Financial services and regulation

Key Takeaways:
• Clear Regulatory Guardrails: The GENIUS Act provides guardrails for payment stablecoins, including strict reserve, disclosure, and anti-money laundering standards.
• Federal and State Regimes: Both the federal government and states, with certain limitations, may regulate stablecoins.
• Securities Exemptions: Payment stablecoins issued by permitted issuers are explicitly excluded from being classified as securities or commodities under federal law.
• Consumer Protections: The Act provides strong consumer protections, including first-priority claims on reserves in insolvency and strict asset segregation requirements.

Key Takeaways:
• SEC formally ends Binance suit: is regulation by enforcement over?
• SEC charges Unicoin with $100 million fraud: a return to SEC fraud enforcement?
• Crypto.com Sues Nevada Gaming Control Board: are states the new battlegrounds for crypto issues?

On 18 February 2025, the European Supervisory Authorities (ESAs) issued a roadmap to the designation of critical ICT third-party service providers (CTPPs) under the Digital Operational Resilience Act (DORA).

On 13 February 2025, the European Commission adopted a draft Delegated Regulation supplementing the Regulation on digital operational resilience for the financial sector with regard to regulatory technical standards

On 11 February 2025, the Eurosystem updated its European framework for threat intelligence-based ethical red-teaming (TIBER-EU framework) to align with the regulatory technical standards (RTS) of the Digital Operational Resilience Act (DORA) on threat-led penetration testing (TLPT).

On 3 October 2024, the Broadcast Committee of Advertising Practice (BCAP) published a new rule explicitly banning advertisements for certain types of cryptoasset products from being broadcast to mainstream, non-specialist audiences.

After three banks in the United States and Europe collapsed earlier in the year, financial regulators in other jurisdictions have been left wondering what they can do to protect their financial institutions from suffering similar fates. In Australia, the Australian Prudential Regulation Authority (APRA) is empowered to appoint a ‘statutory manager’ to distressed financial institutions to restabilise them and, in turn, protect Australia’s financial stability.

A statutory manager is someone appointed by APRA under the Banking Act 1959 (Cth) and/or the Insurance Act 1973 (Cth) to take temporary control of a troubled financial institution. Control is granted over the entire operation of the financial institution, including its assets and liabilities, for the purpose of protecting the interests of depositors where there is serious concern about the financial viability of the financial institution. When appointed, the statutory manager is able to:

1. conduct investigations into the financial institution’s affairs to assess its financial health, risk management practices, and compliance with regulatory requirements;
2. restructure the financial institution or initiate winding-up procedures; or
3. impose specific requirements to address identified problems with the financial institution and mitigate the risk of future distress.

APRA is then able to assess the extent of financial damage and design an appropriate solution. The regime would only come into effect in extraordinary circumstances and as a measure of last resort for financial institutions experiencing acute financial distress. 

What financial institutions does this power apply to?

APRA can appoint a statutory manager to authorised deposit taking institutions (including banks and superannuation firms) and insurance companies. APRA can exercise the statutory manager power if it considers the entity may become unable to meet its obligations, has suspended payments or likely will be unable to carry on banking business in Australia consistently with the interests of its depositors or with the stability of the Australia financial system. Generally, this would happen if APRA has no confidence in the board and management’s ability to resolve the crisis satisfactorily, or where the board and management are mismanaging the entity, including where the entity is insolvent or near insolvent.  

Foreign financial institutions play a large role in Australia, providing a range of important services such as corporate lending and trade finance. For this reason foreign financial institutions are, to a limited extent, subject to APRA’s statutory manager power. APRA is able to exercise control over Australian assets and liabilities of a foreign regulated body with a local branch office. This means APRA could easily prevent transfer of capital from Australia, revoke the body's authorisation or wind up the branch. 

Has this happened before?

We do not know what the statutory manager power would look like in practice, as the regime has not been tested with any of Australia’s banks to date. This reflects the long period of financial stability that Australia has enjoyed. 

In the case of insurers (where APRA holds similar powers), the Court has only appointed a judicial manager on APRA’s application on two occasions in 2009 and 2010. In both instances, APRA appointed managers over small general insurers which were both wound up after they had been deemed as insolvent. 

Are there any other jurisdictions with these sort of powers?

The global financial crisis in 2007 taught us that when complex financial institutions enter distress, there will be severe economic consequences if the problems are not swiftly addressed and comprehensively resolved. Despite this, economic systems globally exposed their vulnerability to such problems in March 2023, following the collapse of sophisticated banking enterprises. Jurisdictions other than Australia have contemplated equipping regulators with crisis management toolkits such as the one wielded by APRA.

If such measures are implemented globally, their efficacy may come into question in cross-border contexts. This will require cooperation between relevant authorities to ensure powers are applied in an effective and coordinated manner. This may prove difficult when different levels of power are conferred in different jurisdictions, meaning powers applied in one jurisdiction will not be recognised in others. This may lead to uncertainty for relevant stakeholders and a greater risk of disorderly outcomes – all issues which must be worked through and managed.

The Financial Services and Markets Act (the Act) received Royal Assent on 29 June 2023. Although certain key provisions (for example the rules relating to critical third parties) came into force on the same date, the Government is taking a phased approach and other provisions will be brought into force on days to be appointed (if not already specified). From an insurance perspective, the provisions of the Act specifically concerning insurers relate to updating and clarifying existing arrangements under the Financial Services and Markets Act 2000 (FSMA) for those insurers in financial difficulty. These provisions will come into force on 29 August 2023.

In this special edition podcast, our US partners Stephen Aschettino, Andrew Lom and Kevin Harnisch discuss the recent uptick in regulatory enforcement activity from federal regulators against crypto exchanges, with the SEC issuing a Wells Notice to Coinbase and suing Beaxy, and the CFTC suing Binance and seeking permanent injunctions to also stop Binance from working with US-based customers. They explore the significance of these actions and what they may signal about the evolving landscape for digital assets in the US.

Buy now pay later (BNPL) is a sort of short-term financing that allows consumers to make purchases and pay for them at a later date. There are a different models for BNPL products. Generally these are categorised into split pay, pay later, long-term financing at 0% annual percentage rate, longer-term financing with subsidized interest or fee. Distribution channels for BNPL include merchant checkout, merchant platforms, multi-lender networks, bank credit cards and white label providers (customised store credit cards). The arrangements for BNPL have become increasingly popular with both merchants and customers. Such widespread adoption has led to increasing regulatory scrutiny although in some jurisdictions self-regulation through industry codes have been the preferred route. Regulators are concerned that consumers may not fully understand the implications of entering into a BNPL scheme.