New tax transparency rules for EU VASPs
EU finance ministers have agreed to new tax transparency rules for all service providers facilitating transactions in crypto-assets for customers resident in the EU. The new rules will improve Member States’ ability to detect and counter tax fraud, tax evasion and tax avoidance, by requiring all crypto-asset providers based in the EU – irrespective of their size – to report transactions of clients residing in the EU.
The new reporting requirements on crypto-assets, e-money and central bank digital currencies will enter into force on 1 January 2026.
HKMA publishes AML/CTF consultation conclusions
In January, the Hong Kong Monetary Authority announced a consultation on proposed amendments to the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Authorised Institutions) (AML/CFT Guideline). The consultation conclusions summarise the key comments received and the HKMA’s responses.
The conclusions cover the following areas:
- Digital identification system
- Beneficial ownership of a trust
- Politically exposed persons (PEPs)
- Virtual assets (VAs) and virtual asset service providers (VASPs)
- Bearer shares and nominee directors.
The revised AML/CFT Guideline will take effect on 1 June 2023 together with the relevant provisions in the Anti-Money Laundering and Counter-Terrorist Financing (Amendment) Ordinance 2022.
FDIC chair outlines regulatory response
Federal Deposit Insurance Corporation (FDIC) chairman Chairman Martin J Gruenberg has outlined the FDIC’s response to recent bank failings in remarks to the House of Representatives Committee on Financial Services.
Gruenberg updated the committee on four elements of its regulatory agenda:
Strengthening and modernising the Community Reinvestment Act
In June 2022, the Federal Reserve, OCC, and FDIC adopted a Notice of Proposed Rulemaking (NPR) to strengthen and modernise the Community Reinvestment Act (CRA). The NPR aims to improve the CRA’s impact by expanding access to credit and banking services in low- and moderate-income communities. The proposed changes include adapting to banking industry changes, enhancing transparency through standardised metrics, clarifying eligible CRA activities, tailoring rules to bank size and business models, and maintaining a unified approach among regulators. The agencies are reviewing stakeholder comments to potentially refine the proposed rule, representing a significant revision to the CRA, last updated in 1995.
Finalising the Basel III capital rules
In September 2022, the Federal Reserve, OCC, and FDIC reaffirmed their commitment to implementing enhanced regulatory capital requirements aligned with the final Basel III standards issued by the BCBS in 2017. These standards aim to strengthen capital requirements for market risk, improve requirements for financial derivatives, and simplify operational risk measurement for regulatory capital purposes.
The agencies are developing a joint proposed rule for large banking organisations, seeking public input on the new capital standards. Community banks, with their smaller size and limited trading activities, will not be affected by the proposed rule as they have different capital requirements.
Resolution-related long-term debt requirement for large banking Organisations
In October 2022, the FDIC Board approved the publication of an Advance Notice of Proposed Rulemaking (ANPR) jointly proposed by the FDIC and the Board of Governors of the Federal Reserve System. The ANPR explores potential new resolution-related resource requirements, such as a long-term debt requirement, for large banking organisations to facilitate the orderly resolution of banks in the US.
This ANPR was the initial step in developing an approach to address the risks associated with the resolution of large banks, including risks to the Deposit Insurance Fund (DIF), customers, counterparties, local communities, and financial stability. Recent bank failures highlighted the implications of large banks with assets of $100 billion or more for financial stability. The agencies are contemplating issuing a proposed rulemaking in the near future to implement resolution-related long-term debt requirements for banking organisations with assets of at least $100 billion.
Reviewing the Bank Merger Process
The Bank Merger Act of 1960 (BMA) established a framework that requires approval from the Federal Reserve, OCC, or FDIC for bank mergers.
In March 2022, the FDIC issued a Request for Information and Comment (RFI) on bank merger transactions, seeking input on four aspects: competition, prudential risk, the convenience and needs of the communities affected, and financial stability.
The banking sector has experienced consolidation through mergers and acquisitions, making a review of the BMA’s implementation timely. The comment period for the RFI closed in May 2022, and the FDIC is considering updates to its BMA Statement of Policy based on the comments. Additionally, the FDIC is collaborating with other agencies and the Department of Justice for an interagency review of the bank merger application process.
Gruenberg concluded: “the FDIC will be focused on monitoring the condition of the banking industry, including the impacts of the recent bank failures on liquidity; giving close consideration to the recommendations and options resulting from the studies on the FDIC’s supervision of Signature Bank and the deposit insurance system, respectively; and pursuing several important rulemakings.”
CFTC’s GMAC announces 2023-2025 plan
The Commodity Futures Trading Commission’s Global Markets Advisory Committee (GMAC) has announced its proposed three-year plan.
GMAC was created to advise the Commission on issues that affect the integrity and competitiveness of US markets and US firms engaged in global business, including the regulatory challenges of a global marketplace that reflects the increasing interconnectedness of markets and the multinational nature of business. Three subcommittees have announced their plans:
- The Global Market Structure Subcommittee will examine the impact of Treasury market reform on derivatives markets, liquidity improvement, and international alignment of trading and clearing obligations. They will provide recommendations for market volatility controls, cross-margining, and changes to derivatives market structure.
- The Digital Asset Markets Subcommittee will focus on tokenised asset markets and provide recommendations for industry standards, including digital assets taxonomy and regulation of non-fungible tokens (NFTs) and utility tokens.
- The Technical Issues Subcommittee will address trade reporting standardisation, global coordination during market events, efficiency improvements in post-trade processes, and infrastructure issues impacting cross-border activity.
Comments on the proposed plans are invited before the deadline of 30th May.
Red Rock Secured and executives charged by SEC for defrauding investors in retirement account scheme
The Securities and Exchange Commission (SEC) has announced charges against Red Rock Secured LLC, a California-based company, along with its CEO, Sean Kelly, and two former Senior Account Executives, Anthony Spencer and Jeffrey Ward. The charges are related to a fraudulent scheme where the defendants convinced hundreds of investors to sell securities in their retirement accounts to purchase gold and silver coins at prices significantly higher than what was initially promised.
According to the SEC’s complaint, the defendants used false and misleading statements to solicit investors. They claimed that by selling securities in their retirement accounts, including federal employee Thrift Savings Plan accounts, 401(k) plans, and Individual Retirement Accounts, investors could “protect” their savings by investing in gold or silver coins at a markup of only 1 to 5 percent. However, in reality, Red Rock charged markups as high as 130 percent, enabling them to make more than $30 million from the $50 million they received from investors.
Antonia M Apps, Director of the SEC’s New York Regional Office, stated: “As our complaint alleges, the defendants used fear and lies to defraud investors out of millions of dollars from their hard-earned retirement savings.”
FINRA May fines summary
FINRA has published its latest disciplinary summary for May 2023 covering a range of enforcement actions. Amongst those mentioned for violations are Aeon Capital, Transamerica Capital, and NetAlliance Securities, LLC.
EIOPA updates its solvency II risk dashboard
The European Insurance and Occupational Pensions Authority (EIOPA) has published its Risk Dashboard based on Q4 2022 Solvency II data. The analysis shows that insurers’ exposures to macro and market risks are currently the main concern for the insurance sector, while all other risk categories are at medium levels.
A selected summary of key developments for regulated financial institutions
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