Financial Regulation Roundup: October 5, 2018

Ben Shapiro  Follow

Here are the top stories on the financial regulatory landscape in the U.S., EU and around the world over the past two weeks.

U.S. News:

  • Canada and US Reach Trade Deal to Replace NAFTA: The United States and Canada agreed to a deal to replace the North American Free Trade Agreement shortly before a midnight deadline. The 24-year-old NAFTA, which President Donald Trump railed against as a disaster, will be replaced by the USMCA — the United States-Mexico-Canada Agreement. The negotiations between American and Canadian officials involved offering more market access to U.S. dairy farmers, as well as Canada agreeing to an arrangement effectively capping automobile exports to the United States. (CNBC: read more)
  • Fed Raises Key Rate to Range of 2% to 2.25%, Keeps Forecast for 4 Hikes in 2018: The economy has been cruising lately and so the Fed is tapping on the brakes once again. Upgrading its economic outlook, the Federal Reserve on Wednesday raised its key short-term interest rate by a quarter point for the third time in 2018 and kept its forecast for another hike later this year. (USA Today: read more)
  • US Regulators Enforcement Action Jumps 25 Pct, Rebutting Democrat Fears: The number of enforcement actions brought by the U.S. swaps regulator has jumped 25 percent compared with the previous administration, rebutting fears the agency would go soft on the financial industry under President Donald Trump. The chairman of the Commodity Futures Trading Commission (CFTC) Christopher Giancarlo unveiled the agency’s latest enforcement figures on Tuesday in a speech that he used to underscore the agency’s commitment to punishing wrongdoing. (Reuters: read more)
  • Elon Musk Agrees to Pay $20 Million and Quit as Tesla Chairman in Deal with SEC: Elon Musk agreed Saturday to step down as chairman of Tesla and pay a $20 million fine in a deal to settle charges brought this week by the Securities and Exchange Commission. Under the settlement, which requires court approval, Musk will be allowed to stay as CEO but must leave his role as chairman of the board within 45 days. He cannot seek reelection for three years, according to court filings. He accepted the deal with the SEC "without admitting or denying the allegations of the complaint," according to a court document. (CNN Money: read more)
  • Fed Rethinks How to Define a Big Bank: The Federal Reserve is developing new rules that would change how it defines a big bank and potentially lower regulatory costs for a broader number of financial institutions. As part of a series of rule changes under consideration, the Fed is preparing to revise asset size and other thresholds in its capital and liquidity rules, according to people familiar with the matter. The changes could ease regulatory costs for some large U.S. banks, including Capital One Financial Corp. , PNC Financial Services Group Inc. and U.S. Bancorp. It is less clear whether the changes would help gigantic businesses the Fed considers “systemically important” to the global financial system, such as Citigroup Inc. and Goldman Sachs Group Inc. (The Wall Street Journal: read more)
  • SEC Commissioner Proposes Expanding Cybersecurity Rule: SEC Commissioner Kara Stein has asked Chairman Jay Clayton to expand the scope of an agency rule that aims to stymie cyberattacks. In a speech last week at Georgia State University College of Law, Ms. Stein, one of two Democrats on the five-member commission, said the Securities and Exchange Commission's rule — Regulation Systems Compliance and Integrity, or Reg SCI — doesn't go far enough. Passed in 2014, Reg SCI requires large-volume equity exchanges, alternative trading systems and dark pools to submit to the agency backup operational plans in case those venues' technological systems break down. (Pensions & Investments: read more)

EU News:

  • FCA Chair Eyes Post-Brexit Rule Shake-Up: Chair of the Financial Conduct Authority (FCA) Charles Randell has outlined the regulator's approach to a potential post-Brexit shake-up of its rules, criticising a "cycle of deregulation, crisis and regulation" that led to the financial meltdown of 2008. Speaking at the Association of Financial Markets in Europe annual conference on 2 October 2018, Randell said the FCA's programme of regulatory change following the UK's departure from the EU should be "phased and co-ordinated in a proportionate way". (read more: Investment Week)
  • FCA Retreats From Ban on Pension Transfer Fees: The FCA has backed away from an immediate ban on a contentious charging model for pension transfer advice, which is said to have driven pension mis-selling to hundreds of Tata steelworkers. In March this year, the FCA said it was considering a ban on advisers charging on a contingent basis, citing “potential harm to consumers”. Under contingent charging, an adviser is only paid if the client acts on their recommendation to transfer a “defined benefit” pension fund into a riskier pension arrangement. (read more: Financial Times)
  • EU Regulators Prepare for No-Deal Brexit with MiFID II Back-up Plans: Pan-European regulator European Securities and Markets Authority (ESMA) is in the process of drawing up memorandums of understanding (MoU) between the FCA and the 27 other EU regulators in a safeguard against the fall-out of a no-deal Brexit. Speaking at the World Federation of Exchanges General Assembly and Annual Meeting in Athens on 3 October, ESMA Chair Steven Maijoor explained that with about 40% of equities issued in the EU27 trading in the UK preparing for a no-deal was essential. MiFID II, which came into force in January, only allows for trading on a third country trading venue when the European Commission has made an equivalence decision, with the EU's highest authority only having issued one such judgement as yet to the SEC in the US. A no-deal Brexit would therefore mean UK market participants losing their authorisations to conduct business across the EU, and the removal of any legal basis for the daily data exchange between the UK and the EU27 under MiFID II. (read more: Investment Week)

International News:

  • China Cancels Trade Talks with U.S. as New Trump Tariffs Loom: China has scrapped trade talks with the United States days before President Trump is set to escalate the commercial battle with a new round of tariffs, according to a person familiar with the discussion. Chinese officials canceled the planned negotiations after Trump announced he would impose new levies of up to 10 percent on another $200 billion in Chinese imports, effective Monday. Beijing vowed to strike back, slapping duties of up to 10 percent on an additional $60 billion in American products. (The Washington Post: read more)
  • Hong Kong Monetary Authority’s ‘Regtech’ Push Raises Transparency Concerns at Financial Institutions: Hong Kong’s financial services industry has raised concerns about the use of technology such as machine learning and artificial intelligence as part of regulatory compliance efforts, as these measures will have the effect of reducing the ability of these institutions to meet their accountability commitments, to customers as well as regulators. The concerns come amid a push by the Hong Kong Monetary Authority to facilitate the wider adoption of regulatory technology, or regtech. Arthur Yuen Kwok-hang, deputy chief executive of the HKMA, Hong Kong’s de facto central bank, introduced four regtech initiatives last week during the annual conference of the Hong Kong Institute of Bankers. (South China Morning Post: read more)
  • Indian Regulator SEBI Plans to Tighten Financial Market Rules: India plans to tighten rules to curb mis-selling of securities, market manipulation and insider trading, its financial market regulator said on Tuesday after considering recommendations by a panel. It also plans to relax fund rules for non-resident Indians and said it would issue a circular soon with details. The measures were among a number of proposed regulatory changes announced by the Securities and Exchange Board of India (SEBI) after a quarterly board meeting. They also include amending rules around sharing of unpublished price sensitive information to ensure that companies put effective internal controls in place. (Deal Street Asia: read more

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