Katten's Financial Markets and Funds Quick Take is a monthly newsletter highlighting key noteworthy developments potentially affecting financial markets and funds.
To read more issues of Katten's Financial Markets and Funds Quick Take, please click here.
AI for Broker-Dealers and Investment Advisers: Legal and Regulatory Considerations
By Susan Light, David Dickstein, Alexander Kim, Nicholas Gervasi
Published by LexisNexis Practical Guidance, this practice note discusses the legal and regulatory considerations for broker-dealers and investment advisers implementing artificial intelligence (AI) technologies in their operations. It discusses obligations under the Securities and Exchange Commission's (SEC) and Financial Industry Regulatory Authority's (FINRA) rules, as well as under the Investment Advisers Act of 1940 for broker-dealers and investment advisers using AI in various parts of their operations. Read Katten's article.
James Brady Discusses SEC Openness to Crypto ETP Approvals
Financial Markets and Funds Partner James Brady spoke with Law360 regarding the Securities and Exchange Commission's (SEC) recent overtures indicating its interest in approving innovative crypto exchange-traded products (ETPs), provided that issuers meet clear and thorough disclosure requirements. James notes that while most issuers already understand the need to list authorized participants in their prospectuses, the staff statement clarified what had previously been an "unwritten rule." Read about James's comments.
CFTC's FCM FAQ Aims to Guide New Market Entrants but Adds No New Obligations
By Carl Kennedy, Stephen Morris, Matt Kluchenek, Nicholas Gervasi
On June 30, the Commodity Futures Trading Commission's (CFTC) Market Participants Division (MPD) published a new FAQ clarifying requirements and expectations around futures commission merchant (FCM) registration and ongoing obligations. The guidance offers a consolidated source of information for new market participants as well as existing FCMs that are acquiring or expanding via corporate transactions. Responding to a surge of inquiries from entrants seeking to register as FCMs, MPD outlined the financial and operational responsibilities assumed by FCMs. Read about the FAQ.
Confirming a Negative: CFTC Staff Issue an Advisory Clarifying When Foreign-Organized Entities Are Trading and Brokering Digital Asset Derivatives Outside of the Commission's Cross-Border Jurisdiction
By Daniel Davis, Carl Kennedy, Alexander Kim
Published by The International Journal of Blockchain Law, this article discusses a May 21 advisory letter issued by the Commodity Futures Trading Commission (CFTC) that clarifies the Staff's interpretation of the agency's jurisdiction over foreign-organized entities trading digital asset derivatives outside the United States. The advisory letter marks a return to well-understood jurisdictional tests for swaps, focusing on where an entity is organized and where its senior management directs and controls operations (the "nerve center" test), rather than on broader operational touch-points such as the location of personnel, servers or beneficial owners. Read Katten's article.
EU/UK
DORA Delegated Regulation on Threat-Led Penetration Testing Published in Official Journal
By Nathaniel Lalone, Ciara McBrien
The Delegated Regulation, which contains regulatory technical standards (RTS) on threat-led penetration testing (TLPT) requirements under the EU Digital Operational Resilience Act (DORA), was recently published in the Official Journal of the European Union. The RTS supplements Article 26 of DORA and sets out:
- criteria to identify financial entities required to perform TLPT;
- requirements regarding testing scope, testing methodology and TLPT results;
- requirements and standards governing the use of internal testers; and
- rules on supervisory and other cooperation needed for TLPT implementation and for mutual recognition of testing.
TLPT is mandatory for the "financial entities" subject to DORA, which now must meet specific impact, risk and systemic relevance criteria in relation to these testing requirements. Read about the RTS supplements to DORA.
ICYMI
Here’s a look back at a recent client advisory from Katten.
Partners Wendy Cohen (vCard), Stephen Morris (vCard) and Jonah Roth (vCard) serve as co-editors of Katten Financial Markets and Funds Quick Take.
