Dubai Virtual Assets Regulatory Authority (VARA)
VARA Releases Long Awaited Licensing Regime
On 7th February 2023, VARA issued its Virtual Assets and Related Activities Regulations 2023 which set out their comprehensive Virtual Asset (“VA”) Regime for the Emirate of Dubai in the United Arab Emirates. Major updates include:
- Establishing VARA’s jurisdiction over all Virtual Asset Service Providers (“VASPs”) in the Emirate of Dubai.
- Expanding VARA’s power to regulate the issuance of VA in Dubai and to designate any VA as prohibited.
- Prudential Requirements including competitive capital requirements among regulators in the GCC.
- Staking as a permissible activity under its Management & Investment Services license.
- Licensing regime for “Lending & Borrowing Services” in VA, and
- Introducing ESG disclosure and compliance requirements for VASP, first of its kind in the region.
The proposed rules are comprehensive and wide ranging and encompass guidelines on compliance, risk management, in addition to market conduct rules. For a detailed assessment or if you have enquiries on the new regulations, please contact J. Awan & Partners.
U.S. Consumer Finance Protection Bureau (CFPB)
CFPB Revises Credit Card Fees
The United States CFPB announced a proposed rule that would amend existing regulations regarding credit card late fees to better ensure that the “CARD Act” goal of reasonable and proportional late fees is met. The current regulations allow credit card companies to charge high fees for missed credit card payments and additional charges for specified types of subsequent missed payments. This is even after a cardholder misses payment by only a few hours after the deadline, resulting in billions of dollars of revenue for the companies. The CFPB’s rule propose to:
- Lower the cap for late fees to $8 and would no longer allow a higher amount for subsequent violations.
- Eliminate the annual inflation adjustments for these amounts.
- Restrict the late fee amounts not to exceed 25 percent of a consumer’s required payment.
- Prohibit credit card issuers from imposing late fees on consumers who make the required payment within 15 calendar days following the due date, and
- Require credit card issuers to either offer automatic payment options or provide notification of the payment due date within a certain number of days in advance.
The proposed rule would help ensure that excessive late fee amounts are illegal. Based on the CFPB’s estimates, the proposal could reduce late fees by as much as $9 billion per year according to CFPB Director Rohit Chopra “Today’s proposed rule seeks to save families billions of dollars and ensure the credit card market is fair and competitive.
U.K. H.M. Treasury (HMT)
His Majesty’s Treasury unveils plans to regulate crypto assets
The Treasury is setting out ambitious plans to robustly regulate crypto asset activities – providing confidence and clarity to consumers and businesses alike. The consultation proposal strengthens rules for crypto trading platforms and crypto lending. Highlights of the consultation include:
- Introducing a phased approach to the regulation of crypto assets.
- Expand the list of specified investments to include crypto assets.
- Introduce a number of new regulated or designated activities tailored to the crypto asset market into the existing regime in the Financial Services and Markets Act (“FSMA“).
- Phasing-out of the parallel authorisation regime that currently exists for crypto asset exchange providers and custodian wallet providers under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations (MLRs).
- Require foreign companies providing crypto assets services outside the UK to establish a presence in the country and obtain a license, and
- Establishing an issuance and disclosure regime for crypto assets.
The proposals represent the next phase of the Government’s plans to regulate the crypto asset sector, introducing a regime to regulate broader crypto asset activities. This adopts a proportionate approach by focusing on areas associated with a higher degree of risk from a consumer and overall market perspective and provides greater opportunities to support the UK’s growth agenda. As such, while not all crypto asset activities will be caught by the proposals (e.g. mining, validating transactions or operating a node on the blockchain), the Government has made it clear that it will keep market developments under review to inform future phases of work.
European Banking Authority (EBA) and the European Systemic Risk Board (ESRB)
EBA toughens up its stress test
The European Banking Authority launched its biennial EU-wide stress test on 31 January 2023, which it says is its toughest to date and experts opine is even tougher than expected. The stress test, which assesses the resilience of the European banking sector, will be conducted on a larger sample compared to previous years. It will cover 70 EU banks with three quarters of the total banking assets in the EU.
The European Systemic Risk Board (ESRB), which assisted in preparing the macro-financial scenario, said that it had done so after observing that risks to financial stability had increased in the fourth quarter of 2022. It listed persistently high inflation, a tightening of financial conditions and a perceptible deterioration in the economic outlook as reasons for the decision.
“The adverse scenario is designed to ensure a significant severity of various macro-economic and financial shocks across all EU countries and, for the first time, depicts a breakdown of the shocks by economic sectors,” the ESRB said. “Such decomposition will help better assess banks’ performance depending on their business model and sectoral exposures,” the EBA noted.
The EBA expects to publish the results of the exercise at the end of July 2023.
Hong Kong Monetary Authority (HKMA)
HKMA to Roll Out New Licensing Requirements and Regulations on Stablecoins
On 31 January 2023, the Hong Kong Monetary Authority (HKMA) published the results of its consultation, on plans to regulate certain activities relating to stablecoins. This follow the HKMA’s discussion paper on crypto-assets and stablecoins published in January 2022 and responses from 58 industry participants that were mostly supportive of a ‘risk-based and agile’ regulatory framework for stablecoins. Key points to note:
- The HKMA will start with regulating stablecoins that are pegged to one or more fiat currencies including the Hong Kong dollar.
- Stablecoins must be fully backed and redeemable at par within a reasonable period to be approved by the regulator. Stablecoins that derive their value based on arbitrage or algorithm will not be accepted.
- Entities that conduct a regulated activity concerning stablecoins pegged to the Hong Kong dollar, will require a licence from the HKMA. The HKMA will also be empowered to require an entity to obtain a licence and become regulated.
