#IOSCO – Page 3 – Federal Financial Analytics

11 05, 2022

DAILY051122

Eliza Allen2023-02-21T15:33:13-05:00May 11th, 2022|2- Daily Briefing|

HFSC re FSOC: SIFIs, Climate, Stablecoins, Lots More

Looking ahead to tomorrow’s HFSC hearing with Secretary Yellen, the Democratic staff memo suggests that this session will track much of what occurred yesterday at Senate Banking (see Client Report FSOC26): i.e., discussion of the need for stablecoin legislation, the role of SIFI designation, and the overall risks presented by higher inflation, Russia, China, and climate change.

Basel Plans Wholesale Review of Post-GFC Regulatory Regime

The head of the Basel Committee, Pablo Hernández de Cos, today announced a full-scale evaluation of the Basel III construct set for release later this year. The report will evaluate complexity, regulatory interactions and systemic-risk dynamics, focusing on capital, liquidity, leverage, and macroprudential elements of the Basel III reforms. The report will also evaluate resilience and financial-activity behavioral incentives.

FSB Plans Commodity, Climate, Crypto Agenda

In remarks today, FSB head Klaas Knot reiterated ongoing concern about commodity markets and continuing financial-market resilience despite stress absorption since Russia first invaded Ukraine. Mr. Knot is also concerned that some banks are generally over-leveraged and those with prime brokers may be at particular risk.

Daily051122.pdf…

19 04, 2022

DAILY041922

Eliza Allen2023-03-02T10:47:37-05:00April 19th, 2022|2- Daily Briefing|

CRA Reform Still in “Soon” Timeframe

In remarks today, Acting Comptroller Hsu provided only a little insight into ongoing negotiations over a new CRA proposal, reiterating that one will “soon” be released.

IMF Warns of Payment-System Fragmentation, Dealer-Bank Commodity

The IMF today released more of its annual global financial report, going beyond the assessment of the renewed sovereign doom loop we addressed in yesterday’s FedFin alert to consider other financial-stability risks and call for quick action on a new fintech/crypto regulatory framework.

Fed Finds Nonpublic Prime Funds More Resilient

As the SEC contemplates MMF reform (see FSM Report MMF19), the Fed has continued to issue reports highlighting vulnerabilities that the central bank likely feels are only partially addressed by the Commission’s preferred liquidity fix: swing pricing.

IMF Calls for Fast, Tough Fintech, DeFi Regulation and Supervision

The IMF’s overarching financial-stability report not only deals with the structural risks addressed earlier today, but also those posed by fintechs and DeFi. As presaged in its blog post last week, the report concludes that fintechs pose risks both on their own and to less technologically advanced banks, each of which requires regulatory action to prevent systemic risk.

Carstens Endorses Fed’s Cautious CBDC Stance

In a discussion about the future of digital money during the IMF annual meetings, BIS General Manager Carstens endorsed Federal Reserve Chairman Powell’s cautious approach to creating a CBDC (see FSM Report CBDC10), citing the critical importance of reliability to CBDC success.

Daily041922.pdf…

11 04, 2022

M041122

Arezou Rafikian2023-03-02T11:36:45-05:00April 11th, 2022|6- Client Memo|

Why the Gerontocracy is Right about DeFi Risk

When we started our own analyses of technology-based finance’s stability and equality implications in 2019, we were among the first to focus on disclosures, conflicts of interest, and even self-dealing. Still, we had no idea how many sides of a trade someone could quietly be on if he or she builds out something that purports to be decentralized finance (DeFi) but is anything but. Although regulators have yet to do much about it, their first in-depth DeFi report details a raft of risks they should quickly remedy. Odds are that they won’t until innocent investors and bank customers lose many of their millions, but this too-many-rules-far-too-late habit is particularly dangerous when it comes to fast-moving DeFi.

