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Regulation

UK Gets New Libor Transition Head The Bank of England and the UK’s Financial Conduct Authority (FCA) have announced the appointment of Tushar Morzaria as the new chair of the Sterling Risk Free Reference Rates Working Group. The group was established in 2015 to implement the Financial Stability Board's recommendation to develop alternative risk-free rates (RFRs) for use instead of Libor-style reference rates. In April 2017, the Working Group recommended the Sonia benchmark as their preferred RFR and since then has been focused on how to transition to using Sonia across sterling markets.
FSB Reports “Good Progress” on OTC Derivatives Reform The Financial Stability Board (FSB) has issued two reports studying the implementation of its reform programme for OTC derivatives markets and says that “good progress” continues to be made across its agenda. Studying the period from end-June 2017, the report concludes that 21 out of 24 FSB member jurisdictions have comprehensive trade reporting requirements in force, up by two since end-June 2017. The three to yet put the reporting frameworks in place are Argentina, South Africa and Turkey, however the FSB says the three have made “some progress” in that period, particularly Turkey.
CFTC Fines Ex-Deutsche Trader for Hiding Swaps Losses The US Commodity Futures Trading Commission (CFTC) has fined a former Deutsche Bank inflation swaps trader for attempting to cover up losses. The Commission has also closed its related investigation into the bank, citing its self-reporting of the incident and its cooperation. CFTC says it has filed and settled charges against Jacob Bourne, a former managing director at Deutsche for fraudulently mismarking swap valuations to conceal trading losses of $16 million. The CFTC Order requires Bourne to pay a $350,000 civil penalty and permanently bans him from trading on exchange and seeking registration with the CFTC, among other prohibitions.
Mizuno Fined $900,000 by NFA The US National Futures Association (NFA) has ordered Mizuho Capital Markets to pay a $900,000 fine for failing to adequately assess the risks of its uncleared swaps. The Decision, issued by NFA's Business Conduct Committee (BCC), is based on a Complaint issued by the BCC and a settlement offer submitted by Mizuho Capital, which neither admitted nor denied the allegations. The BCC found that Mizuho Capital used inadequate processes to assess the risks of its uncleared swaps and back test, benchmark and validate its margin model.
Cartel Members Acquitted of FX Market Manipulation Richard Usher, Rohan Ramchandani and Chris Ashton, the three members of the now notorious “Cartel” chat room, have been found not guilty of FX market manipulation by a jury in New York. It was alleged that between 2007 and 2013 Usher, Ramchandani and Ashton worked in coordination to fix prices and rig EUR/USD markets, participating in telephone calls and electronic messages, including near-daily conversations in a private electronic chat room, in order to achieve this. The indictment against them was issued in January of this year. If found guilty the three could have each faced a maximum penalty of 10 years in prison and a $1 million fine.
NYDFS Approves Coinbase as Qualified Custodian Coinbase Custody has obtained a license under New York State Banking Law to operate as an independent Qualified Custodian. It will operate as a Limited Purpose Trust Company chartered by the New York Department of Financial Services (NYDFS). Coinbase Custody is designed as an institutional-grade service for storing large amounts of cryptocurrency in a secure manner. All assets trusted to Coinbase Custody are stored offline. “For our customers, operating under a New York State Trust Company is more than just a new license  -  it’s an important piece of regulatory clarity that will allow us to compliantly store more assets and add new features like staking,” says Sam McIngvale, product lead at Coinbase, in an online post announcing the news.
ASIC to Investigate Last Look The Australian Securities and Investments Commission (ASIC) is to further investigate the use of last look in foreign exchange markets. ASIC commissioner Cathy Armour told a conference this week that while the regulator accepts that last look may help facilitate a liquidity provider’s legitimate risk management, it also introduces the potential to exploit confidential client trading intentions and to otherwise treat clients unfairly. The regulator says it will also conduct more sets of on site reviews of local banks' foreign exchange businesses.
FSB Outlines Potential Financial Stability Issues from Crypto-Assets The Financial Stability Board (FSB) today published Crypto-asset markets: Potential channels for future financial stability implications. The report sets out the analysis behind the FSB’s proactive assessment of the potential implications of crypto-assets for financial stability. The report includes an assessment of the primary risks present in crypto-assets and their markets, such as low liquidity, the use of leverage, market risks from volatility, and operational risks. Based on these features, crypto-assets lack the key attributes of sovereign currencies and do not serve as a common means of payment, a stable store of value, or a mainstream unit of account, says the report.
ESMA Extends CFD Restrictions The European Securities and Markets Authority (ESMA) has agreed to renew the restriction on the marketing, distribution or sale of contracts for differences (CFDs) to retail clients, which have been in effect since 1 August, from 1 November 2018 for a further three-month period. ESMA says it has “carefully considered” the need to extend the intervention measure currently in effect and believes that a significant investor protection concern related to the offer of CFDs to retail clients continues to exist.
BIS Paper Maps Out a Path to Crypto Regulation A new paper included in the latest Bank for International Settlements Quarterly report argues that regulation of cryptocurrency markets can be effective, especially at national level. The report, by Raphael Auer and Stijn Claessens at the BIS, notes that cryptocurrency markets are often seen as operating outside the reach of national authorities, but it also points out that can also apply to other asset classes and emergent technologies. What sets cryptocurrencies apart is that they can function without institutional backing and are intrinsically borderless, which, the report argues, raises the question of whether one can expect regulation – in particular national regulation – to be effective.