Global regulatory update Q1 2024

Welcome to our Q1 2024 regulatory update.

Europe – EU updates

Crypto and digital assets

• In March 2024, the European Banking Authority (“EBA”) issued its final draft regulatory technical standards, which set out the requirements, templates, and procedures for handling complaints received by issuers of asset reference tokens (“ARTs”) under MiCA.
• The EBA also issued guidance to crypto-asset service providers on managing their exposure to AML/CFT risks, as well as a consultation on the Guidelines for the plans to orderly redeem ARTs or EMTs in the event that the issuer fails to fulfil its obligations under MiCA.
• MiCA saw four delegated acts being adopted by the EU Commission, focusing on fines/penalties, criteria for the classification of asset-referenced tokens (“ARTs”) and e-money tokens (“EMTs”) as significant, EBA fees for significant ARTs and EMTs issuers, and EU authorities intervention powers criteria.
• ESMA published two consultation papers focusing on MiCA, more specifically one on reverse solicitation and the other on the classification of crypto-assets as financial instruments (more detail in our thought leadership).

ESG

• The EB, EIOPA, and ESMA published a consolidated set of Q&As on the SFDR regulatory framework.   
• In time for Valentine’s Day, the EU Council announced it had reached an agreement with the EU Parliament on ESG ratings.
• The EBA launched a consultation on the guidelines for the management of ESG risks.
• The EU Commission published a report on how several stakeholders (e.g., corporates, investors, credit institutions) are using the EU set of ESG-related rules (e.g., EU Taxonomy) to outline transition to net zero strategies, structuring financial transactions, and report on sustainability efforts.

Financial Service regulatory and directives updates

• Starting with ELTIF 2.0, the EU Commission published a letter to ESMA requesting amendments to draft regulatory technical standards such as redemption policies and liquidity requirements.
• The EU Commission adopted two texts focusing on the reconciliation of ESMA’s fees to SFTR trade repositories and certain benchmark administrators.
• ESMA has announced that it has launched a Common Supervisory Action (“CSA”) with National Competent Authorities with the objective of assessing the implementation of pre-trade controls  by EU investment firms using algorithmic trading techniques.
• ESMA issued published its first analysis of the exposures EU securities and markets have to real estate, noting a few key points such as increases in leverage by real estate firms and the importance of real estate investment funds alongside credit institutions for the sector.
• EBA, EIOPA, and ESMA published a consultation on the draft implementing technical standards (“ITSs”) regarding the tasks of the collection bodies and the functionalities of the European Single Access Point (“ESAP”).
• ESMA published its opinion on the assessment of pre-trade transparency waivers for equity and non-equity instruments under the MiFIR regime.
• Moving to PRIIPS, ESMA published its consolidated Q&A on PRIIPS KIDs requirements.
• The EU Council shared its statement on the future of the Capital Markets Union, focusing on regulatory system architecture, better access to private funding to drive innovation, and creating better opportunities for retail investors to access investment opportunities.
• On the STS regulatory framework, Commission Delegated Regulation (EU) 2024/584 of 7 November 2023, amending the regulatory technical standards laid down in Delegated Regulation (EU) 2019/1851 as regards the homogeneity of the underlying exposures in simple, transparent, and standardised securitisations, was published in the EU Official Journal.
• The EU Commission welcomed the political agreement reached between the European Parliament and the Council on the EMIR review.
• DORA also saw an update, with the ESAs publishing their first set of draft technical standards on ICT and third-party risk management and incident classification.
• ESMA updated a series of Q&As focusing on CRA, EMIR, MiCA, and MiFIR regulations.
• In an effort to increase the attractiveness of EU capital markets, the EU Council and Parliament have agreed on a new listing act.

AML

• On the AML front, the EU Commission has issued a provisional call for advice  request to the EBA regarding RTS and guidelines under the future anti-money laundering / countering the financing of terrorism (AML/CFT) framework.
• February also saw the EU Council and Parliament agreeing on stricter AML rules. Subsequently, Frankfurt was chosen as the seat for the newly created European Anti-Money Laundering Authority (“AMLA”).
• The Official Journal saw Commission Delegated Regulation (EU) 2024/595 being published, supplementing Regulation (EU) No 1093/2010 on the regulatory technical standards specifying the materiality of weaknesses, the type of information collected, the practical implementation of the information collection, and the analysis and dissemination of the information contained in the anti-money laundering and counter terrorist financing (AML/CFT) central database referred to in Article 9 of that Regulation.

