Global Compliance Updates for Financial Services: August 2023 Edition
Welcome to the August 2023 edition of our Global Compliance Updates for Financial Services. In this issue, we cover the latest regulatory world-news/” target=”_blank” rel=”noopener”>news
and updates from around the world that are relevant to your organization. These compliance changes will impact various sectors in the financial industry, so be sure to read through this article carefully.
Europe:
The European Banking Authority (EBA) has issued new guidelines on stress testing for banks in the EU. The guidelines focus on increasing transparency and ensuring consistency in the application of stress tests across member states.
Asia:
The Monetary Authority of Singapore (MAS) has introduced new anti-money laundering (AML) and countering the financing of terrorism (CFT) regulations for financial institutions. These regulations aim to strengthen Singapore’s regulatory framework and enhance its role as a global financial hub.
North America:
The Financial Industry Regulatory Authority (FINRA) has proposed new rules to simplify the form ADV filing process for investment advisers. The changes aim to reduce regulatory burden and streamline compliance requirements.
South America:
The Central Bank of Brazil has announced new measures to strengthen its financial stability framework. The changes include stricter capital adequacy requirements, increased supervision of banks’ risk management practices, and enhanced cooperation with international organizations.
Global Financial Regulatory Landscape in August 2023
I. Introduction
In August 2023, the global financial regulatory landscape remains an intricate web of rules and regulations designed to safeguard the integrity of financial markets. With ongoing efforts to address the evolving challenges in finance, it is crucial for financial services organizations to stay informed and compliant with these regulations.
Brief Overview of the Global Financial Regulatory Landscape
Major regulatory bodies, such as the European Union’s (EU) European Securities and Markets Authority (ESMA), the United States’ Securities and Exchange Commission (SEC), and the United Kingdom’s Financial Conduct Authority (FCA), continue to play key roles in shaping financial regulations. Some of the current regulatory focus areas include anti-money laundering and countering the financing of terrorism (AML/CFT), data privacy, market conduct, and financial technology regulations.
Importance of Staying Updated on Compliance Issues for Financial Services
The importance of staying updated on compliance issues cannot be overstated, as failure to comply can result in severe penalties. These may include hefty fines, loss of reputation, and even legal action against organizations and their executives. Moreover, staying informed on compliance issues enables financial services organizations to proactively adapt to regulatory changes and maintain a competitive edge in the industry.
Major Global Regulatory Developments: Over the past decade, there have been significant global regulatory developments that have shaped the way businesses operate, particularly in the tech sector. One of the most notable
regulatory shifts
has been towards increasing data privacy and protection. With the advent of GDPR in Europe and CCPA in California, companies have had to re-evaluate their data handling practices to ensure compliance with these stringent regulations.
GDPR
, or General Data Protection Regulation, came into effect in May 2018 and gave European citizens more control over their personal data. It imposed heavy fines on companies that failed to adhere to the new rules, leading many businesses to invest heavily in data security and privacy measures.
CCPA
, or California Consumer Privacy Act, which came into effect in January 2020, gave Californian residents similar rights to control their data. This trend towards greater data privacy is expected to continue, with other countries and regions expected to introduce similar regulations in the coming years.
Another major regulatory development has been the increasing focus on
antitrust and competition law
. With the growing power of tech giants like Google, Facebook, Amazon, and Apple, regulators have begun to scrutinize their business practices more closely. In the US, for example, both Democrats and Republicans have expressed concerns about the market power of these companies and have called for greater antitrust enforcement. Similarly, in Europe, regulators have launched investigations into Google’s dominant position in the search market and Apple’s App Store policies. These developments are expected to lead to more regulatory scrutiny of tech companies and potentially even breakups or restructurings of some of the largest players in the industry.
I European Union (EU) Updates
European Banking Authority (EBA) and European Securities and Markets Authority (ESMA) updates:
- New guidelines on capital adequacy requirements: The EBA and ESMA are implementing new regulations aimed at strengthening the financial sector’s resilience. This includes
stricter capital adequacy requirements for banks and investment firms to ensure they can withstand economic shocks. - Upcoming regulatory changes: Two significant regulatory updates are on the horizon. First, the link is set to undergo amendments, focusing on sustainable finance. Second, the link is anticipated to improve transparency around financial institutions’ sustainability practices.
