{"id":10539,"date":"2024-02-21T10:35:38","date_gmt":"2024-02-21T10:35:38","guid":{"rendered":"https:\/\/fintech.global\/regtech100\/?p=10539"},"modified":"2024-02-21T10:36:01","modified_gmt":"2024-02-21T10:36:01","slug":"what-are-the-key-regulatory-developments-to-keep-an-eye-on-in-h1","status":"publish","type":"post","link":"https:\/\/fintech.global\/regtech100\/what-are-the-key-regulatory-developments-to-keep-an-eye-on-in-h1\/","title":{"rendered":"What are the key regulatory developments to keep an eye on in H1?"},"content":{"rendered":"

As we approach the end of the second month of 2024, the direction of regulatory developments is beginning to take shape. What can we expect to see in the first half of 2024?<\/strong><\/p>\n

In the view of Stacey English, director of regulatory intelligence at\u00a0Theta Lake<\/a>, despite the relative youth of the year the sector has already seen both the SEC and FINRA update their expectations on communications compliance.<\/p>\n

She remarked, \u201cThis sets the stage for the first half of the year.\u00a0 Firms need to be under no illusions \u2013 recordkeeping is, and will remain, a key regulatory focus.\u201d<\/p>\n

English also emphasised that despite penalties already exceeding $2.6bn for unmonitored channels, it\u2019s clear that fines for recordkeeping failures are not over.\u00a0\u00a0Theta Lake\u2019s independent survey of over 600 firms revealed that 74% believe staff are still using unmonitored communications.<\/p>\n

Relating to this, regulators have said the penalties will even be higher because they\u2019ve given warnings so firms should be on notice. \u201cDespite the enforcement headlines focusing on WhatsApp and a small percentage of staff trying to evade oversight, it\u2019s actually a much wider problem where staff are using unmonitored methods just to do their job efficiently,\u201d said English.<\/p>\n

Theta Lake recently found that 68% of firms disable core features across their approved platforms like Zoom, Microsoft Teams and Cisco Webex, because existing compliance tools can\u2019t effectively capture them and\/or make them searchable for detecting and reporting risks.<\/p>\n

According to English, this is driving staff to alternative unapproved methods to communicate. \u201cWe\u2019re helping firms make sure they can capture all the different tools and channels like email, chat, whiteboards, video, alongside all the contextual information like emojis and reactions, and then be able to search and retrieve those records, so they able to turn features on and staff aren\u2019t driven to alternative unmonitored methods.\u201d<\/p>\n

In the view of the regulatory intelligence director, this unrelenting regulatory focus is why the industry sees communications compliance take centre stage in boardrooms.<\/p>\n

\u201cWe know the vast majority of firms are revisiting their communications compliance\u00a0and we\u2019ve seen firms themselves starting to take action against individual staff with clawbacks in bonuses, demotions and even dismissals. It\u2019s only a matter of time before regulators take action too if their warnings aren\u2019t heeded. So the whole issue of communications compliance needs to be assessed urgently at the highest level before the regulators come in and mandate a review.\u201d<\/p>\n

There will also be a widening focus from regulators in the first half of 2024. English said\u00a0 the billions of dollars in fines imposed in the last couple of years were mostly for a failure to capture communications.<\/p>\n

However, the issue to watch out for in her view is whether those records are complete and whether those records can be retrieved.\u00a0 \u201cThere are already signs that some regulators are widening the supervisory net and imposing penalties for wrongly deleted data, an inability to find data.<\/p>\n

\u201cWe know firms are struggling with this. 74% of firms told us that they are facing challenges in searching and retrieving communications.\u00a0\u00a0So proof that all communication records from all the different platforms and modalities have been captured is something firms are asking for because regulators want to see it, otherwise oversight is ineffective. Thankfully solutions like Theta Lake that are built for modern unified communications provide that reconciliation of records, giving both firms and regulators assurance that records are complete,\u201d said English.<\/p>\n

Looking towards the horizon, Generative AI is continuing to grow in stature and reach and 2024 will be no different for the technology. English belives GenAI will grow considerably as it starts to deliver substantial cost savings and productivity gains \u2013 whether that\u2019s summarizing conversations or creating content.<\/p>\n

She added, \u201cFINRA has highlighted artificial intelligence as an emerging risk, warning firms to be mindful of how these technologies may impact compliance with their regulatory obligations, including books and records, customer information protection and supervision. What we do know is that the wider use of generative AI will create more content and communications with requirements for retention, search and supervision.\u201d<\/p>\n

Restriction and harmonisation\u00a0<\/strong><\/p>\n

Elsewhere in the financial sector,\u00a0Muinmos<\/a>\u00a0CEO and founder Remonda Kirketerp-M\u00f8ller identified four key areas to watch out for in H1.<\/p>\n

Firstly, there will be clearer guidelines on the MiCA regulation. She said, \u201cMiCA is currently occupying the industry including regulators across the world and we expect to see more ESMA Guidelines on MiCA, applying learnings from \u201cgood old MiFID II\u201d \u2013 such as\u00a0<\/span>ESMA\u2019s Latest Draft Guidelines<\/span>\u00a0from 29\u00a0January<\/span>\u00a02024<\/span>, regarding\u00a0<\/span>\u2018reverse solicitation\u2019 and the \u2018qualification of crypto-assets as financial instruments\u2019.\u201d<\/span><\/p>\n

In other areas, there will be more cross-border restrictions \u2013 with the Muinmos CEO stating that there will likely be further restrictions on\u00a0cross border application\/ restriction as the industry saw last year with SVG, Spain and other places, and redefining third countries and equivalence in the EU.<\/span><\/p>\n