M041122.pdf…

11 04, 2022

Karen Petrou: Why the Gerontocracy is Right about DeFi Risk

Arezou Rafikian2023-03-02T11:37:03-05:00April 11th, 2022|The Vault|

When we started our own analyses of technology-based finance’s stability and equality implications in 2019, we were among the first to focus on disclosures, conflicts of interest, and even self-dealing. Still, we had no idea how many sides of a trade someone could quietly be on if he or she builds out something that purports to be decentralized finance (DeFi) but is anything but. Although regulators have yet to do much about it, their first in-depth DeFi report details a raft of risks they should quickly remedy. Odds are that they won’t until innocent investors and bank customers lose many of their millions, but this too-many-rules-far-too-late habit is particularly dangerous when it comes to fast-moving DeFi.

First and foremost, DeFi isn’t nearly as decentralized as those touting it represent. If DeFi were truly decentralized, then it would be a lot harder for hackers to make off with everything in a DeFi platform in one swipe, but this has a nasty habit of happening over and over again. As a result, at its most essential, DeFi exposes counterparties and customers to loss of assets even if nothing else goes amiss.

And much else could. As the report from the International Organization of Securities Commissions details, DeFi is not only often centralized, but also not even all that digital. Non-digital and centralized aspects of DeFi include not just graphical interfaces with customers and fiat-currency transactions with counterparties, but also very traditional forms of finance such as leveraged trading and rehypothecation …

6 04, 2022

DAILY040622

Eliza Allen2023-03-02T12:25:01-05:00April 6th, 2022|2- Daily Briefing|

IOSCO Dodging Open-End Fund Reform?

IOSCO today asked for comment on corporate-bond market liquidity and ETF best practices. The bond analysis focuses less on the open-end funds on which the SEC and global regulators are addressing in the wake of MMF proposals (see FSM Report MMF19) than on underlying markets. It focuses on the extent to which secondary corporate-bond trading remains dependent on a small network of OTC dealers in markets with scant liquidity despite sharp growth since the 2008 crisis.

Chopra Calls CRAs as Cartel

In a speech today on consumer reporting agencies, CFPB Director Chopra focused not on the sector’s decision to change medical-billing practices as the Bureau recommended, but rather on the fact that the three major agencies did so on the same day in the same announcement. This, he said, suggests that they are a cartel, not competitors.

DAILY040622.pdf…

29 03, 2022

DEFI

Arezou Rafikian2023-03-27T15:45:58-04:00March 29th, 2022|5- Client Report|

Global Securities Regulators Diss DeFi

As promised, this report provides an in-depth analysis of IOSCO’s new paper on decentralized finance, one sure to advance the FSB’s efforts to bring DeFi systems under greater regulatory scrutiny due to the findings we here detail. In the U.S., President Biden’s crypto-focused executive order (see FSM Report CRYPTO26) highlights DeFi’s risk with regard to illicit finance. IOSCO’s work on this report was headed by the SEC, suggesting rapid U.S. action not only on this concern, but also on many other risks by the Commission, as well as the FSOC and other U.S. agencies. IOSCO concerns go well beyond those specific to investors and trading platforms, noting, for example, significant risk posed to retail customers in DeFi lending and payment, settlement, and clearing products. As with the FSB, IOSCO disputes assertions that DeFi is fully decentralized, noting that most of the services delivered via any DLT purporting to be DeFi are analogous to traditional financial products and services (TradFi) other than regulation. The report also details the off-chain activities that result in significant inter-connectedness with TradFi without appropriate controls over possible contagion or even systemic risk.

DEFI.pdf…

29 03, 2022

FedFin: Global Securities Regulators Diss DeFi

Arezou Rafikian2023-03-27T15:46:19-04:00March 29th, 2022|The Vault|

As promised, this report provides an in-depth analysis of IOSCO’s new paper on decentralized finance, one sure to advance the FSB’s efforts to bring DeFi systems under greater regulatory scrutiny due to the findings we here detail. In the U.S., President Biden’s crypto-focused executive order (see FSM Report CRYPTO26) highlights DeFi’s risk with regard to illicit finance. IOSCO’s work on this report was headed by the SEC, suggesting rapid U.S. action not only on this concern, but also on many other risks by the Commission, as well as the FSOC and other U.S. agencies…

The full report is available to retainer clients. To find out how you can sign up for the service, click here.…

24 03, 2022

DAILY032422

Eliza Allen2023-04-03T12:54:18-04:00March 24th, 2022|2- Daily Briefing|

Waller Adds Residential Real Estate to Monetary Policy Criteria

In remarks today, FRB Gov. Waller addressed the impact of what he calls the “red-hot” housing market on monetary and fiscal policy. Noting that nonbank servicers were able to survive the 2020 crisis due to the refi boom’s liquidity benefit and a Ginnie facility, Mr. Waller reiterates ongoing policy concern about nonbank-servicer resilience without detailing any preferred policy actions.

