As updates
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FinCEN proposes rule to prevent misuse of US financial system through IA
The US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued a Notice of Proposed Rulemaking (NPRM) to prevent criminals and foreign adversaries from misusing the US financial system and assets through investment advisers.
Under this rule, certain investment advisers would be classified as “financial institutions” under the Bank Secrecy Act (BSA) and would be required to implement Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) programs, file suspicious activity reports, maintain records, and fulfil other obligations applicable to financial institutions. This applies to investment advisers registered with the SEC, as well as those that report to the SEC as exempt reporting advisers.
The deadline for comments on this proposal is 15 April 2024.
The Treasury has also published its risk assessment of this sector, which identifies the vulnerabilities and threats of illicit finance in the industry. The report highlights how the uneven implementation of AML/CFT requirements allows both legitimate and illicit investors to find advisers who do not inquire into their source of wealth.
This proposed regulation complements other recent actions by the Treasury to combat anonymous companies and all-cash real estate transactions. It aims to make the US financial system more transparent and assist law enforcement in identifying illicit proceeds entering the economy.
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Michelle Bowman on regulatory accountability
In an article written for Starling Insights, Federal Reserve Governor Michelle Bowman has written a useful piece about accountability for banks and regulators in the United States.
In the article, Bowman outlines the fundamental roles of US federal banking agencies in ensuring the safety and soundness of financial institutions and the stability of the broader financial system. She emphasises the importance of robust regulatory standards, regular examinations, and the compliance requirements needed to achieve these objectives. She also highlights the autonomy and independence of bank regulators, noting these are essential components of effective supervision.
Independence and accountability
The article addresses the delicate balance between regulatory independence and accountability. Bowman asserts that while independence is necessary for making impartial decisions in regulatory matters, it must be accompanied by accountability to Congress and the public. She highlights the high stakes involved in banking oversight and the processes in place to ensure regulatory accountability, including presidential appointments, regular congressional communication, and public reporting.
Transparency as a pillar of accountability
Bowman adds that transparency is a key aspect of regulatory accountability. She contends that transparent policies, procedures, and supervision practices are vital for demonstrating fairness and legitimacy in regulatory actions. She also notes the importance of consistent application of supervisory standards and the publication of clear guidance to facilitate trust among regulated institutions and the public.
Appropriate implementation of supervision and regulation
Bowman advocates for the prudent and targeted implementation of banking regulations, emphasising adherence to the laws enacted by Congress and cautioning against regulators intervening in areas that should be the domain of a bank’s board of directors and management. She concedes that the balance between a regulator applying “appropriate, targeted regulation and supervision, to assess whether a bank is operating in compliance with applicable laws and in a safe and sound manner” without interfering in a bank’s strategy is a difficult one but adds it should always be kept in mind by the regulator when using its regulatory arsenal.
Bowman ends her article by suggesting regulators should hold themselves to high standards the same way they do with the entities they oversee. She concludes “accountability promotes healthy bank regulation and supervision, just as accountability promotes a healthy banking system”.
Click here to read the full RegInsight on CUBE’s RegPlatform