- Key regulated activities will include issuance, governance, stabilisation, and wallet services of stablecoins.
- The framework will be comprehensive and entail regulatory requirements in areas such as ownership, governance and management, financial resources requirements, risk management, anti-money laundering and counter-terrorist financing, user protection and regular audits and disclosure requirements.
The target implementation date of the regulatory framework is 2023/2024.
Monetary Authority of Singapore (MAS)
Masterminds Behind Singapore’s Largest Stock Market Manipulation Jailed
On 28 December 2022, the High Court sentenced Mr Soh Chee Wen (also known as John Soh), and Ms Quah Su-Ling to a total of 36 and 20 years’ imprisonment respectively for, among other things, orchestrating an elaborate scheme to manipulate the shares of Blumont Group Ltd, Asiasons Capital Ltd and LionGold Corp Ltd between August 2012 and October 2013, and cheating two financial institutions.
The High Court found the duo guilty of charges of market manipulation and price manipulation, engaging in deceptive practices against financial institutions, and cheating two financial institutions. In addition, Mr Soh was found guilty of witness tampering charges, and charges for being concerned in the management of the three companies whilst being an undischarged bankrupt.
Assistant Managing Director, Policy Payments and Financial Crime, Monetary Authority of Singapore (MAS), Ms Loo Siew Yee, said, “The elaborate scheme master-minded by the offenders to manipulate shares listed on SGX led to large losses by investors and harmed public confidence in the integrity of Singapore’s capital markets. The successful prosecution and stiff sentences leave no doubt as to the authorities’ resolve in acting against such misconduct. MAS will continue to work in partnership with AGC, CAD and the industry to effectively detect, deter and prosecute bad actors, with the objective of ensuring that our capital markets remain fair, orderly, and transparent.”
UAE Cabinet and the Securities and Commodities Authority (SCA)
UAE Cabinet designates the SCA as the Virtual Asset Regulator at Federal Level
The UAE issued Cabinet Resolution No. 111 of 2022 regulating Virtual Assets (“VA”) and Related Service Providers (“VASP”), which came into effect on 15 January 2023. The Resolution is notable for setting out a regulatory framework regarding Virtual Assets at the federal level as it applies to the VA sector and VASPs in the UAE, including Free Zones.
Article 5 of the Resolution lists the activities which are subject to licensing by the Securities and Commodities Authority (SCA) and include:
- VA platforms operation and management services.
- Exchange services between one or more forms of VAs.
- VA transfer services.
- Providing brokerage services for trading of VAs, and
- VA custody and management services.
The resolution additionally prohibits dealing with any person carrying on VA Activities in the UAE unless it is licensed by the SCA or the local licensing authorities.
The Resolution clearly designates the SCA as the responsible entity for supervising and controlling VA Activities, VASPS (including those licensed by the local licensing authorities) and VA transactions conducted inside the UAE, including in Free Zones and shall issue the resolutions required to regulate VA transactions and licensing of VASPs.
It is important to note that the Resolution will not apply to Financial Freezones such as ADGM or the DIFC.
The Securities and Commodities Authority introduces a new funds regime
The SCA has as of 16th January 2023 repealed Decision No.9/RM of 2016 Concerning the Regulations of Investment Funds and issued a fund regime containing substantial changes. The aim of this initiative is to increase the amount of money that local funds manage. The new regime will have a substantial impact on the way in which foreign investment funds in particular, operate within the region.
Under the new rules the promotion of foreign funds is significantly curtailed. Foreign-owned funds may no longer advertise or distribute their services publicly and are limited to private distribution to professional investors and/or market counterparties.
On the positive side, the rules are advantageous for local funds with many beneficial changes:
- Introducing new categories of specialized funds including: ESG Funds, precious metal funds, protected-cell funds, direct-financing funds, real estate development funds, protected-cell funds, and commodities investment funds.
- Lowering the capital requirements for newly established Local Funds to AED 1 million instead of the previously required AED 50 million.
- Reducing the capital requirements for Fund administrators from AED 5 million to AED 1 million.
- Foreign ownership restrictions have also been eased, allowing 100% foreign ownership of these companies.
- Impose disclosure requirements on crypto issuers and service providers.
- Streamlining the process for registering new funds. The approval timeline has been reduced from ten working days to five working days and SCA has provided that for establishment of a new specialized fund, the SCA will issue a decision within twenty working days from the date of submission.
- Allowing capital increases of investment funds in instalments.
- Permitting the buyback of investment funds traded on the stock exchange.
Under the new regime, promoters may continue to perform their current obligations as contracted, during a transition period of six months, beginning on the 1st January 2023 or until the arrangement expires, whichever is earlier.
Securities and Exchange Board of India (SEBI)
SEBI strengthens ESG Framework
At the United Nations Climate Change Conference in Glasgow in November 2022 (COP26), India committed to achieve net zero emissions by 2070. As part of the regulator push towards sustainable finance. The Securities and Exchange Board of India (SEBI), the Indian securities regulator, has:
- released a framework for the establishment of social stock exchange (SEBI SSE framework).
- issued a consultation paper on green and blue bonds as a mode of sustainable finance (SEBI sustainable bonds consultation paper).
- issued a consultation paper on regulation of ESG rating providers (ERPS) (SEBI ERPs consultation paper), and.
- constituted a committee for advising on ESG matters in the securities market.
SEBI will be adopting a principles-based, rather than prescriptive, approach in regulating ESG ratings companies. The draft rules, to be released over the next three months, would focus on three aspects:
- who pays for the rating (SEBI would allow both the company and investors to pay for a rating).
- what information is considered for the score, and
- relative weights assigned to policies under each of the elements of ESG.
Please contact j.awan & partners by email at [email protected] for regulatory support services.
