Global Financial Regulatory Blog

CFTC Issues Request for Information on Climate-Related Financial Risk

Posted in Derivatives, Environmental, Social and Governance (ESG)

The agency will use the information to take further steps to address climate risks in the commodity derivatives markets.

By Jean-Philippe Brisson, Yvette Valdez, Douglas Yatter, Joshua Bledsoe, Michael Dreibelbis, Qingyi Pan, and Deric Behar

On June 2, 2022, the Commodity Futures Trading Commission (CFTC) issued a Request for Information (RFI) to inform its understanding and oversight of climate-related financial risk relevant to the derivatives markets and underlying commodities market. The CFTC is seeking public feedback on all aspects of climate-related financial risk that “may pertain to the derivatives markets, underlying commodities markets, registered entities, registrants, and other related market participants.”

According to the RFI, public response may be used to inform new or amended guidance, interpretations, policy statements, regulations, or other potential CFTC action. The information will also inform CFTC’s response to the recommendations of the Financial Stability Oversight Council 2021 Report on Climate Related Financial Risk (see Latham’s blog post on the FSOC Report) and inform the work of the CFTC’s Climate Risk Unit (CRU) (see Latham’s blog post on the CRU). Comments on the RFI must be received by August 8, 2022. Continue Reading

FCA Proposes to Unify the Listing Regime for Commercial Companies Under a Single Listing Segment

Posted in Regulatory Reform

The regulator continues its Primary Markets Effectiveness Review to promote the competitiveness of a UK listing.

By Chris Horton, James Inness, Anna Ngo, and Johannes Poon

On 26 May 2022, the FCA published a discussion paper (DP22/2) to seek further views on how to make the UK listing regime more effective, easier to understand, and more competitive. This paper contains suggested reforms from the FCA to elicit feedback, rather than a formal consultation on proposed rule changes. Continue Reading

FCA Finalises Rules to Improve Transparency Around Diversity of Boards and Executive Management

Posted in Environmental, Social and Governance (ESG)

The new rules provide issuers with flexibility to report on representation of women by reference to either gender identity or sex.

By Chris Horton, James Inness, Anna Ngo, Nicola Higgs, David Berman, Rob Moulton, and Johannes Poon

On 20 April 2022, the FCA published its final policy decision on the proposals set out in CP 21/24 “Diversity and inclusion on company boards and executive committees”.

New diversity reporting requirements

The updated Listing Rules require in-scope issuers (broadly, premium or standard listed companies, excluding OEICs and “shell companies”) to incorporate into their annual reports certain disclosures on the diversity of their boards and executive management, including:

  • A “comply or explain” statement setting out whether they have met the following diversity targets:
    • At least 40% of the board are women
    • At least one of the senior board positions is held by a woman (Chair, CEO, Senior Independent Director, or CFO)
    • At least one member of the board is from a minority ethnic background (defined by reference to categories recommended by the Office for National Statistics (ONS), excluding those the ONS lists as coming from a White ethnic background)
  • Numerical data on the sex or gender identity and ethnic diversity of their board, senior board positions, and executive management in a standardised table (with issuers able to add to the fields “men” and “women” to include “non-binary” or other gender identities)

Continue Reading

UK Launches Taskforce to Take the Lead in Climate Transition Plans

Posted in Environmental, Social and Governance (ESG)

HM Treasury’s Transition Plan Taskforce aims to influence international standard setting and make the UK the world’s first net zero-aligned financial centre.

By Paul A. Davies, Michael D. Green, Nicola Higgs, Anne Mainwaring, James Bee, and Dianne Bell

On 25 April 2022, HM Treasury (HMT) announced the launch of the UK Transition Plan Taskforce (TPT) to help drive decarbonisation by ensuring that financial institutions and companies prepare plans to achieve net zero, as well as to support efforts to tackle greenwashing. This move is an important step connected with the UK’s development of the new Sustainability Disclosure Requirements (SDR) regime that Chancellor Rishi Sunak announced at his Mansion House speech in July 2021. HMT’s stated aim is to develop “a gold standard for climate transition plans” and for the UK to become the world’s first net zero-aligned financial centre.

An increasing number of companies are making public commitments to decarbonise their operations and reach net zero emissions, but transition plans announced so far are, according to the TPT, “varied in detail and quality”,[i] thereby limiting the ability of stakeholders to assess the credibility of such transition plans. Proposed rules announced by the Chancellor at COP26 would require large companies and certain financial sector firms to publish a transition plan from 2023. The TPT will, over the next two years, develop: (i) a sector-neutral framework for private sector transition plans; (ii) a sector-specific guidance for finance and other sectors; and (iii) recommendations regarding the preparation and use of transition plans. The TPT’s expectations are for such transition plans to be science-based and to help inform the UK’s SDR. (See Latham’s recent briefing for an outline of the SDR regime.) Continue Reading

SEC Proposes to Expand Interpretation of “Dealer” and “Government Securities Dealer” Definitions

Posted in Securities Regulation

By Laura Ferrell, Marlon Q. Paz, Nabil Sabki, Stephen P. Wink, Naim Culhaci, and Deric Behar

On March 28, 2022, the US Securities and Exchange Commission (SEC) proposed rules (Proposing Release) that would require securities market participants that engage in dealer-like activities — such as a proprietary trading firm that engages in a routine pattern of buying and selling securities that has the effect of providing liquidity to other market participants — to register with the SEC, become a member of a self-regulatory organization (SRO), and comply with federal securities laws and regulatory obligations. Continue Reading

FCA’s 2022/23 Business Plan: Key Highlights

Posted in Conduct of Business, Environmental, Social and Governance (ESG)

As the FCA’s remit continues to grow, the regulator pledges flexibility in the face of global financial and geopolitical headwinds.

