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Highlights from the statement of commissioner Jackson

It may be worth think about the following from his statements about:SEC rules give public companies four days before they must notify the market about market-moving business developments, corporate insiders incentives to pursue stock buybacks, and how public companies spend their money on politics:

I believe that a critical part of the SEC’s mission is to make sure that ordinary investors stand on a level playing field in today’s complex markets. Gaps in our securities laws that allow insiders to trade before key information comes to light; pursue stock buybacks that maximize executive pay but not long-run performance; and spend investor money on politics in secret undermine the trust that ordinary Americans have in our financial system. I am delighted that this Committee is considering how best to close those gaps.

On the other hand, not everything is perfect, as you can see below regarding to rollback of the Volcker Rule:

But even if liquidity were quantifiably lower, it would be hard for me to support these changes. Ordinary American investors aren’t kept up at night worrying about an imagined lack of bond liquidity. They’re wondering why they should trust a financial system that upended their lives a decade ago. The benefits of investor trust in our financial markets are hard to quantify, but they’re doubtless a reason why our markets are the envy of the world. Rolling back risk taking protections like this puts that trust at risk, makes ordinary Americans wary of our markets, and—ironically—may even undermine liquidity.

Dialog is always bringing to a better and robust financial market.

 

 

Some FCA guidelines which may assist Cryptoasset entrepreneurs

According to the speech by Christopher Woolard, Executive Director of Strategy and Competition at the FCA, delivered at the Cambridge Centre for Alternative Finance annual conference, Judge Business School:

The FCA when faced with novelty, try to gain a crisper view. The FCA asks:

  • What is this thing, why is there a new term and what problem is it trying to address?
  • Who is it for – wholesale banks or retail consumers? Is it within our regulatory scope or outside?
  • Is this really an innovation or just something old in a new, flashy wrapper?
  • Is this potentially to the benefit of consumers and competitive markets or is it likely causing harm by increasing complexity and other risks?

In short, the FCA seeks to consider any cryptoasset, including those labelled ’stablecoin‘, on a case-by-case basis and the FCA encourages both consumers and firms to do likewise.

As the FCA seeks answers to those questions, it expects any would-be cryptoasset issuer to be asking a few of their own before launching a product:

  • Is my product a beneficial innovation for consumers and markets? Or does it include hidden bugs and unmitigated risks?
  • Am I prepared to be open and cooperative with domestic and international regulatory agencies? How do I approach issues like anti-money laundering?
  • Will the target market I have in mind for this cryptoasset be able to make an informed and balanced judgement of the risks and benefits of investing in or using such an asset?
  • Finally, and most importantly, have I completed the regulatory, legal and technical due diligence in advance of launching a new product or service?

In financial services it is vital that innovators get it right the first time round.

When it comes to other people’s money, or safeguarding against terrorist financing, corner cutting is simply not an option.

For those who think the model is to try it in beta for a few million people and see what happens, there may be activities here that are illegal without authorisation in many countries, not just the UK.

The UK has led the rest of the world with developments like the regulatory Sandbox.

One thing that unites those who have been through the Sandbox is the professionalism and preparation shown by the firms involved, who all recognise there is a finite amount of learning through failing fast that can be tolerated when consumers are at risk of harm.

People, it is a good advice, please consider using the FCA sandbox service, you can avoid big legal issues.

The fight against skimmers and scammers speech by the chairman of Britain’s Financial Conduct Authority

Interesting speech, some highlights for you to consider:

How can we make the corporate enablers play their part?

Major companies can effectively enable a huge amount of fraud. The companies which allow people’s personal data to be stolen. The companies which promote advertisements for scams on the internet and thereby profit from these crimes. Quite frankly, they don’t always play their part in remedying the harm they create.

And should the internet service providers, search engines and social media firms be expected to do more to spot and block suspected scammers from using their services? I welcome the decision by Facebook to contribute to the Citizens Advice Scams Action service and to create a scams ad reporting tool, as part of the settlement of litigation against them by Martin Lewis. I hope that Facebook will continue to invest in further anti-scam protections.

And I hope that other internet giants will follow suit. For example, Google searches of ‘high return investments’ continue to reveal numerous very doubtful offers high up the search rankings. We know from the London Capital & Finance case that a large proportion – over £20 million – of clients’ payments to the firm were spent on Google advertising to attract more customers.

The internet giants may argue that it’s too difficult for them to do more, that there are legal complications, or that the internet is too dynamic, changing too rapidly, and that they can’t be obliged to monitor it continually.

