2019 FinReg Outlook: The Calm Before the Storm

The European Securities and Markets Authority (ESMA) is studying the cost and performance of UCITS funds, focusing on the difference between active and passive investing and the impact of fees on long-term returns. ESMA is also expected to release a consultation on the use of performance fees by UCITS funds, which could see new restrictions proposed. The cost of investing will remain a focus of regulators and the industry should prepare for further regulatory scrutiny. Regulators are Coming for Digital Assets Cryptocurrencies such as bitcoin and digital security tokens like Initial Coin Offerings (ICOs) have generated tremendous interest and, according to CoinMarketCap, the market capitalization of digital assets reached $129 billion at the end of last year. Digital assets have grown largely outside any specific regulation, but this is changing, and work on a regulatory framework has started to take shape. Hong Kong is set to tighten its regulations by bringing cryptocurrency exchanges and traders under the purview of the Securities and Futures Commission. In the US, regulation of digital assets is split between the SEC and the Commodity Futures Trading Commission (CFTC) and, so far, they have been content to regulate digital assets within the existing frameworks. Over the last year both have stepped up their enforcement actions in the area to root out fraud. The SEC and CFTC are expected to further clarify the regulatory framework of digital assets and it is possible that specific rules will be proposed. Either way, it is inevitable that a higher level of regulatory scrutiny is coming for digital assets. Clearer regulation would be welcomed by the market as regulatory uncertainty is one of the main challenges for institutional investors looking to invest in digital assets. Eliminating the uncertainty would be a big step in the maturation of the digital asset market. 4   Custody and Fund Services