After years of unfettered growth, the providers of ESG ratings will soon have to adjust their businesses to comply with new regulations or face hefty fines if they fail to comply, according to a draft document seen by Bloomberg News.

The proposed legislation, due to be unveiled next week, means providers of ESG ratings that also offer other financial services will be forced to keep those businesses separate to avoid conflicts of interest. Business areas that could present such a conflict of interest include consultancy services, the issuance and sale of credit ratings, or the development of benchmarks, according to the document.

The introduction of formal rules marks a huge shift for an industry that’s mushroomed in recent years, and whose scores have been instrumental in steering vast sums of capital into investments despite the absence of meaningful regulatory oversight. Funds marketed as targeting environmental, social and good governance goals sit on more than US$2 trillion in assets, Bloomberg Intelligence estimates.

An analysis of first-quarter data shows that “funds with ‘ESG’ branding logged the fastest increase since 2019,” according to Shaheen Contractor, BI senior ESG strategist.

In its draft proposal, the European Union (EU) said “the current ESG rating market suffers from deficiencies and isn’t functioning properly.” As a result, “confidence in ratings is being undermined,” it said. Ratings firms will be expected to provide much more detail around their methodologies, and reveal whether any scores have been generated with the help of artificial intelligence, according to the draft.

“Greater transparency on ESG ratings will allow financial markets participants to make informed decisions on which data and services fit their needs,” said Helena Vines-Fiestas, chair of Europe’s Platform on Sustainable Finance, which advises the European Commission. “It will also encourage greater dialogue and engagement from financial market participants with data providers.”

The Australian Securities Exchange (ASX) is engaging with stakeholders on a potential move to T+1 to gain industry sentiment on a shortening of the settlement cycle within the country.

Though ultimately a decision driven by regulators, the ASX this month will survey business committee members for “high level views” with summarised feedback to be discussed in a July meeting.

Speaking on a webinar hosted by the The Australian Custodial  Services Association, Karen Webb, senior Manager, issuer services, securities and payments at ASX, said that Australia is in a ‘wait and see what happens’ position, with regards to the transition in the US and Canada, and explorations by taskforces in countries like the UK.

“We’re really interested in seeing what the reasons are underpinning those changes – there’s a fair bit of work to do on the costs and benefits,” Webb said.

“More recently we have included the discussion for T+1 settlement on the business committee – our key industry forum for discussions on clearing and settlement – [and] if we were to make any recommendations to change to T+1, those recommendations would ultimately go to our clearing and settlement boards who would review from a number of perspectives and ultimately agree or not agree.”

Australia moved to T+2 in 2016 at a similar time to the US, however the American market has now pushed on ahead of other major markets in Europe and Asia with its T+1 plans, leaving other markets facing tough decisions over their own future moves in terms of industry alignment.

“In absence of regulatory guidance on moving to T+1, our view is that it is not an ASX decision but we need a consensus across the industry,” said Webb. “The industry view should be reached by market stakeholders.”

Within its survey, the ASX will explore the impact on members’ operations by the transition to T+1 in other markets while Australia remains on T+2, what might need to change to support a transition and corporate action perspectives.

The consultation will also seek input on scope, with the move to T+1 co-ordinated across equities and debt as well as its neighbouring country New Zealand.

Over half of buy-side firms claim using a “traditional” and “recognised” custodian would make them more likely to trade digital assets, new research by SIX has concluded.

Alongside a reliable custodian, regulated exchanges also appear to be a priceless piece in the crypto puzzle for buy-side traders.

Around 60% of the 300 individuals across the buy-side surveyed by SIX pointed towards a desire for a safer trading environment, with many of them suggesting this should come in the form of a regulated exchange to provide better transparency.

“For the industry to get where it wants to be, more focus should be turned to the availability of regulated marketplaces and the liquidity of the digital tokens traded on them,” said David Newns, head of SDX [SIX Digital Exchange] at SIX Group.

“After all, it is not a lack of confidence in the assets themselves that is supressing institutional engagement with this market – it is the need for institutional platforms offering robust governance and sound regulatory oversight.”

While only 11% of those surveyed by SIX currently hold digital tokens in their portfolio, 69% said they plan to add them in the next 12 months.

“Investors need the same levels of protection and market resilience in digital assets as they experience in more traditional markets,” said Javier Hernani, head of securities services at SIX Group.