Europe – country updates

UK  

• On February 8 2024, the FCA published an update on its progress in reducing and preventing financial crime and identified four areas of focus for 2024 where collaborative effort can help reduce and prevent financial crime (i) data and technology, (ii) collaboration; (iii) consumer awareness, and (iv) metrics to measure effectiveness.
• Still in the AML/CFT framework, the FCA issued a warning to firms over anti-money laundering failings via a “Dear CEO” letter addressed to Annex 1 Financial Institutions.
• HM Treasury issued a consultation, closing on June 9 2024, aiming to improve the effectiveness of the 2017 MLRs with four objectives in mind: making customer due diligence more proportionate and effective, strengthening system coordination, providing clarity on scope of the MLRs, and reforming registration requirements for the Trust Registration Service.
• The Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) Regulations 2024 was laid before the UK Parliament, amending the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) with regard to the definition of 'high-risk third country', now being a country named as high-risk by FATF.
• Finally, the UK Government communicated in relation to the Law’s Commission’s review of Suspicious Activity Reports.
• Transitioning from AML to crypto assets, the regulator also updated its webpage dedicated to feedback on its crypto-asset AML/CFT regime.
• In early March, the FCA updated its position on crypto assets Exchange Traded Notes for professional investors, specifying it would not oppose requests from Recognised Investment Exchanges (“RIEs”) to create a UK-listed market segment for crypto-asset-backed Exchange Traded Notes (“cETNs”).
• The UK Listing Regime saw the second tranche of the new UK Listing Rules being issued as a draft alongside the original tranche 1, which was published in December 2023. The FCA published the full version of the draft rules as well. Tranche 2 is under consultation until April 2 2024.
• Moving on to Consumer Duty, the FCA issued the results of a survey conducted in 2023 and focused on how firms were getting prepared ahead of the Consumer Duty implementation. The FCA also released a webinar on the next steps in relation to the UK Consumer Duty regime.
• Towards the end of Q1, the FCA also communicated on its forward looking plans, from its 2024/2025 Business Plan, including its approach to supervision, competition, and international firms.
• Moving to the UK EMIR framework, the FCA launched a consultation in March (followed by another one in May) focusing on reporting requirements.
• The FCA also communicated on wind-down planning, which often forms part of requirements linked to, amongst others, firm authorisations.
• The regulator issued a “Dear CEO” letter aimed at the asset management industry, providing an update on key topics such as Consumer Duty, supporting innovation, promoting a smarter regulatory framework, and market abuse.
• The FCA introduced its rules and guidance in relation to the Sustainability Disclosure Regime (“SDR”) set to come into effect throughout 2024, 2025, and 2026 for various categories of firms.
• Still looking at ESG, the Investment Association (“IA”), in partnership with PwC, has published a report looking at themes emerging in the first round of asset manager TCFD reporting.
• The Securitisations Regulations 2024 came into force on January 31 2024, repealing the EU Securitisation Regulation 2017. The text is also accompanied by an explanatory note.
• Finally, the UK Government published a summary of responses in relation to the proposed Reserve Investor Fund regulatory framework.

Luxembourg

• The CSSF issued Circular CSSF 24/853, revising the framework of the long form report applicable to investment firms and amending the scope of application of Circular CSSF 03/113. The revised long form report now focuses on central administration, internal governance, risk management requirements, as well as MiFID and AML/CFT regulations. The CSSF also issued Circular 24/854 highlighting the guidelines for the collective investment sector on the AML/CFT summary report.
• The regulator also published an updated FAQ on the CSSF’s position on eligible investors for undertakings for collective investments investing in virtual assets.
• The CSSF also communicated on new methods available in order to transmit marketing notifications and de-notifications for UCITS.

Malta 

• Moving over to Malta, the Malta Financial Services authority (‘MFSA’) issued a public consultation on the country’s implementation of DORA. The MFSA followed-up a little later with its minimal expectations regarding DORA-related preparedness for financial entities.
• Focusing on AML, the MFSA issued its guidance for MLROs in the financial services sector.
• The regulator also released its outcomes based supervision for 2024.

Americas

USA 

• The year started with FINRA issuing its 2024 Annual Regulatory Oversight Report, highlighting certain new updates such as crypto-asset developments.
• The SEC issued an FAQ on its Tailored Shareholder Report requirements.
• In early February, the SEC updated in FAQ in relation to the Marketing Rules, more specifically on gross and net IRR calculations.
• ESG was also a key topic, as the SEC adopted a set of rules aimed at enhancing and standardising climate related disclosures for investors. 
• Q1 also saw an update on SPACs, as the SEC adopted specific rules governing IPOs and aimed at enhancing investor protection.
• AML was also a hot topic thanks to FinCEN’s release of a proposed rulemaking which would, if enacted, bring new AML requirements to certain investment advisers (more detail in our thought leadership). 
• Moving on to Form PF, the SEC adopted a few changes to the reporting requirements, bringing enhanced reporting by large hedge funds and private funds.
• Finally, the SEC on February 6, 2024, the Securities and Exchange Commission (“SEC”) adopted Rules 3a5-4 and 3a44-2 under the Securities Exchange Act of 1934 (“Exchange Act”), which significantly expand the definitions of “dealer” and “government securities dealer” to cover additional market participants engaged in liquidity-providing activities.

Cayman Islands

• Please read our Cayman Islands regulatory update here.

Bermuda

• Please read our Bermuda regulatory update here.

