FCA looks to improve whistleblower confidence
The UK Financial Conduct Authority (FCA) has announced plans to improve its whistleblowing procedures. The proposed changes include providing whistleblowers with more detailed information about the outcome of their reports, improving the use of whistleblowers’ information across the organization, enhancing its webform to capture every disclosure, and engaging with the Department for Business and Trade to review and enhance the wider whistleblowing system. The FCA aims to make end-to-end whistleblowing processes more efficient and maximize the use of data to identify and assess changes in market trends at reporting funds.
European Commission announces major anti-corruption package
The set of measures announced by President Ursula von der Leyen include new and strengthened rules criminalising corruption offences and harmonising penalties across the EU, as well as a proposal to establish a dedicated Common Foreign and Security Policy (CFSP) sanctions regime to target serious acts of corruption worldwide. These new measures place a strong focus on prevention and creating a culture of integrity
The key elements of the new initiative are as follows.
- Communication on the fight against corruption: The Commission and the High Representative are developing new directions and new tools to fight corruption at both EU and Member State level. They are also committing to tackling corruption at the global level. An EU network against corruption will be established to act as a catalyst for corruption prevention across the EU. It will develop best practices and practical guidance.
- Stronger rules to fight corruption: The Commission is proposing a new Directive on combating corruption. The proposal would modernise the existing EU anti-corruption legal framework by:
- Preventing corruption and building a culture of integrity: The proposal would raise awareness of corruption, ensure that the public sector is held accountable to the highest standards, and set up specialised anti-corruption bodies.
- Creating one legal act for all corruption offences and sanctions: The proposal would harmonise definitions of criminal offences prosecuted as corruption, increase the level of criminal sanctions for natural and legal persons, and harmonise aggravating and mitigating circumstances.
- Ensuring effective investigations and prosecution of corruption: The proposal would ensure that law enforcement and prosecutors have appropriate investigative tools to fight corruption, and that privileges and immunity can be lifted during corruption investigations. It would also introduce minimum rules on the statute of limitation to ensure sufficient time to bring corruption offences to justice.
- Expanding the CFSP sanctions toolbox to cover serious acts of corruption: The EU is proposing to expand its CFSP sanctions toolbox to cover serious acts of corruption worldwide. This would complement and enhance the EU’s internal and external instruments against corruption.
OFAC enforcement against Poloniex, LLC for sanctions breaches
The Office of Foreign Assets Control (OFAC) has issued an enforcement notice and fine against Poloniex, LLC, a company that operated an online trading and settlement platform.
Between January 2014 and November 2019, the Poloniex trading platform allowed customers apparently located in sanctioned jurisdictions to engage in online digital asset-related transactions— consisting of trades, deposits, and withdrawals, despite being aware of the customers locations via Know Your Customer (KYC) information and internet protocol address data.
Customers from Crimea, Iran, Sudan and Syria were all able to carry out transactions even though Poloniex made efforts to identify and restrict accounts with a nexus to these territories and others pursuant to its compliance program.
Poloniex has agreed to a fine of $7,591,630.
FINRA adopts new rule change
FINRA has adopted amendments to Rule 8312 (FINRA BrokerCheck Disclosure) to release information on BrokerCheck as to whether a particular current or former member firm is currently designated as a Restricted Firm pursuant to FINRA Rules 4111 (Restricted Firm Obligations) and 9561 (Procedures for Regulating Activities Under Rule 4111).1.
Merrill Lynch fined for cold calling
The Financial Industry Regulatory Authority (FINRA) has fined Merrill Lynch $700,000 for breaching ‘do not call’ regulations during the period January 2018 and January 2020. During this period around 3,000 trainees participated in a Financial Advisor Development Program which included a business development element in which participants engaged in marketing to prospective new clients, including by making unsolicited telemarketing calls to individuals.
The firm conducted a monthly review of 200 randomly selected trainees for compliance with telemarketing rules, but this review was not reasonable because it only considered a subset of calls made by those trainees. If a trainee failed to enter a phone number into the firm’s Contact Management System as a prospective client, the firm did not identify calls to that number as part of this monthly review, or otherwise review the call for compliance with telemarketing rules. Hence the firm’s monitoring program did not detect thousands of outbound calls its trainees placed to telephone numbers that were listed on the national do-not-call registry or the firm’s do-not-call list.
SEC fines for penny stock fraud
The Securities and Exchange Commission (SEC) has settled a case against Alexander J Dillon, Cosmin I Panait, and their entities GPL Ventures LLC and GPL Management LLC, who were charged with being unregistered dealers and conducting a penny stock fraud scheme. The defendants consented to pay over $39m in civil penalties and disgorgement to settle the case.
The SEC’s complaint alleged that between July 2017 and August 2021, the defendants acquired numerous microcap stocks at a discount and publicly sold the securities to the investing public.
Additionally, the complaint charged the defendants with orchestrating a fraudulent scheme with microcap issuer HempAmericana, Inc. The defendants consented to final judgments require them to pay $29.7m in disgorgement, $2.5m in prejudgment interest, and civil money penalties of $3.5m each. They will also surrender all remaining unconverted convertible notes still held, with a face value of approximately $11m, and are subject to a five-year penny stock bar.
SEC amends Form PF
The Securities and Exchange Commission (SEC) has announced changes to Form PF, a confidential reporting form for SEC-registered investment advisers to private funds. The amendments will require large hedge fund advisers to report events that could indicate significant stress at a fund, quarterly event reporting for all private equity fund advisers, and enhanced reporting by large private equity fund advisers to improve the ability to monitor systemic risk and identify changes in market trends. The changes aim to improve investor protection and identify potential risks to the broader financial system.
Commenting on the changes, SEC Chair Gary Gensler noted two enhancements from the final changes:
“First, the final rule requires, for the first time, that large hedge fund and private equity fund advisers make current reports on certain events to the Commission. At present, advisers to private funds are required to file only periodic reports with the Commission. Under the final rule, these new, more-timely reports—within 72 hours from large hedge fund advisers and quarterly from private equity fund advisers—will inform financial regulators on certain events that may indicate significant stress or otherwise signal for systemic risk and investor harm. For large hedge fund advisers, current event reporting will include, among others, extraordinary investment losses, significant margin events, and counterparty defaults.
Second, today’s final rule adds to the information that advisers to large private equity firms provide on their annual report. The rule will require that advisers to these large private equity firms include information relating to these firms’ strategies, use of leverage, and clawbacks of a general partner’s performance compensation or a limited partner’s distributions.”
A selected summary of key developments for regulated financial institutions
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