Almost six months into 2022, the financial industry has already experienced a heavily chaotic year. With a mix of continuing Covid-19 troubles with the enveloping Russia-Ukraine conflict, the industry is having to evolve to new challenges.
What else has happened this year? A recent post by RegTech firm ACA Global outlined some of the key developments of 2022 and how they are changing the RegTech industry.
The first key and unavoidable development this year has been the crisis in Ukraine – and particularly the challenges surrounding the expansion of sanctions. ACA said, “The conflict in Ukraine and subsequent expansion of sanctions requires firms to review not only their investments but also their overall financial crime systems and controls.
“Ensuring the various lists of sanctions are screened against can be no small task so we recommend that firms liaise with third-party administrators and vendors to ensure the appropriate steps have been taken.”
Continuing on with a similar trend from last year, the increasing risk of cyberattacks continue to hang over the financial industry. With this considered, ACA raised the Dear CEO letter published by the FCA earlier this year that warned firms of the threat of Russian cyberattacks.
In the area of regulation, the FCA is continuing to push forward with its adjustment of EU regulations post-Brexit and has an aim to ensure the on shored regulatory requirements are proportional to the perceived risks.
ACA highlighted that ‘eyebrows have been raised’ on the possible increase in political influence with the inclusion of the EU High-Risk third Country list, rather than continuing with the FATF list. Currently, the Cayman Islands resides on the EU high-risk list and raises questions accessing funds domiciled in the Caymans.
Meanwhile, the SEC has proposed big changes to the private funds model detailing enhanced reporting requirements and restricting the charging of various different fees associated often with private market investments. In the eyes of ACA, however, 2022 is the year of ESG.
ACA said, “This has long been a staple of marketing documents, though with a fair amount flexibility in the definition. Now regulators have been busy working to establish the much needed consistency and transparency around ESG claims. The EU is considered furthest ahead in the ESG regulatory race, introducing phase one of the Sustainable Finance Disclosure Regulation (SFDR) in March 2021.
“Requiring certain disclosures, which in the past were far more voluntary and generic, SFDR may have caught some European firms off-guard to the level of information needed when deciding if funds would be classified as article 6, 8 or 9, indicating essentially the level of sustainability criteria involved in the investment decision process. Guidance from the regulators around the data that is required to compete the requisite disclosures has been perhaps less than illuminating but as we approach the January 2023 deadline for the implementation of stage 2 clarity should, hopefully, be on its way.”
The company also highlighted the fact that the UK introduced the Task Force on Climate Disclosures, with those rules coming into force in April 2022.
ACA concluded, “So tentatively emerging into the post-pandemic world, the global financial industry has a myriad of regulatory hurdles to navigate which, though seemingly similar on the surface, may actually pose more issues that initially anticipated. Though refinement to certain EU/UK directives are welcomed (goodbye to MiFID RTS 27 and 28) and clarity around ESG needed, the governance, risk and compliance landscape may still have a few hidden surprises in store. Ensuring you have the right guide may just be key.”
Read the full post here.
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