“The market for digital assets needs to be fully brought into the institutional financial system in order to manage the risks and standards to improve security and provide more confidence to its participants.”

Around 90% of traders surveyed in a recent Acuiti study said trading venues should hold principal responsibility for monitoring and reporting market abuse in the digital assets market. While 83% said they believed that trading venues should hold the same responsibility for trade and transaction reporting.

Digital assets regulation and infrastructure is continuing to build out globally. The EU and UK are taking divergent approaches to regulation with the former opting for a phased secondary legislation approach and the latter opting for a “big bang” with the MiCA regulation proposal.

The EU’s Markets in Cryptoassets Regulation (MiCA) is entering into law this summer and will come into effect next June.

Hong Kong Exchanges and Clearing Limited (HKEX) is today (Wednesday) pleased to announce the launch of FINI, its innovative IPO settlement platform, in October this year. FINI is a major HKEX initiative that will significantly shorten the time between the pricing of an IPO and the trading of shares from five business days (T+5) to two business days (T+2). FINI will modernise and digitalise Hong Kong’s IPO settlement process, driving efficiency and supporting the long term development of Hong Kong as a capital raising centre.

The exact launch date of FINI will be announced several weeks before launch, subject to market readiness.

HKEX Chief Executive Officer Nicolas Aguzin said: “We are delighted to confirm the launch of this major IPO settlement reform. By digitalising, streamlining and modernising IPO settlement workflows, FINI will shorten the time between IPO pricing and the start of trading, enhancing market efficiency and strengthening the competitiveness and attractiveness of Hong Kong’s IPO market.”

He added: “Throughout the conceptualisation, system development and external testing phases of FINI’s development, we have received strong support from market stakeholders demonstrating the widespread appetite for progressive innovations in the Hong Kong IPO market. I would like to thank all those who have provided feedback and contributed to the process as we continue to build the Marketplace of the Future.”

Following the successful completion of the FINI External User Testing earlier this month, HKEX will arrange market practice sessions and market rehearsals in July and August, respectively, to simulate interactive, end-to-end IPO settlement operations under FINI. These sessions will mark the final preparations for the full migration of the market to FINI in October.

Operating on a cloud-based platform, FINI will enable different stakeholders such as IPO sponsors, underwriters, legal advisers, banks, Clearing Participants, share registrars and regulators to collaborate and perform their respective roles in an IPO, digitally. The new platform will also introduce a new public offer pre-funding model to help alleviate the scale of funds that are locked up in over-subscribed IPOs.

With approval from the Securities and Futures Commission, HKEX today also published updates to relevant Listing Rules, Hong Kong Securities Clearing Company Limited (HKSCC) Rules and HKSCC Operational Procedures, which will take effect on the commencement date of FINI.

Other FINI related materials are available on the designated FINI webpage on the HKEX website.

The Council of the EU and the European Parliament have reached a provisional agreement on an update to the Central Securities Depositories Regulation (CSDR). A press release announcing the agreement states that the update aims to “improve the efficiency of securities settlement in the EU by reducing compliance costs and regulatory burdens for CSDs”. In addition, it will “make it easier for CSDs to offer services across borders, while also improving cooperation among supervisors”.

Some areas that will be addressed in the update include:

• A simpler passporting regime – Rules will be clarified and simplified to reduce the barriers to cross-border settlement and ease administrative and financial burden.

• Better supervision – The press release states that “in cases where a CSD’s activities in at least two other member states are considered to be of substantial importance to the functioning of the securities markets and investor protection, a collegewill be set up to facilitate cooperation and information exchange between member state authorities.”

• Improved settlement efficiency – Mandatory buy-ins will now only be used as “a measure of last resort, where the rate of settlement fails in the EU is not improving and is presenting a threat to financial stability”.

• Banking-type ancillary services – Adjustments will be made to the conditions under which CSDs will be allowed to access banking-type services, making it possible for them to offer services across borders and a broader range of currencies.

In response to the announcement, Peter Tomlinson, director of post trade at the Association for Financial Markets in Europe (AFME) mentions a mandate in the update for the European Securities and Markets Authority (ESMA) to assess the possibility of shortening the settlement cycle in the EU. AFME has established a task force early this year to “examine all aspects in this debate, including direct economic costs and savings to the industry, as well as factors relating to global alignment and market attractiveness”.