In our second regulatory round-up for August, European regulators offer their feedback on mooted regulations while the US Securities and Exchange Commission slaps Citigroup Global Markets with a US$2.9 million penalty for recordkeeping violations. Elsewhere, in APAC the Australian Securities Exchange held its first stakeholder advisory group for cash equities clearing and settlement and Hong Kong Exchanges and Clearing (HKEX) named John Hsu as managing director and group chief technology officer, while sustainability is back on the agenda with standard-setters urging climate focus and a new collaboration on impact accounting.
- Asset Management and Investors Council responds to ELTIF regulation
- UK FCA provides update on wholesale markets data study
- Citigroup Global Markets hit with $2.9m SEC underwriting expenses recordkeeping penalty
- ASX holds first stakeholder advisory group for cash equities clearing and settlement
- HKEX makes senior IT appointments
- SDX becomes first DLT-based market infrastructure to adopt DTIF ISO 24165 DTI standard
- IAIS urges ISSB to maintain climate focus
- IFVI and VBA collaborate on impact accounting framework
Europe
Asset Management and Investors Council responds to ELTIF regulation
ICMA’s Asset Management and Investors Council (AMIC) has submitted its response to the European Securities and Markets Authority (ESMA) consultation on the draft regulatory technical standards under the revised European Long-Term Investment Funds (ELTIF) regulation.
The AMIC recommended a number of considerations for the final Regulatory Technical Standards (RTS) in order to ensure the success of ELTIF 2.0 and preserve the improvements agreed at level 1.
In particular, the AMIC highlighted the importance of maintaining flexibility to facilitate the ELTIF manager to act in the best interest of investors and implement the most appropriate liquidity management tools; the need to consider liquidity management tools and redemption policies holistically, and not in isolation; and the wider regulatory landscape to ensure a coherent and consistent approach across regulations.
UK FCA provides update on wholesale markets data study
The UK’s Financial Conduct Authority (FCA) will not refer any of the three markets, benchmarks, credit ratings data and market data vendor (MDV) services, in its study into how well wholesale data markets are working, to the Competition and Markets Authority (CMA).
The FCA launched the market study on 2 March 2023 following persistent user concerns about how well wholesale data markets are working. It focuses on competition in the provision of benchmarks, credit ratings data and market data vendor (MDV) services.
In its update report, the FCA said: “Based on our work to date, we are proposing not to refer any of the markets in scope of the study to the CMA at this stage. While we believe there are reasonable grounds to suspect there are features of each of the relevant markets that prevent, restrict or distort competition in the UK, our provisional view is that it is most appropriate for us to take forward further work to identify and address potential harm caused by these features ourselves.”
The regulator said it will continue to identify any harm in these markets and, where appropriate, potential ways to address it.
The update report highlighted emerging issues in these markets, such as concerns about market power of large and established firms, which can reduce competition. The report also highlighted commercial practices that could increase complexity and reduce transparency in pricing and contractual terms.
“Well-functioning data markets are important for economic growth and the UK’s international competitiveness. Our work is a key part of our broader strategy to strengthen the UK’s position in global wholesale markets,” the regulator said.
Americas
Citigroup Global Markets hit with $2.9m SEC underwriting expenses recordkeeping penalty
Citigroup Global Markets (CGMI) has settled a US$2.9 million penalty with the US Securities and Exchange Commission (SEC) for underwriting expenses recordkeeping violations.
The SEC found that CGMI, between 2009 and 2019, used an “unsubstantiated and unverified” method to calculate and record indirect expenses associated with its work as an underwriter, in violation of federal securities laws requiring broker-dealers to maintain records reflecting all assets and liabilities.
Sanjay Wadhwa, deputy director of the SEC’s division of enforcement, said: “Underwriters serve a critical role as gatekeepers in securities offerings. They perform essential functions, including investor protection and also helping companies access capital to grow and innovate.
“Recordkeeping failures such as these, perpetuated over at least a decade, can undermine the viability of those functions. The SEC will continue to vigorously enforce the books and records provisions of the federal securities laws, which are crucial to well-functioning markets.”
According to the SEC, CGMI calculated an indirect expense amount based on a fixed percentage of the underwriting fee for each deal where it was engaged as a lead underwriter and then, using fixed “allocation grids,” divided that amount into specific categories of expenses.
APAC
ASX holds first stakeholder advisory group for cash equities clearing and settlement
The Australian Stock Exchange (ASX) has held its first meeting for the stakeholder advisory group for Cash Equities Clearing and Settlement.
The new advisory group is made up of experienced industry leaders drawn from different stakeholder sectors and fields of expertise and will provide advice and recommendations to ASX’s Clearing and Settlement Boards on key strategic issues in the provision of cash equity clearing and settlement services.
Independently chaired by Alan Cameron, this inaugural meeting will allow the ASX to brief members on its solution decision framework for CHESS replacement and finalise procedural matters such as membership and charter. The group will in time also consider other aspects of cash equities clearing and settlement.
ASX managing director and CEO, Helen Lofthouse, said: “The Advisory Group will be a key element of ensuring good governance of critical market infrastructure and will build on other important stakeholder initiatives introduced by ASX this year, including the CHESS replacement Technical Committee and the CHESS replacement Partnership Program, to build trust and confidence.”