By Rob Moulton, Anne Mainwaring, Jaime O’Connell, and Dianne Bell

On 7 April 2022, the FCA released its new Business Plan as part of a package including  a three-year strategy document setting out the outcomes it expects all firms to deliver across UK markets. In his introductory message, FCA Chief Executive Nikhil Rathi noted that the regulator’s broad and growing remit means “prioritisation is inevitable”. The FCA’s more outcomes-based approach means its commitments for the next three years fall into three stated areas of focus:

  1. Reducing and preventing serious harm: for example, protecting consumers from harm caused by authorised firms, including tackling fraud and poor treatment. The FCA expects to “harness data to assess problems more quickly”, with the aim of preventing harm from happening in the first place.
  2. Setting and testing higher standards: for example, focusing on the impact authorised firms’ actions have on consumers and markets. The FCA expects the new Consumer Duty to give firms greater certainty about how they should treat consumers as well as flexibility on how they deliver good outcomes.
  3. Promoting competition and positive change: greater regulatory open-mindedness, for example, by building on the globally copied “sandbox” and introducing a “scalebox”.

Continue Reading

When Are CCOs on the Hook? FINRA Offers Guidance on CCO Liability

Posted in Securities Regulation

Guidance clarifies assessment of liability under Rule 3110, including designation as supervisor, application of reasonableness standard, and factors for and against charging compliance officials.

By Marlon Q. Paz, John J. Sikora Jr., Stephen P. Wink, and Deric Behar

On March 17, 2022, the Financial Industry Regulatory Authority, Inc. (FINRA) published Regulatory Notice 22-10 (Reg. Notice 22-10), reminding broker-dealers of the scope of liability for chief compliance officers (CCOs) under FINRA’s Supervision Rule (Rule 3110). The role of compliance, and that of the CCO in particular, which is often characterized as “vital” in helping to prevent, detect, and remediate potential violations of internal policies and procedures and the securities laws, has been the subject of policy debate for some time.[1] In Reg. Notice 22-10, FINRA outlines a blueprint to assess the potential liability of CCOs under Rule 3110.

Rule 3110 imposes various supervisory obligations on member firms, such as the obligation to “establish and maintain a system, including written procedures, to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and regulations, and with applicable FINRA rules.” Firms are also required to designate registered principals as supervisors for these responsibilities. The express or implied designation of supervisory authority is the basis for individual liability under Rule 3110. Continue Reading

Wholesale Markets Review Consultation Response Aims for “Tailored” UK Approach

Posted in Derivatives, Markets and Investments

The consultation response heralds innovation-friendly reform to the UK wholesale capital markets regime.

By Rob Moulton and Dianne Bell

On 1 March 2022, HM Treasury published its response to the July 2021 consultation on the Wholesale Markets Review after considering the feedback received. The consultation response sets out changes that are expected to “liberate businesses from unwieldy and stifling rules that hold back their ability to grow and innovate”, according to Economic Secretary to the Treasury John Glen. Continue Reading

Expanded Definition of “Exchange” and SEC Regulation of Crypto Platforms

Posted in Securities Regulation

The amended definition could provide a new means for the SEC to regulate crypto platforms.

By Stephen P. Wink, Marlon Q. Paz, Naim Culhaci, Ian Irlander, and Deric Behar

We previously published a blog post on the set of proposed amendments (Proposal) issued on January 26, 2022, by the Securities and Exchange Commission (SEC) regarding the regulation of alternative trading systems (ATSs) that would, among other things, substantially expand the activities covered by the definition of an “exchange” as interpreted by Rule 3b-16 under the Exchange Act to capture “Communication Protocol Systems”. Whereas we previously offered our general views on the proposed expansion of definitions and resulting potential impact on the securities industry, now we turn specifically to the potential impact of the Proposal on platforms trading digital assets. Continue Reading

UK Government Announces Fundamental Overhaul of the UK Prospectus Regime

Posted in Markets and Investments

The changes indicate a more dynamic and flexible UK prospectus regime with the FCA to play a central role through enhanced rule-making powers.

By Chris Horton, James Inness, Anna Ngo, and Johannes Poon

On 1 March 2022, the UK government (through HM Treasury (HMT)) announced the outcome of its consultation to reform the UK prospectus regime. The consultation was published in response to recommendations from Lord Hill’s UK Listing Review to enhance the competitiveness of the UK capital markets. Broadly, the announced changes indicate a more dynamic and flexible UK prospectus regime with the FCA to play a central role through enhanced rule-making powers.

The HMT’s announcement essentially indicates a direction of travel. The impact of these changes will not be fully understood until the publication of the legislative changes and the FCA’s consultation papers. HMT states that the government will legislate to replace the existing prospectus regime when parliamentary time allows. Continue Reading

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