Those are fair points. I wouldn’t support imposing unreasonable expectations on the big tech companies but as a minimum I would expect them to take down suspected fraudulent content immediately when requested to do so by the authorities, and ensure that their terms and conditions give them the right to do so. And I would expect them to use their extraordinary resources to work with law enforcement and regulators to develop algorithms and machine learning tools to identify potentially fraudulent content.

I don’t believe that these measures would prejudice freedom of speech. Or that dissent and democracy in our society will be any weaker if we throw some well-aimed grit into the cogs of the online scammers.

The Government’s recent White Paper rightly raises the need for more action to prevent a range of online harms, but doesn’t cover online financial scams which are so devastating. With nearly four million reported cases of fraud a year, and an explosion in online scams, should policy on online harms go wider?

Be aware: SEC Charges ICO Research and Rating Provider With Failing to Disclose It Was Paid to Tout Digital Assets

The Securities and Exchange Commission announced today that Russian entity ICO Rating has agreed to pay $268,998 to settle charges that it failed to disclose payments received from issuers for publicizing their digital asset securities offerings.

The SEC’s order found that between December 2017 and July 2018, ICO Rating produced research reports and ratings of blockchain-based digital assets, including “tokens” or “coins” that were securities, and published this content on its website and on social media. ICO Rating billed itself as “a rating agency that issues independent analytical research,” and stated that its mission is “to help the market achieve the necessary standards of quality, transparency and reliability.” However, ICO Rating failed to disclose that it was paid by certain issuers whose ICO offerings it rated.

“The securities laws require promoters, including both people and entities, to disclose compensation they receive for touting investments so that potential investors are aware they are viewing a paid promotional item,” said Melissa Hodgman, Associate Director of the SEC’s Enforcement Division.  “This requirement applies regardless of whether the securities being touted are issued using traditional certificates or on the blockchain.”

Conclusion, do you own research, and don’t be a shame to pay to a local investment adviser it can save you a large sum.

investment adviser = only a person with a valid licence.

Valid licence = the name of the person should be listed on https://www.investor.gov/ website.

By the way, in the UK it is financial advisor +valid licence = the name of the person should be listed on the Financial Services Register, while in Australia it is https://www.afa.asn.au/find-afa-financial-adviser.

Each country has a local list of investment adviser alike, please make sure to check your home country local list, it is your money and your responsibility. If you need help, please let us know via our contact us page, and we will assist you.

 

Examples for market interventions for our benefit

Rent-to-Own (RTO) market

highly vulnerable group of consumers were paying too much for household goods. Therefore the FCA would:

  • set a total credit cap of 100%, meaning consumers do not pay credit costs that are higher than the price of the product
  • introduce a requirement on firms to benchmark base prices (including delivery and installation) against the price charged by 3 mainstream retailers
  • prevent firms increasing their prices for associated products such as extended warranties to recoup lost revenue from the price cap

Cash savings market

consumers who stay with the same provider for a long time, receive lower interest rates.

The FCA may decide to suggest a basic savings rate (BSR). It is an interest rate that providers would set themselves but would be required to apply to all easy access cash saving accounts and easy access cash Individual Savings Account after they have been open for a set period, such as a year.

Motor finance

The way commission arrangements are operating may be leading to consumer harm on a potentially significant scale.

The widespread use of commission models which link the broker commission to the customer interest rate, and allow brokers wide discretion to set the interest rate, can lead to conflicts of interest. These conflicts are not being controlled adequately by lenders. This can lead to customers paying significantly more for their motor finance.

The FCA also found that where pre-contract disclosures were not always complete, clear or easy to understand. As a result, consumers may not be given sufficient information and explanation to enable informed decisions.

The FCA is assessing the options for intervening in the motor finance market.

Contracts for Difference (CFD) market

The FCA have seen an increase in the number of UK firms offering CFDs to retail consumers. Firms have increasingly offered CFD products to consumers who may not understand the risks of these products or be capable of bearing potential trading losses. For example, firms have offered ‘bonus’ promotions as well as lower margin requirements to attract less experienced retail consumers.

The new rules are intend to restrict how CFDs and CFD-like options are marketed, distributed and sold to retail consumers. This included requiring firms to stop offering inducements to encourage retail consumers to trade and applying minimum margin requirements (leverage limits).

Distributing or selling contracts for differences (CFDs) to retail clients

According to ESMA statement it has serious concerns about firms’ marketing, distribution or sale of CFDs to retail clients and considers it necessary to remind CFD providers about some of the requirements connected with the offering of CFDs. 

