In the news this week

Author: John Crabb, Karry Lai, Olly Jackson | Published: 31 Aug 2018
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Americas: last of the summer wine

As the summer draws to a close and the post-Labor day rush beckons, things have already begun to heat up across the Americas. The week started with a bang on Monday when President Trump announced that the US and Mexico had reached a bilateral trade agreement in place of the existing North American Free Trade Agreement (Nafta). For the early part of the week a lack of response from Canada made it appear that the new deal would exclude the northernmost of the trio, but on Wednesday it looked as if Canada would join the party. All eyes will be on the three as the supposed Friday deadline looms.

The SEC announced on Monday that it will delay the implementation of the consolidated audit trail, a reporting plan that will enable regulators to better oversee the securities markets on a consolidated basis, allowing them to protect markets and investors. Brett Redfearn, director at the SEC’s division of trading and markets, made a statement that national securities exchanges have not made sufficient progress to achieve the initial deadline.

In other US regulatory news, Richard Clarida, a Colombia economics professor, was confirmed as the new Federal Reserve vice chairman, and the Senate confirmed Republican Dawn Stump and Democrat Dan Berkovitz as commissioners at the Commodity Futures Trading Commission.

Looking South, Argentina made an unexpected slip into freefall this week by requesting an additional $50 billion from the International Monetary Fund. President Macri’s government made the request following a major slump in the country’s economy, a significant devaluation of its currency, the peso, and increasing fear that the country may not be able to repay its mounting debt.

EMEA: lasting effects 

The Internal Revenue Service (IRS) has joined tax authorities from the UK, Canada, the Netherlands and Australia to create the Joint Chiefs of Global Tax Enforcement, a sign regulators are getting serious about cryptocurrencies. But an additional layer of regulation could create confusion. While taxation rules for US investors are relatively straightforward, the main question is how non-US investors will be taxed. For non-US investors, it largely depends on whether the activity is considered a trade or a business, and whether that business is connected to the US in some way. But just how connected it has to be to be taxed by the IRS is unclear.

US cryptocurrency laws are deterring some blockchain companies away from the US and to more crypto-friendly jurisdictions such as Switzerland for instance. Will Munsil, ecosystem designer and strategy architect at Sweetbridge, said they have excluded several countries including the US and Canada due to sweeping securities laws and expensive use case demonstrations. Licenced financial products and services have to work with partners and navigate expensive procedures to demonstrate use cases. Sweetbridge is nearing approvals in Europe and is going to have some functionalities in the US.

The EU said it expects a 'substantial effort’ from Italy on its budget law set to be released in September. Following the election of Five-Star Movement and League, those in Brussels have become concerned that Italy could prove to be a destabilising power both financially and politically. The coalition has tried to reassure ministers that it does not want to leave the eurozone and its economic plan is sustainable, despite huge spending increases for a country with fast rising debt levels. Commissioner Pierre Moscovici said he hopes Italy controls its public debt and reaffirmed that the three percent GDP deficit limit was not a target but a roof.  

Asia Pacific: last but certainly not least

Hong Kong’s Securities and Futures Commission is consulting on proposed guidelines on risk management practices for securities margin financing (SMF). Key proposals include requiring SMF brokers to put in place prudent controls to prevent excessive leverage and over-concentration both in terms of securities collateral and individual margin clients. Brokers would also be required to set and enforce specific policies for margin calls and conduct stress tests at least monthly. In addition, the proposed guidelines set out clearer guidance for haircuts for securities acceptable as collateral. The consultation ends on October 18 2018.

The Bank of Thailand is working on a central bank digital currency project called Inthanon. The country’s central bank is partnering with eight banks to build a proof-of-concept prototype for domestic funds transfers within Thailand’s interbanking system using R3’s Corda platform. The first phase of the project is expected to be completed in the first quarter of 2019.

The China Banking and Insurance Regulatory Commission has announced that limits on foreign ownership of Chinese banks have been removed and that overseas financial institutions will be treated the same as local companies. The plans are in line with the central government's plan to remove all caps on foreign ownership of Chinese banks by 2021.

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