European Central Bank (ECB) developments:
- Interest rate decisions: The ECB continues to set the base interest rate, which significantly impacts financial markets. Recent decisions have kept rates at historically low levels, influencing borrowing costs and investor behavior.
- ECB’s stance on digital currencies and cryptocurrency regulations: The ECB has taken a cautious approach towards digital currencies and cryptocurrencies. While acknowledging their potential, the bank emphasizes the need for robust regulations to mitigate risks and ensure financial stability.
United States Updates
Securities and Exchange Commission (SEC) developments:
- Recent enforcement actions and penalties against financial institutions: The SEC has been actively enforcing regulations against financial institutions. For instance, in March 2023, Goldman Sachs agreed to pay a $41 million penalty for misleading investors regarding the financial performance of certain mortgage-backed securities. In another case, Wells Fargo was fined $575 million in May 2023 for selling customers unnecessary car insurance and mortgage add-ons.
- Upcoming regulatory changes related to climate risk disclosures and cybersecurity: The SEC is considering new rules that would require public companies to disclose climate-related risks and opportunities. This could include greenhouse gas emissions, climate policies, and transition plans. Additionally, the SEC is expected to propose new cybersecurity disclosure requirements to enhance investors’ ability to assess risks in this area.
Federal Reserve updates:
- Interest rate decisions and their impact on the US economy and markets: The Federal Reserve raised interest rates in March 2023 by a quarter of a percentage point to combat inflation. This decision has led to increased borrowing costs and volatility in stocks, bonds, and other financial markets.
- Stance on digital currencies, stablecoins, and potential regulations: The Federal Reserve has taken a cautious stance on digital currencies and stablecoins. In February 2023, Jerome Powell, the Fed chair, expressed concerns about their potential risks to financial stability and consumer protection. The Fed is expected to release a report on digital currencies in May 2023, which could pave the way for future regulations.
FinCEN updates:
- New rules for Beneficial Ownership Information Reporting and Customer Due Diligence (CDD) requirements: FinCEN, the Financial Crimes Enforcement Network, is implementing new rules for Beneficial Ownership Information Reporting (BOIR) and CDD requirements. These changes are aimed at enhancing financial transparency and reducing money laundering risks. Starting in May 2023, certain legal entities will be required to report their beneficial owners to FinCEN.
- Potential changes to geographic targeting orders related to money laundering: FinCEN is considering expanding its Geographic Targeting Orders (GTOs) to include more jurisdictions and asset classes. These orders require financial institutions to identify the beneficial owners of certain transactions or report suspicious activities to FinCEN.
UK Financial Updates: FCA and Bank of England
Financial Conduct Authority (FCA)
The Financial Conduct Authority (FCA), the UK’s financial regulatory body, has been actively enforcing actions against several financial firms recently. In one significant case, link was fined £1.3 million for failing to co-operate with the FCA during an investigation into their anti-money laundering controls. Moreover, new regulations on cryptoassets and stablecoins are being implemented as part of the FCA’s ongoing work to ensure the UK remains at the forefront of financial innovation while maintaining investor protection.
Bank of England
The Bank of England, the UK’s central bank, has been making notable updates as well. In terms of monetary policy, the Bank maintained its
interest rate at 0.1%
in their most recent meeting. Although some experts have speculated that a rate hike could be on the horizon due to signs of economic recovery, others argue that inflation pressures remain subdued.
On the regulatory side, the Bank announced changes to its
framework for systemic risks and resilience
. This includes new rules on resolvability and the use of “total loss absorbing capacity” (TLAC) to strengthen banks’ ability to cope with shocks. The changes aim to ensure that the UK banking sector remains robust and resilient, even in uncertain economic conditions.
Asia-Pacific Updates
VI. Monetary & Regulatory Developments
Monetary Authority of Singapore (MAS) developments:
MAS, the Monetary Authority of Singapore, continues to shape the financial landscape with new regulations.
Reserve Bank of India updates:
The Reserve Bank of India (RBI) has been active with monetary policy decisions that
Securities and Exchange Commission of China updates:
China’s Securities and Exchange Commission (CSRC) is also making strides in regulatory changes.
V Latin America Updates
Central Bank of Brazil
- Interest rate decisions: The Central Bank of Brazil recently held an interest rate meeting, where they decided to keep the Selic rate at 12.75%. This decision was met with mixed reactions from economists and market participants, as some believe it will help stabilize inflation while others worry about the impact on economic growth.