ESMA has identified undesirable practices related to:

  • Professional clients on request; and
  • Marketing, distribution or sale by third-country CFD-Providers.

Ensuring investors are protected necessitates that all CFD providers respect all applicable requirements and do not circumvent them using professional client status or third country entities.”

Professional clients on request

ESMA is aware that some CFD providers are advertising to retail clients the possibility to become professional client on request. Investment firms should strictly refrain from implementing any form of practice that incentivises, induces or pressures an investor to request to be treated as a professional client. In this respect, any form of promotional language in relation to the status of professional client shall be seen as incentivising a retail client to request a professional client status. This includes providing a comparison between leverage limits available to different types of clients and the provision of any form of rewards for becoming a professional client.

In order to mask wrongdoing, in some cases, CFD providers will change the client categorization status according to their needs (first from retail to professional, and then from professional to retail once you lost your invested capital), with no compliance justifications.

ESMA is also aware that some third-country firms are marketing CFDs that do not comply with ESMA’s measures to retail clients.

ESMA notes that firms should not incentivise retail clients to start trading with an intra-group firm established in a non-EU jurisdiction.

You can control your faith, don’t be tempted to change your categorization status from retail to professional, and/or open an account with non-EU firms.

EU rules are here to protect you, and reduce your risk. Please rest assured that the regulator does not like it when you lose your invested capital. Protecting you is part of the regulator missions.

 

Insider trading is not worth your time

If you will try, they will sure find you.

Few examples

SEC Charges Accountant and Friend in $6.2 Million Insider Trading Scheme

The Securities and Exchange Commission today filed insider trading charges against an accountant and her friend, whom she illegally tipped with confidential information in advance of her company’s quarterly performance announcements in exchange for all-expense paid travel and other expensive gifts.  The alleged insider trading scheme generated profits of more than $6.2 million and was uncovered by the SEC through analysis and technology that it uses to detect suspicious trading activity.

The SEC’s complaint seeks permanent injunctions, disgorgement with prejudgment interest, and penalties. Meaning the defendants will lose the profit (6.2 million) and they will pay interest and penalties.

FCA secures confiscation orders totalling £1.69 million against convicted insider dealers

The conspiracy operated between 1 November 2006 and 23 March 2010. During that time, the defendant held senior positions at Morgan Stanley, Lehman Brothers and Deutsche Bank. He used those positions to source inside information, which he passed on to his close friend, who in turn caused trades to be placed for the benefit of both defendants.

The Defendants employed elaborate strategies designed to prevent the authorities from uncovering their activities. These included using unregistered mobile telephones, safety deposit boxes, and encoded and encrypted records. They also used multifarious methods to distribute the benefit they obtained from their criminal enterprise.

Whilst the Defendants went to great lengths in an effort to ensure that their pursuits went undetected, their meticulous record keeping ultimately proved to be their downfall in the confiscation proceedings. Those records detailed trading in a variety of stocks and the amounts that each was to benefit as a result. This made it far easier for the FCA to demonstrate the full extent of each defendant’s benefit from their criminal conduct.

The Defendant was sentenced to 4 and a half years’ imprisonment and his friend to 3 and a half years’ imprisonment. Moreover, Crown Court made confiscation orders in the sum of £1,074,236 against the Defendant and £624,521 against his friend.

The Custody challenges of digital asset securities

According to the U.S. SEC market participants wishing to custody digital asset securities may find it challenging to comply with the broker-dealer financial responsibility rules without putting in place significant technological enhancements and solutions unique to digital asset securities. 

A broker-dealer seeking to custody digital asset securities must comply with the Customer Protection Rule. If the broker-dealer fails, customer securities and cash should be readily available to be returned to customers.

There are many significant differences in the mechanics and risks associated with custodying traditional securities and digital asset securities. For instance, the manner in which digital asset securities are issued, held, and transferred may create greater risk that a broker-dealer maintaining custody of them could be victimized by fraud or theft, could lose a “private key” necessary to transfer a client’s digital asset securities, or could transfer a client’s digital asset securities to an unknown or unintended address without meaningful recourse to invalidate fraudulent transactions, recover or replace lost property, or correct errors. Consequently, a broker-dealer must consider how it can, in conformance with the law, hold in possession or control digital asset securities.

