In our latest regulatory round-up, we see firms urged to strengthen their ‘know your customer’ and anti-money laundering programmes in light of increased regulatory scrutiny, while pan-European regulator ESMA suggests markets remain ‘sensitive’ despite lower volatility earlier this year. In the Americas, US regulator the Commodity Futures Trading Commission has been busy, with fines for Nasdaq Futures and BNY Mellon.
- Strengthen KYC, AML firms urged after H124 sees 31% surge in fines
- ICMA publishes summary report following its 2024 repo and sustainability survey
- Hong Kong exchange launches paperless listing reform consultation
- Hong Kong makes temporary modifications to SPAC listing requirements
- ESMA: markets remain ‘very sensitive’
- CFTC fines Nasdaq Futures over “false and misleading statements”
- CFTC hits BNYM with penalty over reporting and supervision failures
World
Strengthen KYC, AML firms urged after H124 sees 31% surge in fines
There was a 31% increase in the value of fines issued in H1 2024 compared to H1 2023, with the Asia-Pacific region (APAC) seeing the steepest rise in penalties, totalling more than US$46 million – a 266% increase compared to H1 2023.
The findings come from Fenergo, which said the rise in the value of fines reflects a global regulatory crackdown and technology advancements, which enhance the accuracy of detecting illicit activity.
Tracy Moore, director of regulatory affairs at Fenergo, said: “Looking towards the second half of the year, we expect this trend to continue, necessitating robust preparations for increased year-end enforcement actions.”
ICMA publishes summary report following its 2024 repo and sustainability survey
The International Capital Market Association’s (ICMA) repo and sustainability taskforce has published feedback received in response to its 2024 repo and sustainability market survey, launched in February 2024.
Building on the observations and categorisations from ICMA’s 2022 paper on sustainability in the repo market, the survey was designed to broaden the understanding of existing market practices and identify issues for further reflection and future guidance.
Feedback included calls for more guidance covering all types of sustainability-related repo; a confirmation that the majority of respondents active in this market primarily focus on repo transactions involving sustainable collateral and this category of sustainability-related repo remains their top priority; and a consensus that to avoid double-counting from an accounting perspective, any green claims should remain with the repo seller, who retains the economic exposure to the assets.
APAC
Hong Kong exchange launches paperless listing reform consultation
The Stock Exchange of Hong Kong Limited (the Exchange), a wholly-owned subsidiary of Hong Kong Exchanges and Clearing Limited (HKEX), has published a consultation paper seeking public feedback on proposals to further expand its paperless listing regime and other rule amendments.
The proposals aim to modernise market infrastructure and enhance operational and regulatory efficiency with market feedback sought over a two-month consultation period.
HKEX head of listing, Katherine Ng, said: “Sustainability sits at the core of HKEX’s strategic development and we are committed to adopting sustainable best practices as we continue to modernise. Our ongoing paperless listing reforms have been widely welcomed by the market, successfully resulting in a reduced use of paper and, recently, the first electronically registered prospectus in Hong Kong. We are pleased to be introducing more digital and web-based options to our listing framework, such as through electronic money transfer alternatives to cheque payments. Our proposals will not only align our practices with global standards, but will also provide greater convenience and enhanced efficiency for issuers, investors and other market participants.”
Hong Kong makes temporary modifications to SPAC listing requirements
The Securities and Futures Commission (the SFC) and The Stock Exchange of Hong Kong have made temporary modifications to the Listing Rules and amendments to the Exchange’s guidance materials effective from 1 September 2024, with respect to the minimum initial market capitalisation of Specialist Technology Companies; and independent third-party investment requirements for De-SPAC Transactions conducted by special purpose acquisition companies (SPACs).
The modifications, with the SFC’s support, are designed to address the change in market conditions since the introduction of both listing regimes.
Katherine Ng, HKEX’s head of listing, said: “At HKEX, we are committed to continuously reviewing and enhancing our listing framework so that it remains fit for purpose, supporting the attractiveness and competitiveness of Hong Kong’s capital market. Drawing on insights from listing applicants and related transactions, we have identified opportunities to boost the inclusivity and dynamism of our listing environment within the established framework. These modifications will provide greater flexibility and clarity for both issuers and investors, whilst upholding our robust regulatory standards.”
Michael Duignan, SFC’s executive director of corporate finance, said: “The SFC fully supports these modifications to maintain Hong Kong’s edge as a top listing destination for innovative and fast-growing technology companies. It is another example of how the listing authorities can be both agile and responsive to a challenging market environment, whilst continuing to maintain the quality of the market.”
EMEA
ESMA: markets remain ‘very sensitive’
The European Securities and Markets Authority (ESMA) has said markets remain “very sensitive”, despite lower volatility earlier this year.
Markets remain sensitive to interest rate changes, deteriorating credit risk and to political and electoral developments, the regulator said, with a “high risk” of corrections within the context of market liquidity in equities and other markets.
ESMA chair, Verena Ross, said: “Markets are getting more nervous about the economic outlook and political events, as the dip in equity valuations in early August and market volatility around recent European and French elections shows.
“Close monitoring of the financial markets in our remit and strong coordination of supervisory efforts with national authorities remains our priority.
We continue to see risks in the fund area linked to liquidity mis-matches, particularly in the real estate sector, and deteriorating quality of assets linked to interest rate, credit risk and valuation issues.”
Americas
CFTC fines Nasdaq Futures over “false and misleading statements”
Nasdaq Futures has received a US$22 million penalty from the Commodity Futures Trading Commission (CFTC) for failing to sufficiently establish, monitor or enforce rules related to an incentive programme offered to certain debt capital market (DCM) traders.
From July 2015 to July 2018, the CFTC says, Nasdaq Futures offered a range of incentive programmes to certain traders in the contract market while operating as a DCM focused on energy commodity futures contracts.
One such incentive was the Designated Market Maker (DMM) programme, which paid a fixed monthly stipend to market makers and was disclosed both to the CFTC and the public. However, the commission found that certain programme participants were also given payments based on the total number of contracts that they traded, an element that was not disclosed. In rule submissions, Nasdaq Futures either omitted or explicitly denied the existence of these volume-based incentives within the programme, and interviews with staff on the topic garnered equal denials.
Recommendations from Nasdaq Futures’ regulatory service provider to contact three DMM programme participants about particular trading activities were not followed, nor was documentation made of why these actions were not taken.
CFTC hits BNYM with penalty over reporting and supervision failures
The Commodity Futures Trading Commission (CFTC) has issued a US$5 million civil monetary penalty to the Bank of New York Mellon (BNYM) following its failure to report millions of swap transactions to a registered swap data repository.
These actions were in violation in a previous CFTC order against the firm, the commission stated, and demonstrated a failure in the supervision of BNYM’s swap dealer business as required by the Commodity Exchange Act and CFTC regulations.
An order filing and settling charges with BNYM was issued on 26th August. Alongside the penalty, BNYM will retain an independent compliance consultant to review and advise on its compliance programme, it said.
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