In our second regulatory round up for September, Deutsche Bank subsidiary Deutsche Bank Investment Management Americas (DIMA) is in hot water with the Securities and Exchange Commission over anti-money laundering programme failures and ESG statements. Broker-dealer Citadel Securities also felt the regulator’s ire for violating a provision of Regulation SHO, the regulatory framework designed to address abusive short selling practices. Both firms were hit with a penalty, US$25 million and US$7 million, respectively. Elsewhere, the Bank of England and Sweden’s central bank, the Riskbank, shore up their commitment to maintain oversight of the London Clearing House (LCH) and in APAC, the Singapore Exchange Regulation body consults on proposed changes to Futures Trading Rules and other rulebooks.
- Deutsche Bank subsidiary DIMA hit with $25m AML violation and ESG misstatement penalty
- CFTC extends no-action position for certain reporting obligations
- Coding error triggers US$7 million fine for Citadel
- Bank of England and Riksbank reaffirm commitment to LCH oversight
- HKEX signs cooperation agreement with Guangxi government
- ASX business committee appoints independent chair
- SGX RegCo consults on proposed changes to Futures Trading Rules and other rulebooks
- DIFC and Refinitiv issue report outlining five-year global finance innovation outlook
Americas
Deutsche Bank subsidiary DIMA hit with $25m AML violation and ESG misstatement penalty
The US Securities and Exchange Commission (SEC) has ordered Deutsche Bank subsidiary Deutsche Bank Investment Management Americas (DIMA) to pay a US$25 million penalty for its failure to develop a mutual fund anti-money laundering (AML) programme and for misleading statements regarding its Environmental, Social, and Governance (ESG) investment process.
The SEC found that DIMA caused mutual funds it advised to fail to develop and implement a reasonably designed AML program to comply with the Bank Secrecy Act and applicable Financial Crimes Enforcement Network regulations. The regulator also found that DIMA marketed itself as a leader in ESG that adhered to specific policies for integrating ESG considerations into its investments; however, from August 2018 until late 2021, DIMA failed to adequately implement certain provisions of its global ESG integration policy as it had led clients and investors to believe it would.
SEC division of enforcement director Gurbir Grewal said: “The SEC’s order finds that DWS advised mutual funds with billions of dollars in assets yet failed to ensure that the funds had an AML program tailored to their specific risks, as required by law. Importantly, those AML obligations require mutual funds to establish and implement individualised programmes to detect and prevent money laundering and terrorism financing.
Sanjay Wadhwa, deputy director of the SEC’s division of enforcement and head of its climate and ESG task force, said: “Whether advertising how they incorporate ESG factors into investment recommendations or making any other representation that is material to investors, investment advisers must ensure that their actions conform to their words. Here, DIMA advertised that ESG was in its “DNA”, but, as the SEC’s order finds, its investment professionals failed to follow the ESG investment processes that it marketed.”
CFTC extends no-action position for certain reporting obligations
The US Commodity Futures Trading Commission’s (CFTC) division of market oversight (DMO) issued a no-action letter extending the current no-action position for reporting obligations under the ownership and control reports final rule (OCR Final Rule).
The OCR Final Rule, approved in 2013, requires the electronic submission of trader identification and market participant data. DMO is extending its no-action position to address continuing compliance difficulties associated with certain OCR reporting obligations that were identified by reporting parties and market participants.
Coding error triggers US$7 million fine for Citadel
The Securities and Exchange Commission has settled charges against broker-dealer Citadel Securities for violating a provision of Regulation SHO, the regulatory framework designed to address abusive short selling practices, which requires broker-dealers to mark sale orders as long, short, or short exempt.
These records are routinely used by regulators in policing prohibited short selling activity. To settle the SEC’s charges, Miami-based Citadel Securities agreed to pay a US$7 million penalty.
A spokesperson for Citadel, said, “This matter had no impact on the quality of our client execution. While updating our systems to accommodate certain client requests, we made a coding change that inadvertently affected a de minimis percentage of our order markings. We detected the issue and promptly fixed it more than three years ago.”
According to the SEC’s order, for a five-year period, it is estimated that Citadel Securities incorrectly marked millions of orders, inaccurately denoting that certain short sales were long sales and vice versa. The SEC’s order finds that the inaccurate marks resulted from a coding error in Citadel Securities’s automated trading system and that the firm provided the inaccurate data to regulators, including the SEC during this period.
Europe
Bank of England and Riksbank reaffirm commitment to LCH oversight
The Bank of England and Sweden’s central bank, the Riksbank, reaffirmed their commitment to cooperate on the oversight of the London Clearing House (LCH).