HFSC Expands Diversity Data Demands to Large Insurers

Chairwoman Waters and Diversity Subcommittee Chairwoman Beatty expanded the committee’s diversity efforts today to include insurers via a letter sent to the largest insurance companies.

IOSCO Decries DeFi, US Regulatory Intervention Likely

Going beyond the general DeFi concerns outlined in a February FSB report, IOSCO today released a detailed report arguing that most DeFi products are directly akin to regulated investment, lending, and clearing products, posing not only the risks otherwise captured within the prudential perimeter, but also numerous additional risks presented by the manner in which DeFi generally operates.

HFSC Wants Names re Russian Business Exposure, Sanctions Compliance

HFSC Chairwoman Waters sent a letter today to financial and business trade associations requesting detailed information on each sector’s efforts to divest from Russia. The letter applauds current efforts, but states that HFSC must nonetheless seek additional details about exit strategies and sanctions compliance, along with the names of companies continuing to do business within the Russian Federation or with Russian-based firms.

Daily032422.pdf…

14 03, 2022

DAILY031422

Eliza Allen2023-04-03T15:04:42-04:00March 14th, 2022|2- Daily Briefing|

IOSCO Adds Carbon-Market Review to Work Plan

IOSCO today released a comprehensive sustainability work plan, moving beyond the investor-focused disclosures it previously espoused set for action next week by the SEC. Going forward, global securities regulators have now prioritized reducing greenwashing and encouraging reliable ESG-impact assessment. IOSCO will thus review both the pending IFRS climate- and general-sustainability disclosure requirements and final standards.

Raskin Faces Still Higher Confirmation Odds

Sen. Manchin (D-WV)’s statement today that he will not support Sarah Bloom Raskin makes her path to confirmation difficult, if not impossible. For her appointment as Fed Supervisory Vice Chair to advance, at least one Republican would need to break ranks on the Senate floor even if Ranking Member Toomey (R-PA) is unable to hold his blockade.

Daily031422.pdf…

7 12, 2021

Daily120721

Arezou Rafikian2023-05-23T13:20:29-04:00December 7th, 2021|2- Daily Briefing|

FBO Sanctions Update
Sens. Cotton (R-AR), Rubio (R-Fl) and eleven GOP colleagues have introduced S. 3318, legislation pressing the U.S. to deny foreign financial institutions access to the U.S. financial system if they provide “Palestinian martyr” payments.

Chopra Slams “Banking Cartel” as CFPB Sets LIBOR Standards
The CFPB today issued its final LIBOR-transition rule, with Director Chopra’s accompanying statement emphasizing that this rule will now prevent the “banking cartel” from again illegally setting disadvantageous consumer interest rates.

CFPB Accepting Additional Bigtech Inquiry Comments
The CFPB today reopened the comment period on its bigtech inquiry, now accepting comment until December 21. As we noted when the comment period opened, the Bureau then provided a very short comment window because Director Chopra said that the Bureau must move quickly due to the initiative’s importance.

Warren Readies Anti-Powell Attack
Sen. Warren (D-MA) today released a letter making it clear that she will strongly oppose Chairman Powell when his confirmation comes before the Senate Banking Committee.

FSB: Persistent Gaps Challenge Resolution Regimes
The FSB today updated progress on implementing its key attributes of effective resolution regimes, reporting significant advances at GSIBs despite gaps at smaller banks, insurance companies, and CCPs.

HFSC Dems: Investment Firms Must Increase Diversity
Ahead of a hearing Thursday sure to be critical of large financial companies, a new HFSC majority staff report on diversity and inclusion looks at large investment firms (including those owned by banks) and finds little progress.

Daily120721.pdf…