FCA Dear CEO letter
The Financial Conduct Authority (FCA) has written to CEOs of asset management firms to inform them of the conclusions and recommendations from the FCA’s multi-firm review on fund liquidity management.
The letter stresses the regulator’s expectations:
- Good governance is crucial during periods of market uncertainty, and clear accountabilities and expertise within governing bodies are necessary for effective risk management, including liquidity risk.
- Firms should have governance arrangements in place to oversee liquidity risks, with established lines of responsibility and escalation to address volatile market conditions or redemption stress.
- Asset managers have tools available to enhance liquidity risk management, but the regulator has concerns regarding their correct usage and consistent decision-making processes.
- When asset managers face redemptions, they must meet regulatory requirements and ensure fair treatment of exiting and remaining investors, considering the costs of redemption and asset mix.
- Collaboration with service providers is essential to ensure operational systems and processes are suitable, capable of swift execution, and scalable to handle increased demand.
- Firms are expected to conduct liquidity stress testing diligently and utilise liquidity management tools appropriately.
ABA section 1071 guidance
The American Bankers Association (ABA) has published a useful summary of practical action points to prepare for the introduction of the new Section 1071 of the Dodd-Frank Act, which requires the collection and reporting of credit application data for small businesses, including women-owned and minority-owned small businesses.
The new rule came into effect at the end of June. The guidance includes practical aspects of getting ready, and provides a list of important issues banks should consider, with recommendations on what needs to happen between now and Day One of data collection.
Included too are implementing new policies and procedures, getting system requirements and automation in order, and (which has been under-emphasised) critical cultural aspects of imposing new processes into the small business lending process.
CFTC obtains consent orders against for commodity pool fraud
The Commodity Futures Trading Commission (CFTC) has announced consent orders against several individuals and their companies involved in commodity pool fraud. The defendants include Surujpal Sahdeo, Daniel Cologero, Randy Rosseau, Hemraj Singh, and their respective companies SR&B Investment Enterprises, Inc., Green Knight Investments, LLC, Bull Run Advantage, LLC, and King Royalty, LLC.
The consent orders resolve a complaint filed on September 9, 2020, by the CFTC against the defendants. The complaint, which has been amended, is still pending against another individual and company.
The case revolves around the defendants’ operation of “feeder” funds, which solicited funds from retail pool participants and pooled the funds in company bank accounts. The funds were then sent to a master pool to trade forex on their behalf. While the master pool collected nearly $58 million, only a fraction of that amount was used for actual forex trading. False statements were sent to investors, showing fictitious profits and concealing losses, thereby operating the feeder funds as fraudulent schemes.
Under the orders, defendants Surujpal Sahdeo, Daniel Cologero, Randy Rosseau, Hemraj Singh, and their respective companies SR&B Investment Enterprises, Inc., Green Knight Investments, LLC, Bull Run Advantage, LLC, and King Royalty, LLC are required to pay restitution to their clients. Singh and King Royalty must pay $5,478,837, Sahdeo and SR&B $711,877, Rosseau and Bull Run $215,719, and Cologero and Green Knight $175,378. The orders also impose civil monetary penalties, with Singh and King Royalty facing a penalty of $1,500,000, Sahdeo and SR&B $1,750,000, Cologero and Green Knight $500,000, and Rosseau and Bull Run $75,000.
In addition to the financial penalties, the orders enjoin the defendants from further violations of the Commodity Exchange Act and CFTC regulations. They also impose permanent trading and registration bans on the individuals and their companies.
A selected summary of key developments for regulated financial institutions
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