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Crypto regulation a plus for banks, fintechs: Moody's – Investment Executive

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Stablecoins are a form of digital asset whose value is linked to an underlying asset, such as U.S. dollars, in an effort to increase their appeal as a method payment and a store of value while providing the benefits of digital assets.

However, Moody’s said there’s little regulation around stablecoins. Without rules on disclosure or how the reserves that are backing stablecoins can be invested, “there is no guarantee that stablecoins are indeed backed by the equivalent value in assets,” it said.

The U.S. Office of the Comptroller of the Currency (OCC) has issued guidance for banks, which allows them to hold stablecoin reserves “if they can verify that the reserves are equal to outstanding stablecoin tokens to help withstand large client outflows,” it said.

“However, crypto currency firms issuing stablecoins are not required to follow OCC guidance, and no other enforceable regulation exists,” Moody’s said.

The prospect of greater oversight of stablecoins would be positive for banks, Moody’s said, “because it would help to increase safety and transparency around stablecoins and may limit some of the risks to financial stability and the potential competitive threats posed by the currently unregulated stablecoin industry.”

At the same time, regulation would also be good for fintechs that are seeking to operate in this area, as increased oversight “could bring stability to, and acceptance of, digital currency payments systems,” it added.

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Carlyle to Invest in Abrigo at $1 Billion-Plus Valuation – Bloomberg

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Abrigo, an Accel-KKR-backed software provider for financial institutions, has secured an investment from private equity firm Carlyle Group Inc.

The Austin, Texas-based company is valued at more than $1 billion after the investment, according to people with knowledge of the matter who asked not to be identified discussing private information.

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Canada plans to merge investment regulators into one agency – Financial Post

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Move aims to address years of complaints about the overlapping roles and high costs

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Canada’s securities regulators plan to merge two industry groups that oversee financial advisers into a single organization, a move intended to address years of complaints about the overlapping roles and higher costs of the groups.

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Provincial regulators published Tuesday a framework for how to combine the Investment Industry Regulatory Organization of Canada, which regulates investment advisory firms that sell a broad range of securities, with the Mutual Fund Dealers Association of Canada, which oversees firms that sell funds.

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They also plan to merge two existing investor protection funds into a new one that’s independent of the expanded regulatory body.

Among other things, IIROC and MFDA levy fines and other penalties on individual financial advisers who break the rules.

IIROC oversees about 175 firms, including full-service investment dealers such as BMO Nesbitt Burns Inc. and RBC Dominion Securities Inc., while the MFDA supervises about 90 mutual fund dealers, such as CIBC Securities Inc. and National Bank Investments Inc. Some financial firms are forced to be members of both agencies because their employees hold different licences for selling investment products.

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Combining the staffs of the two bodies “will be critical during the creation of the new self-regulatory organization and investor protection fund, and will be crucial to their future success,” Louis Morisset, the chair and president of Canadian Securities Administrators, said in a statement. The CSA is an umbrella group of Canada’s provincial securities watchdogs.

In late 2019, the CSA began studying the existing framework. It created a working committee to determine the structure of the new organization and oversee the integration of the two groups. The review prompted both the MFDA and IIROC to publish their own proposals.

The combination is aimed at saving costs for investment dealers while aligning and streamlining their processes, the CSA said. A majority of the new organization’s board members and its chairperson will be independent, and the group will be required to solicit CSA comment on its priorities, business plan and budget, according to a statement.

The CSA will also consider the possibility of incorporating additional registration categories into the newly minted entity.

Bloomberg.com

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Why Global Investors Need Sustainable Investing Standards – Forbes

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The motto of sustainable investing is that you can do well while doing good. It has been shown that the doing well part is questionable since sustainable investing does not generate superior returns. The question remains: does sustainable investing really do good?

Unfortunately, confusion over what defines sustainable investing makes it difficult to measure whether an investment actually has a sustainable impact. This causes retail and institutional investors alike to engage in their own research in an attempt to figure out just how sustainable their investments really are.

Sustainable investing continues to attract large amounts of capital as investors want to contribute to positive change, such as reversing climate change, promoting social justice, and advocating for better governance. According to Bloomberg, assets under management (AUM) that are invested globally in sustainability funds and portfolios could reach $53 trillion by 2025, accounting for more than one-third of projected total AUM of $140.5 trillion.

Currently, Europe accounts for about half of global sustainable assets. European demand for sustainable investing has prompted 253 European funds to change their investment strategy or portfolio in 2020. In addition, Europe saw 505 new sustainable fund launches in 2020 alone.

More growth is being projected in Asia, especially Japan, where McKinsey has linked sustainability to a 400-year-old cultural ethos of shuchu kiyaku, to think of societal benefits, not just profits.

As noted in my previous article, the U.S. is also seeing strong growth in sustainable investing, which accounted for more than 25 percent of all money invested in U.S. stock and bond mutual funds in 2020.

The Greenwashing Effect

Given such strong investor demand for sustainable investing worldwide, the stakes are high to counter the ongoing concerns over greenwashing, in which companies overstate and exaggerate their positive impact on sustainability. It’s more than a problem of perception. One group of researchers define greenwashing “as a combination of misbehavior and misleading communication”—including intentionally fabricating false information.

It has become increasingly difficult for investors to see through greenwashing when companies present themselves as more sustainable or environmentally friendly than they really are. In one recent survey by Quilter Investors, greenwashing topped the list of concerns among 44 percent of investors surveyed. In another survey,  six out of ten investors find greenwashing to be a challenge for sustainable investing, especially as sustainable investing goes increasingly mainstream for investors and fund managers.

European Sustainable Investing Standards

Europe is well ahead of the U.S. in setting sustainable investing standards with the initial implementation of their Sustainable Finance Disclosure Regulation (SFDR). The SFDR went into effect in March 2021 and sets the rules for sustainability-related information that the financial industry within the EU must disclose.

The objective is to prevent investment firms from greenwashing sustainability claims to make their investment funds seem more attractive. There are two aspects to sustainable investing, called double materiality, that the SFDR tries to uniformly measure. The first issue is whether a company or an investment actually has a sustainable impact on the environment or society.  The second is whether a company’s sustainable impact materially influences its investment performance? Also under the SFDR, investment managers will need to begin providing details into how they account for environment, social and governance (ESG) and other factors as part of their selection process for individual investments in their portfolios. As a result, it’s hoped that investors will gain more clarity.

The SFDR has received some criticism for potentially adding to the confusion of how funds are classified; however, proponents have hailed it as providing much-needed transparency. In a recent Wall Street Journal article, Wolfgang Kuhn, director of financial sector strategies at ShareAction, a nonprofit that promotes sustainable investing, said, “We want fund managers to nail their colors to the mast and say: ‘This is sustainability for us.’ Then as the client you can hopefully better decide whether that works for you or not.”

How Sustainable Is It?

As sustainable investing explodes in popularity worldwide, developing and adopting standards is a global imperative. The industry needs a comprehensive framework to provide a true apples-to-apples comparison that will allow investors to weigh one investment against another. Otherwise, investors will be left to wonder and guess just how sustainable any investment really is. SFDR is an opportunity to provide better measurement for how well companies and funds perform along sustainable investing criteria and needs to be expanded into the U.S. and beyond.

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