Asia-Pacific 

Hong Kong

• The SFC shared its strategic priorities for 2024/2026, ranging from resilience, competitiveness, technology, ESG, and operational efficiency.
• The HKMA released a paper setting out the regulator’s proposals for implementing new regulations on the prudential treatment of crypto-asset exposures. The regulator also launched “Project Ensemble” with the aim to support the development of the Hong Kong tokenisation market. Finally, the HKMA also issued a Circular to Authorised Institutions focusing on the sale and distribution of tokenised products.
• On AML, the HKMA issued a letter to all authorised institutions reminding key principles on customer due diligence and risk based approaches. The HKMA also issued a consultation on a proposal to allow authorised institutions to share information on customer accounts with the objective of preventing and detecting financial crime.
• On ESG, the SFC announced two greenhouse gas emission calculation tools would be made available online to facilitate sustainability reporting by corporates and financial institutions. Additionally, the Green and Sustainable Finance Cross-Agency Steering Group announced three key imitative to support Hong Kong  in capitalising on sustainable finance opportunities.

Singapore 

• In Singapore, a key development was the release, by Singapore Exchange Regulation and the Accounting and Corporate Regulatory Authority, of additional details in relation to mandatory climate reporting for listed issuers and large non-listed companies. On the back of this update, the Singapore Exchange Regulation also released a consultation on how sustainability reports should incorporate ISSB standards.  

Australia 

• Moving to Australia and starting with ESG, the government has introduced new legislation into the Australian Parliament that initiates mandatory climate reporting for large entities. Once passed, the Bill is expected to commence on January 1 2025 and be phased in over a four year period. Entities will be required to make certain disclosures relating to climate in accordance with relevant Australian Accounting Standards Board sustainability standards within a ‘sustainability report’.
• Ahead of the entry into force of the Financial Accountability Regime from March 15 2025, the Australian Prudential Regulation Authority (“APRA”) and the Australian Securities and Investments Commission (“ASIC”) have jointly published guidance, including an information paper that helps entities and their accountable persons understand and comply with the obligations, a list key implementation activities, along with an updated accountability statement guide and template.  In addition, consultation commenced on the proposed amendments to the Financial Accountability Regime Act (Information for register) Regulators Rules 2024 and the key function descriptions for superannuation and insurance entities.
• Following a consultation in late 2023, the Treasury Laws Amendment (Delivered Better Financial Outcomes and Other Measures) Bill 2024 which addresses the first tranche of the Government's financial advice reforms designed to reduce unnecessary red tape associated with the delivery of personal financial advice, was introduced into the Australian Parliament in late March. The Bill has been referred to the Senate Economics Legislation Committee with the report due on June 20 2024. Further draft legislation introducing a new class of financial adviser and supporting increased member engagement by superannuation funds by providing personalised ‘nudges’ at key decision points, such as approaching retirement. 
• The Australian Law Reform Commission (“ALRC”) Final Report, Confronting Complexity: reforming Corporations and Financial Services Legislation (Final Report), was tabled in Parliament in January 2024. Describing the legislation governing Australian financial services as a 'tangled mess', the ALRC has made 58 recommendations aimed at simplifying the law, including a revamped legislative framework for the financial services sector. It is noted that 13 of the recommendations made as part of the Inquiry have already been either fully or partially implemented by legislation passed in 2023. 
• The Australian Prudential Regulation Authority (“APRA”) recently released a letter to all RSE licensees consulting on proposed amendments to the prudential requirements and guidance relating to the operational risk financial requirement (“ORFR”).  
• The Australian Transaction Reports and Analysis Centre (“AUSTRAC”) released for consultation its draft guidance on outsourcing that will apply to businesses that use outsourcing arrangements to help them to meet their AML/CTF obligations.
• Finally, a regulatory initiatives grid, modelled on that used in the UK, has been proposed by the government as a way of providing a rolling 24-month forward program of regulatory initiatives affecting the financial services sector.

Middle East and Africa

United Arab Emirates

• The DFSA started the year with Consultation Paper N.153, focusing on the proposals for  amendments to our regulatory regime for persons wishing to provide financial services activities in respect of Crypto Tokens.
• The DFSA also issued a Consultation Paper N.158, which includes proposals on amending the DFSA’s rulebook on Credit Funds, Public Property Funds, and Real Estate Investment Trusts (“REITs”).
• More specifically on Credit Funds, the DFSA issued a call for evidence seeking feedback on five key aspects of the Credit Fund regime brought in 2021: overall approach, investment objectives, types of credit facilities, leverage, and permitted fund structures.
• Another noteworthy update is the release of a consultation on the DFSA’s fees.

Mauritius

• In Mauritius, the quarter started with the Financial Services Commission (‘FSC’) issuing three draft legislations: the Securities (Mauritius Green Fund) Rules 2023, the Securities (Collective Investment Schemes and Closed-End Funds) (Amendment) Regulations 2023 and the Securities (Fund Management) Rules 2023.
• The regulator also issued a consultation relating to the potential creation of new policies addressing the use of financial collaterals by Decentralised Finance stakeholders.

Global

• Starting off with FATF, which released its much-anticipated list of jurisdictions under increased monitoring. FATF also updated its risk-based guidance for Recommendation 25, which focuses on beneficial ownership and transparency, and launched a consultation on Recommendation 16, which focuses on payment transparency.

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