- Crypto legislation: Senator Bragg has released a Private Senator’s Bill, the Digital Assets (Market Regulation) Bill 2023. It is the second iteration of his crypto legislation, and a much better law (full disclosure — we did help). In particular, it differentiates between different types of crypto products by introducing the definition of “regulated digital asset”, which means a digital asset of any of the following kinds, but does not include a financial product within the meaning of Chapter 7 of the Corporations Act 2001: (a) an asset-referenced token; (b) an electronic money token; (c ) an exchange token. This is a great start, though the bill then gets bogged down in regulating exchanges which deal in regulated digital assets in exchange for currency or other types of regulated digital assets. That is a bit confusing, leaves loopholes, as we regulate from the product upwards and not based on structures in Australia. In any event, it is a cracking continued effort which brings us much closer to our UK, EU, UK and Dubai counterparts and hopefully will receive many submissions by May 2023!
- AFCA rules (AFCA): AFCA is opening public consultation on proposed changes to the rules that govern its work helping consumers and financial firms to resolve complaints. The rule changes follows Treasury’s independent review of AFCA, which report you can read here. The rule changes canvas excluding sophisticated / professional investors, unless an exemption applies, and dealing with complaints where an appropriate offer of settlement has been made or where issues in dispute have been previously settled i.e. AFCA should not be a vehicle to open old wounds. Interestingly, AFCA is also working on giving clarity about the effect of AFCA determinations and how the slip rule works to ensure greater transparency and understanding of decision making. The consultation is open until May 2023.
- IOSCO Report (International): IOSCO has released a report calling for greater international collaboration and cooperation to combat cross-border scams, greenwashing, misconduct, and fraud. It outlines the following areas for global regulators to focus on: 1) supervisory and enforcement issues emerging from cross-border offerings, and the need to enhance cooperation frameworks; 2) conduct and fraud implications emerging from recent crypto asset trading trends; 3) increased greenwashing risk and the need to better identify compliance with climate disclosure standards; and, 4) the escalation in unlicensed activity e.g. clone investment firms, crypto-asset scams such as rug pulls and ICO pump and dump schemes, unregulated or unlawful practices of ‘Finfluencers’, mis-selling, mislabelling, and misleading disclosures, and the surge in self-directed online trading. If you read nothing else this week, it is worth reading pages 1–3 of the report.
- Reinsurance breach (Noble Oak): APRA has written to NobleOak — a life insurance company — to advise it has breached Prudential Standard LPS 117 Capital Adequacy: Asset Concentration Risk Charge (LPS 117) and Reporting Standard LRS 117.0 Asset Concentration Risk Charge (LRS 117.0). The breaches relate to the measurement and reporting of its reinsurance exposures and the associated asset concentration risk. These then breached capital requirements. The interesting thing about the announcement is the fact that it was made — enforcement actions actions by APRA are rare, though lately it has been more vocal when it is taking them…
- CFTC action (Binance): the US CFTC has issued proceedings alleging that Binance encouraged customers to skirt compliance controls via measures such as using virtual private networks, has had multiple AML/CTF KYC breaches, gave advantages to VIP customers e.g. trading speed boosts, it traded in crypto-related derivatives with US-based customers despite not having regulatory permission (and despite having said in 2019 that it would no longer serve US customers), and that Binance warned its most important customers of any impending law enforcement action. The CFTC is seeking seeking punishments including fines and permanent trading bans. A high stakes gamble for the CFTC, which is much smaller than the SEC, the action has an undertone of the theory of onshore registered foreign exchanges using satellite businesses to funnel businesses and fiat into unregistered foreign domiciled exchanges. The CFTC alleges “Binance’s reliance on a maze of corporate entities to operate the Binance platform is deliberate; it is designed to obscure the ownership, control, and location”. Time will tell how much there is to this one, but one does feel like this is partly about getting the CFTC’s credibility back after it was seen as too close to FTX…
Thought for the future: FAR is back in the Senate between 9–11 May. The biggest change to our financial services regulatory system recommences for debate then!