Jon Cunliffe, deputy governor for financial stability at the Bank of England, said: “The UK has a long and strong tradition of cooperation and openness with regulatory authorities around the world. This enables financial market infrastructure based in the UK to support sound markets and financial stability. Today’s joint statement with the Riksbank is an example of this.
“The strong cooperation that exists between the Riksbank and the Bank of England in relation to the oversight and supervision of LCH reflects international standards on how cooperation and deference between authorities can mitigate the risk of fragmented, global markets.”
The pair said their commitment helps preserve financial stability while benefiting cross-border clearing activity.
Riksbank governor Erik Thedéen said: “Sweden benefits greatly from being part of global financial markets. Safe and stable financial market infrastructures, in Sweden and abroad, are a key prerequisite in this respect. To this end, cooperation and information sharing between authorities is crucial, both in normal and more turbulent times. This, together with an EU-equivalent regulation and supervision of LCH, is key to preserving financial stability in Sweden. This statement is an illustration of the value the Riksbank puts on the cooperative arrangements between the Bank of England and the Riksbank.’
APAC
HKEX signs cooperation agreement with Guangxi government
Hong Kong Exchanges and Clearing (HKEX) has signed a Memorandum of Understanding (MOU) with the People’s Government of Guangxi Zhuang Autonomous Region (Guangxi Government) to strengthen cooperation and to support listings from Guangxi companies on Hong Kong’s equities market.
Under the MOU, HKEX and the Guangxi Government will exchange information on the latest developments in the capital markets of Hong Kong and Guangxi, as well as jointly host seminars for Guangxi-based organisations on capital raising opportunities in the region.
Guangxi is an important business trading hub for China’s e-commerce industry with countries in Southeast Asia, attracting more than 100 cross-border e-commerce enterprises to have operations in the area. Currently, there are eight Guangxi-based companies listed on HKEX.
ASX business committee appoints independent chair
The Australian Stock Exchange (ASX) business committee has appointed its first chair, Paul Rayson.
Rayson, formerly managing director of Australian retail broker CommSec, has worked in the financial services industry for more than 20 years and has experience across investment markets, technology, retail banking, risk management and governance.
The ASX business committee is a stakeholder forum which provides input on the operation and development of cash equities clearing and settlement infrastructure and services including the CHESS replacement project.
ASX group executive securities and payments Clive Triance said: “With the wide range of stakeholder interests represented on the business committee, I am confident Paul’s deep industry experience will demonstrate our commitment to constructive and inclusive member engagement on key agenda items and actions. This appointment underscores ASX’s ongoing work to deepen stakeholder engagement and enhance governance arrangements on key industry forums.”
Rayson said: “I was drawn to this unique opportunity, and I look forward to listening and working with the industry on the development of clearing and settlement in Australia.”
SGX RegCo consults on proposed changes to Futures Trading Rules and other rulebooks
Singapore Exchange Regulation (SGX RegCo) is seeking market feedback on changes to its Futures Trading Rules (FTR), Singapore Exchange Securities Trading (SGX-ST) rules and Singapore Exchange Derivatives Clearing (SGX-DC) rules.
SGX RegCo’s proposed amendments to the FTR involve updates to policies and rules including those relating to: the admission and registration of Singapore Exchange Derivatives Trading (SGX-DT) members’ representatives; the requirements pertaining to customer margining where members will have more flexibility in managing margin cycles, customer funds and collateral; and the requirements for automated trading to formalise key aspects of the Algorithmic Trading Regulatory Guide.
Middle East
DIFC and Refinitiv issue report outlining five-year global finance innovation outlook
Dubai International Financial Centre (DIFC) and Refinitiv have issued a report outlining the five-year outlook for innovation across the global financial services industry.
The report finds that while the pandemic kicked off a round of innovation, financial services has maintained this momentum as it looks to meet demand for personalised services and match competition from fintech and Big Tech firms. The report outlines four key trends that will shape the industry over the next five years: unlocking the potential of open finance; greater decentralisation in finance; the emergence of digital assets as a viable asset class; and the incorporation of ESG considerations across banking operations.
Arif Amiri, DIFC Authority CEO, said: “Investments in fintech are projected to grow by 17.2% CAGR to US$949 billion between 2022 and 2030. Combined with access to high-growth emerging markets and DIFC’s world-class financial, regulatory and innovation ecosystem, this provides immense opportunities for expansion and innovation. At DIFC we already see financial institutions actively joining forces with disruptive start-ups as we collaborate to shape the future of finance in line with our 2030 strategy and beyond.”
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