- Changes to regulatory framework for digital currencies and fintech companies: The Central Bank of Brazil is considering new regulations for digital currencies and fintech companies. This includes a proposed bill that would establish a legal framework for cryptocurrency trading, as well as changes to the regulatory sandbox program that aims to promote innovation in financial services.
Securities and Exchange Commission of Argentina
- New regulations on capital markets and securities trading: The Securities and Exchange Commission of Argentina (CNV) has recently issued new regulations on capital markets and securities trading. These rules include changes to disclosure requirements, as well as updated guidelines on market manipulation and insider trading.
- Upcoming regulatory changes related to AML/CFT measures: The CNV is also expected to introduce new regulations related to anti-money laundering and countering the financing of terrorism (AML/CFT) measures. These changes are intended to strengthen Argentina’s compliance with international standards, but could also have implications for foreign investors and financial institutions operating in the country.
Middle East Updates
VI Central Bank of United Arab Emirates updates:
The Central Bank of the United Arab Emirates (UAE) has recently announced new regulations regarding digital currencies and fintech companies. These new rules aim to enhance transparency, accountability, and investor protection in the rapidly evolving financial technology sector. Moreover, upcoming regulatory changes related to capital markets and investment funds will further strengthen the UAE’s position as a leading global financial hub.
A.1. New regulations on digital currencies and fintech companies:
The UAE Central Bank has issued new guidelines for virtual asset service providers (VASPs), requiring them to be licensed and comply with anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations. This move is aimed at preventing illegal activities, ensuring consumer protection, and promoting innovation in digital assets and fintech solutions.
A.2. Upcoming regulatory changes related to capital markets and investment funds:
The UAE’s Securities and Commodities Authority (SCA) is planning to introduce new regulations for capital markets and investment funds. These changes include simplifying the process for setting up funds, reducing fees, and increasing transparency. The SCA aims to make the UAE an even more attractive destination for foreign investors and further boost economic growth.
B. Saudi Arabian Monetary Authority updates:
The Saudi Arabian Monetary Authority (SAMA) has made several significant updates that impact the Saudi economy and markets.
B.1. Interest rate decisions and their effects:
In response to global economic trends, SAMA has adjusted interest rates to maintain price stability and support the Saudi economy. These decisions have had far-reaching implications for local markets, including affecting borrowing costs and investment attractiveness.
B.2. Recent regulatory changes related to open banking and financial inclusion initiatives:
SAMA has recently introduced regulations on open banking, enabling financial institutions to share customer data securely and consensually with third-party providers. This move is aimed at promoting innovation, enhancing competition, and improving financial inclusion by expanding access to services for underbanked populations.
IX. Conclusion
August 2023 witnessed several significant regulatory updates in the financial services sector, which are worth recapping:
Basel IV: New Capital Requirements
The Basel Committee on Banking Supervision‘s Basel IV regime came into full effect. This new regulatory framework introduces stricter capital requirements for banks to improve risk management and resilience.
European Markets Infrastructure Regulation (EMIR): Expansion of Scope
The European Securities and Markets Authority (ESMA) broadened the scope of EMIR to include more types of financial derivatives. This means that more over-the-counter derivatives contracts will now need to be reported and cleared through central counterparties.
FATF’s Travel Rule Update
The Financial Action Task Force (FATF) updated its travel rule requirements. This change will impact financial institutions dealing with virtual assets and virtual asset service providers, requiring them to implement new customer due diligence procedures.
Implications and Potential Impact
These regulatory updates have profound implications for various sectors within the financial industry:
- Banks: They will need to invest in new systems and processes to meet the Basel IV capital requirements.
- Derivatives Market Participants: The expanded scope of EMIR will increase operational complexity and reporting burden.
- Virtual Asset Service Providers: They will need to adapt to FATF’s new travel rule requirements and customer due diligence procedures.
Call to Action
Given the far-reaching impacts of these regulatory updates, financial institutions and professionals must stay informed and adapt effectively:
- Keep up-to-date with the latest regulatory developments through reliable sources.
- Understand how these changes impact your specific business model and operations.
- Implement necessary policies, procedures, and technology investments to comply with new regulations.
