In the news this week

Author: John Crabb, Karry Lai, Olly Jackson | Published: 2 Nov 2018
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Americas: caravan of love

Next week’s midterm vote will be the most significant political event to take place in the US since the 2016 election, as the country prepares for a de facto referendum on Donald Trump’s presidency so far. Surprisingly, it’s not events taking place within the US that are shaping the last days of campaign, but those south of the border as a large caravan of Central Americans heads to the US border.

Developments in the US saw the Federal Reserve vote to lower regulatory costs for regional US lenders with assets under $700 billion assets, which will not affect the largest banks, and create new categories of banks that take risks currently not of concern into consideration, like off-balance sheet exposures.

At the Commodity Futures Trading Commission, Democrat commissioner Rostin Behnam called out his boss during a speech in Tokyo. Benham took umbrage with his strong approach to the US-EU clearing debacle, as well as chairman Giancarlo’s white paper on cross-border deference.

The political and economic face of South America took a dramatic shift this week, as Brazil voted to elect the one-time army general Jair Bolsonaro to the presidency, a move that brought a nasty taste to the mouths of many around the world but has been widely welcomed in his home country. The Brazilian real rebounded following the victory, with the hard-hitting politician promising to whip the economy into shape.

In Mexico, a referendum found that 70% of voters rejected the partly built second airport in the capital city. The project, which was set to cost $13 billion, will now be cancelled after incoming President Lopez Obrador confirmed he will stand by the result, although only just over one million votes were made. The Mexican peso slid after the decision was taken.

Asia Pacific: virtual reality

The Cyberspace Administration of China has released draft regulations for blockchain firms. The proposed regulations stipulate that blockchain firms have to undergo an annual review by the government to check compliance with laws and regulations. Additionally, blockchain companies need to authenticate the real identity of each user or may lose its ability to operate. Blockchain operators must also store user data for six months and provide it to the regulator when requested.

Japan’s Financial Services Agency (JFSA) has given permission to the Japan Virtual Currency Exchange Association to self-regulate. This will empower the industry association to police and sanction exchanges for issues of money laundering and protection of customer assets. The JFSA also published guidelines for cryptocurrency exchanges and 160 firms have expressed interest in applying for a licence.

Over in Hong Kong, the Securities and Futures Commission has set out a new approach to regulate virtual assets. Licensing conditions are being placed on firms that manage or intend to manage portfolios investing in virtual assets, irrespective of whether the assets meet the definition of securities. A conceptual framework to set up a sandbox to test whether virtual assets trading should be regulated was also announced.

In a move to reduce restrictions over the equity investments made by insurance companies, the China Banking and Insurance Regulatory Commission has created new draft rules to remove limits on the equity sectors that insurance funds can be invested in. However, M&A targeted investments are limited and should account for no more than 20% of a fund’s total assets. Currently, equity investments are limited to sectors related to the insurance sector, such as healthcare and auto related businesses.

EMEA: all over the place 

The European Security and Markets Association stakeholder group (SMSG) has proposed sweeping reforms to cryptocurrency regulation, which could result in exchanges driven out of business and could force secondary trading of cryptocurrencies onto an MTF. The report proposes that cryptocurrencies are indeed financial instruments and therefore subject to financial regulation such as Mifid II, the Market Abuse Regulation and the Prospectus Regulation. It is not certain whether Esma will adopt these recommendations. This week, the UK Crypto Assets Task Force also published its proposals, mirroring the framework set by Finma which has three separate token categories and does not regulate utility tokens. The looser form of regulation could attract exchanges and wallet providers deterred away from the EU.

The Seychelles have raised $15 million through the world’s first blue bond to finance projects protecting its natural resources and fishing industry. The World Bank hopes that the bond can become a model for years to come. The bond received investment from three separate sources: Calvert Impact Capital, Nuveen, and Prudential, all based in the US. The deal is made up of a $5 million loan from the International Bank of Reconstruction and Development and a $5.29 million grant from Global Environment Facility.

The EU and the UK were quick to deny reports this week that a financial services agreement had been reached between the two negotiating teams. Initial reports said that a tentative deal had been struck, based on equivalence, but there is said to be some way to go before a deal is reached. Regardless, a compromise needs to be reached on the Irish border, which remains a major obstacle to any deal.