If, for example, the broker-dealer holds a private key, it may be able to transfer such securities reflected on the blockchain or distributed ledger. However, the fact that a broker-dealer (or its third party custodian) maintains the private key may not be sufficient evidence by itself that the broker-dealer has exclusive control of the digital asset security (e.g., it may not be able to demonstrate that no other party has a copy of the private key and could transfer the digital asset security without the broker-dealer’s consent). The above mentioned risks could cause securities customers to suffer losses, with corresponding liabilities for the broker-dealer, imperiling the firm, its customers, and other creditors.

It should be noted that the broker-dealer’s difficulties in evidencing the existence of these digital asset securities may in turn create challenges for the broker-dealer’s independent auditor seeking to obtain sufficient appropriate audit evidence.

The Crypto asset market (digital asset) or the law may need to continue devolving and/or amending in order to achieve an understanding.

 

Broker-dealers or investment advisers, which one should I choose?

A retail customer that intends to buy and hold a long-term investment may find that paying a one-time commission to a broker-dealer is more cost effective than paying an ongoing advisory fee to an investment adviser to hold the same investment. That same investor might want to use a brokerage account to hold those long-term investments, and an advisory account for other investments.

Nonetheless, whether a you chooses a broker-dealer or an investment adviser (or both), the recommendation or advice is required to be for your best interest. Moreover, broker-dealer or an investment adviser cannot place their own interests before yours.

Neither investment advisers nor broker-dealers are required to recommend the single “best” product. Many different options may in fact be in your best interest, and what is the “best” product is likely only to be known in hindsight.

In the U.S. The broker-dealer must comply with the below component obligations:

  • The Disclosure Obligation, which requires full and fair disclosure of all material facts about the scope and terms of its relationship with the customer, including material facts relating to conflicts of interest associated with its recommendations.
  • The Care Obligation, which requires brokers to exercise reasonable diligence, care, and skill, to understand the potential risks, rewards, and costs associated with the recommendation, and to consider those risks, rewards, and costs in light of the customer’s investment profile in order to make a recommendation that is in the best interest of the retail customer and does not place the broker-dealer’s interests ahead of the retail customer’s interest.
  • The Conflict of Interest Obligation, which requires firms to implement policies and procedures to mitigate (and in some cases, eliminate) certain identified conflicts of interest that create incentives to make recommendations that are not in the retail customer’s best interest.
  • The Compliance Obligation, which requires firms to implement policies and procedures.

Similarly, an investment adviser has an obligation to act in the best interest of its client—which is an overarching principle that encompasses both the adviser’s duty of care and duty of loyalty.

Conclusion: it is clear why we can be confused about the differences between brokers and investment advisers. Nonetheless, choose at least one, and make sure it is register.

Therefore, you can use the SEC website at https://www.investor.gov/ in order to find what you need and consult.

The UK Information Commissioner’s Office report into Adverting Technology practices

The Information Commissioner’s Office (ICO) is the UK’s regulator responsible for data protection.

When you visit a website, some of the ads you see have been specifically selected for you. As the site was loading, the website publisher auctioned a space on the page you are viewing, and an advertiser bought it because it specifically wants to reach people like you. The process can involve many companies, and happens in milliseconds. Billions of online ads are placed on webpages and apps in this way every day.

The process – known as real time bidding – relies on the potential advertiser seeing information about you. That information can be as basic as the device you’re using to view the webpage, or where in the country you are. But it can have a more detailed picture, including the websites you’ve visited, what your perceived interests are, even what health condition you’ve been searching for information about.

Real-Time Bidding (RTB) is a set of technologies and practices used in programmatic advertising. It has evolved and grown rapidly in recent years and is underpinned by advertising technology (adtech), allowing advertisers to compete for available digital advertising space in milliseconds, placing billions of online adverts on webpages and apps in the UK every day by automated means.

According to the ICO report, While many RTB market participants place some controls on their processing and sharing of personal data, it’s become apparent that there are substantially different levels of engagement and understanding of how data protection law applies, and the issues that arise.

The report described number of concerns with the data protection practices within RTB, for instance:

  • identifying a lawful basis for the processing of personal data in RTB remains challenging, as the scenarios where legitimate interests could apply are limited, and methods of obtaining consent are often insufficient in respect of data protection law requirements
  • the privacy notices provided to individuals lack clarity and do not give them full visibility of what happens to their data
  • the scale of the creation and sharing of personal data profiles in RTB appears disproportionate, intrusive and unfair, particularly when in many cases data subjects are unaware that this processing is taking place

It seems that more work needs to be done, in order to make sure our personal data is protected as expected.