In July 2023, the Australian Securities and Investments Commission (ASIC) requested ASX establish a high-level industry advisory group to advise on significant strategic clearing and settlement issues relating to cash equities trading in Australian markets with a focus on CHESS replacement.
HKEX makes senior IT appointments
Hong Kong Exchanges and Clearing Limited (HKEX) has named John Hsu as managing director and group chief technology officer. He succeeds Richard Leung, who will become group chief information officer (CIO).
Reporting to Leung, Hsu will join the group on 29 September 2023 and become a member of the group’s management committee. He will head up the group’s IT infrastructure, operations, development and support functions in Hong Kong, as well as HKEX’s Innovation and Data Lab and its Mainland Technology Centre.
In his new role, Leung will continue to have oversight of the group’s technology strategy and functions, and will also focus on a number of key strategic group-wide projects. He will continue to report to HKEX CEO Nicolas Aguzin.
On the appointments, Aguzin said: “Technology is at the heart of HKEX’s vision and strategy and today’s appointments reflect our commitment to continue investing in this key area, providing best-in-class services to our clients and stakeholders around the world. Richard and John’s leadership will be invaluable as we progress our work to develop a platform business that leverages modern, agile and digitalised infrastructure, connecting today with tomorrow.”
Leung said: “With more than 20 years of international experience in technology operations and strategic delivery, John’s knowledge and expertise will be instrumental as we drive our business and technology agenda forward. I look forward to working closely with John to further strengthen and elevate HKEX’s information and technology capabilities.”
Hsu joins HKEX from HSBC, where he was CIO Asia Pacific from May 2019. Prior to this he held senior roles at Huawei Technologies, SF Express and Deloitte. He also founded ALA Financial, a company focused on leveraging the power of micro-financing to support young investors and borrowers.
World
SDX becomes first DLT-based market infrastructure to adopt DTIF ISO 24165 DTI standard
Six Digital Exchange (SDX) has become the first private distributed ledger technology (DLT) based financial market infrastructure to adopt The Digital Token Identifier Foundation (DTIF) managed ISO 24165 DTI standard.
The financial industry is increasingly adopting the DTI ISO standard, a unique identifier for digital ledgers, tokens, and cryptocurrencies.
Regulators can utilise DTIs to watch digital asset trades, ensure compliance with anti-money laundering and counter-terrorism financing requirements, and monitor risks associated with global stablecoins and other digital assets.
Additionally, ESMA has recommended the DTI as a risk management measure within the European Union’s DLT Pilot program.
The Digital Token Identifier Foundation (DTIF) is a non-profit division of Etrading Software (ETS), designed to provide source reference data for the unique identification of digital tokens based on ISO’s new standard for digital assets, ISO 24165.
IAIS urges ISSB to maintain climate focus
The International Association of Insurance Supervisors (IAIS) has asked the International Sustainability Standards Board (ISSB) to continue its climate-first focus and ensure strong linkages between climate disclosures and financial reporting.
In a letter on the ISSB’s proposed agenda priorities for 2024-2025, the IAIS said that “ensuring effective implementation of the climate standard is more important than moving into new areas”.
It added the ISSB should also consider what else needs to be done to deliver effective economy-wide climate disclosures across jurisdictions.
“The implementation of broad and high-quality climate standards across the economy is important to ensure that insurers have access to the data they need for their counterparties to manage climate risks,” it said.
The IAIS noted the ISSB potentially focus on a proposed research project on biodiversity, building on work undertaken by the Taskforce on Nature-related Financial Disclosures and the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services.
In that regard, the IAIS agrees that the primary focus of the ISSB should be to support the consistent implementation of IFRS S1 and IFRS S2 and to expand the requirements, in particular to strengthen the required metrics
IFVI and VBA collaborate on impact accounting framework
The International Foundation for Valuing Impacts (IFVI) has joined forces with the Value Balancing Alliance (VBA) to develop an impact accounting methodology that merges the best of financial accounting with vital sustainability indicators.
The aim is to seamlessly integrate existing frameworks such as the IFRS Sustainability Disclosure Standards that were launched earlier in June, as well as the European Sustainability Reporting Standards (ESRS), and an anticipated climate disclosure directive from the US Securities and Exchange Commission (SEC)..
IFVI and VBA recently published a conceptual framework that focuses on the pivotal terms and concepts, inviting industry feedback until 16th October.
The subjects include climate change, equitable wages, and notable consumer impacts, especially in the healthcare domain.
“Our overarching aim is to craft an open-source methodology accessible to everyone, harmonising seamlessly with existing reporting norms, ” said Daniel Osusky, IFVI’s chief research officer.
He added, their current collaboration with VBA seeks to take the vision forward, amalgamating existing methodologies and moving beyond the prototype phase.
Osusky said he envisions a future where their methodologies become an intrinsic component of other major organisations, regulatory bodies, and standards.
He notes he is optimistic that companies and investment entities will employ their methodologies post-release, citing instances of early adopters like Sweden’s Summa Equity who have experimented with previous iterations of impact accounting frameworks.
He also acknowledged the significant influence of entities like IFRS, the Impact Management Platform, the Capitals Coalition, Social Value International, and the Impact Economy Foundation.
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