Kirketerp-M\u00f8ller stated the EU\u00a0and beyond are also seeing the need for forward harmonization across borders, as evidenced by the latest removal of the 3ZA list in the UK, and the EU Parliament\u2019s Committee statement on\u00a0<\/span>better data sharing and less red tape<\/span>\u00a0in reporting.<\/span><\/p>\n

She concluded, \u201cThroughout 2023, regulators put a great deal of effort into defining what constitutes as legitimate and non-legitimate communication with clients and potential clients, in terms of both channels of communication and content. For example, what constitutes marketing, and what type of marketing is allowed. We believe this trend will continue. For example, see FCA\u2019s guidelines from 30\u00a0January<\/span>\u00a02024<\/span>\u00a0about\u00a0<\/span>\u2018flying\u2019 and \u2018printing\u2019<\/span>.\u201d<\/span><\/p>\n

Politics and AI<\/strong><\/p>\n

One of the biggest imprints left in the financial sector last year was the rise of AI and how it disrupted the system.<\/p>\n

Saifr<\/a>\u00a0stated that last year,\u00a0AI\u2019s\u00a0regulatory priorities and ethical obligations\u00a0dominated discussions; but\u00a02024<\/span>\u00a0could be the year of more tangible AI regulations. \u201cWhat is unclear is if we will see regulatory action or just political posturing? I think a mix of the two is most likely,\u201d said Saifr.<\/p>\n

AI entered the political conversation in the US in 2023, but it was not just discussion, according to the RegTech firm. There was also some action, Saifr stated, culminating in President Biden\u2019s Executive Order on AI at the end of October\u2014a directive calling for more transparency and new standards.<\/p>\n

Saifr said, \u201cPolitics is at play here too. The Republican focus is not on intensified regulation, while Democratic plans seem based on more regulation and control. But that view can be seen as over simplified. So, it is hard to say what will exactly happen, but it seems that some form of regulation is likely and could align to each industry.<\/p>\n

\u201cAs a result, I think firms can be cautiously optimistic when dealing with AI-based companies and should pay particular attention to controls that help manage risk and offer transparency.\u201d<\/p>\n

The firm added, \u201c2024<\/span>\u00a0is also an election year, so we could, in theory, see more directive action toward the end of the year or in 2025 depending on the new President and administration\u2019s interpretation of the Executive Order. But it really depends on who will be president and how much they want to regulate or deregulate this area.\u201d<\/p>\n

EMIR-REFIT revision\u00a0<\/strong><\/p>\n

Another area the financial sector can\u2019t sleep on this first half year is the EMIR-REFIT revision associated with the revised derivatives reporting requirements under EMIR-REFIT.<\/p>\n

MAPFinTech<\/a>\u00a0head of operations\u00a0Christodoulos Mouskos explained that in the EU during H1 2024 (end of April 2024) we will have the launch of the revised derivatives reporting requirements under EMIR-REFIT.<\/p>\n

\u201cThe new reporting rules introduce a host of new data elements, such as the concept of collateral haircuts based on Risk Management considerations, identifiers for crypto assets, and the incorporation of a globally endorsed Unique Product Identifier, as well as mandating that all reports are submitted using XMLs. Moreover, additional data points will become subject to matching\/reconciliation for the so-called double-sided reports.\u201d<\/p>\n

In the view of Mouskos, the new ruleset \u2013 while it has been adequately fleshed out by ESMA and IOSCO-CPMI\u2019s publishing guidelines, reports and the XML schemata \u2013 is expected to cause a few hiccups especially during launch and during the immediate short term.<\/p>\n

He said, \u201cReporting parties will discover inconsistencies and\/or weaknesses in the ruleset when they begin submitting the new reports. The reporting parties will need to inform their respective TRs of these issues and the TRs in turn will liaise with ESMA to find interim or permanent solutions such as e.g. issuing new guidelines, amending validations or adjusting the XML schemata.<\/p>\n

\u201cMoreover, many TRs have created sandbox testing environments for the new ruleset urging their users to start test submitting reports to identify issues and iron out kinks before the new rules kick in on the 29th of April 2024.\u201d<\/p>\n

Crypto bracing for regulation\u00a0<\/strong><\/div>\n
<\/div>\n
As cryptocurrency continues to bake itself into the financial system, the sector can expect to see greater regulator as the market becomes increasingly professionalized. Chor Teh, financial crime compliance industry practice lead at\u00a0Moody\u2019s Analytics<\/a>, said that crypto will likely become increasingly professionalised in the first half of the year, and the industry is already seeing regulators prepare for this with the FCA previously launching and closing its consultation on stablecoins.<\/div>\n
<\/div>\n
Teh mentioned that alongside crypto, fintechs will increasingly have to prepare for other cross-border regulation due to come into force.<\/div>\n
<\/div>\n
He said, \u201cFor example, there is now only a year to comply with the EU\u2019s Digital Operations Resilience Act (DORA), which will apply from\u00a0January<\/span>\u00a017th\u00a02025, and Fintechs will be using H1\u00a02024<\/span>\u00a0to implement IT risk management solutions that help them adhere to the upcoming regulation.\u201d<\/div>\n","protected":false},"excerpt":{"rendered":"

As we approach the end of the second month of 2024, the direction of regulatory developments is beginning to take shape. What can we expect to see in the first half of 2024? In the view of Stacey English, director of regulatory intelligence at\u00a0Theta Lake, despite the relative youth of the year the sector has […]<\/p>\n","protected":false},"author":4,"featured_media":10540,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[73],"yoast_head":"\nWhat are the key regulatory developments to keep an eye on in H1? - RegTech100<\/title>\n<meta name=\"description\" content=\"As we approach the end of the second month of 2024, the direction of regulatory developments is beginning to take shape. 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