Derivatives, Legislative and Regulatory Weekly Update (March 7, 2025)

Client Alert | March 7, 2025

From the Derivatives Practice Group: The SEC announced that it will host a series of roundtables to discuss key areas of interest in the regulation of crypto assets, beginning on March 21.

New Developments

SEC Crypto Task Force to Host Roundtable on Security Status. On March 3, the SEC announced that its Crypto Task Force will host a series of roundtables to discuss key areas of interest in the regulation of crypto assets. The “Spring Sprint Toward Crypto Clarity” series will begin on March 21 with its inaugural roundtable, “How We Got Here and How We Get Out – Defining Security Status.” The SEC indicated that initial roundtable on March 21 is open to the public, will be held from 1 p.m. to 5 p.m. at the SEC’s headquarters at 100 F Street, N.E., Washington, D.C and that the primary discussion will be streamed live on SEC.gov, and a recording will be posted at a later date. The SEC also noted that information regarding the agenda and roundtable speakers will be posted on the Crypto Task Force webpage. [NEW]
CFTC Commissioner Christy Goldsmith Romero to Step Down from the Commission and Retire from Federal Service. On February 26, Commissioner Christy Goldsmith Romero announced she is stepping down from the Commission and will retire from federal service. Commissioner Romero extended gratitude towards President Biden for her nomination, the U.S. senate for its unanimous confirmation, and her current and former staff and CFTC for their public service.
CFTC Releases Enforcement Advisory on Self-Reporting, Cooperation, and Remediation. On February 25, the CFTC’s Division of Enforcement issued an Advisory on how the Division will evaluate a company’s or individual’s self-reporting, cooperation, and remediation when recommending enforcement actions to the Commission and establishes the factors the Division will consider. This marks the first time the Division will use a matrix to determine the appropriate mitigation credit to apply. Commissioner Kristin N. Johnson released a statement that “any effort to adopt new reporting processes, particularly processes that require inter-division guidelines and infrastructure, must be consistent with the mandates of [the CFTC]” and consequently, that she does not support the Advisory. Additional information regarding the Advisory can be found in our client alert.
SEC Announces Cyber and Emerging Technologies Unit to Protect Retail Investors. On February 20, the SEC announced the creation of the Cyber and Emerging Technologies Unit (“CETU”). According to the SEC, CETU will focus on combatting cyber-related misconduct and is intended to protect retail investors from bad actors in the emerging technologies space. CETU, led by Laura D’Allaird, replaces the Crypto Assets and Cyber Unit and is comprised of approximately 30 fraud specialists and attorneys across multiple SEC offices. The SEC noted that CETU will utilize the staff’s substantial fintech and cyber-related experience to combat misconduct as it relates to securities transactions in the following priority areas: fraud committed using emerging technologies, such as artificial intelligence and machine learning; use of social media, the dark web, or false websites to perpetrate fraud; hacking to obtain material nonpublic information; takeovers of retail brokerage accounts; fraud involving blockchain technology and crypto assets; regulated entities’ compliance with cybersecurity rules and regulations; and public issuer fraudulent disclosure relating to cybersecurity.
Acting Chairman Pham Announces Brian Young as Director of Enforcement. On February 14, the CFTC Acting Chairman Caroline D. Pham today announced Brian Young will serve as the agency’s Director of Enforcement. Young has been serving in an acting capacity since January 22, and previously was the Director of the Whistleblower Office. He is a distinguished federal prosecutor with nearly 20 years of service at the Department of Justice, including Acting Director of Litigation for the Antitrust Division and Chief of the Litigation Unit for the Fraud Section of the Criminal Division, and has successfully tried some of the most high-profile criminal fraud and manipulation cases in the CFTC’s markets.

New Developments Outside the U.S.

The ESAs Acknowledge the European Commission’s Amendments to the Technical Standard on Subcontracting Under the Digital Operational Resilience Act. On March 7, the European Supervisory Authorities (EBA, EIOPA and ESMA – the “ESAs”) issued an opinion on the European Commission’s (“EC”) rejection of the draft Regulatory Technical Standard (“RTS”) on subcontracting. The EC indicated that it rejected the original draft RTS on subcontracting, which specified further elements that financial entities must determine and assess when subcontracting ICT services that support critical or important functions under the Digital Operational Resilience Act (“DORA”), on the grounds that certain elements exceeded the powers given to the ESAs by DORA. The opinion acknowledges the assessment performed by the EC and opines that the amendments proposed ensure that the draft RTS is in line with the mandate set out under DORA. The ESAs said that, for this reason, they do not recommend further amendments to the RTS in addition to the ones proposed by the EC. The ESAs encouraged the EC to finalize the adoption of the RTS without further delay as submitted to the ESAs. [NEW]
EC Publishes Sustainability Omnibus Package. On February 26, the EC published the sustainability omnibus package and accompanying Q&A, alongside the Clean Industrial Deal communication and investment simplification package. ISDA said that the proposals are intended to simplify sustainability reporting and due diligence, as well as reduce administrative burdens on companies. The EC has also launched a consultation until March 26 on draft amendments to the Taxonomy Disclosures delegated act, including, inter alia, the suspension of the Trading Book Key Performance Indicator to 2027. The EC also proposed to delay the Corporate Sustainability Due Diligence Directive (“CSDDD”) transposition deadline and application date by one year to July 26, 2027 and 2028 respectively. Other CSDDD proposals include the removal of the EC review clause to evaluate whether additional due diligence requirements should be imposed on the provision of financial services and investment activities by July 26, 2026, the removal of the EU-wide harmonized civil liability regime and the deletion of the requirement to terminate business relationships. The EC’s proposed changes to the Carbon Border Adjustment Mechanism (“CBAM”) regulation include an exemption for small importers of CBAM goods and a postponement of the obligation for importers to purchase CBAM certificates to February 1, 2027. The Clean Industrial Deal further notes that the EC is working on a CBAM review report that will assess the functioning of the mechanism and potential scope extension to other emissions trading system sectors which will be presented in the autumn, followed by a legislative proposal in early 2026. The proposed amendments to the Corporate Sustainability Reporting Directive, CSDDD and CBAM will now be considered for adoption by the European Parliament and the Council. [NEW]
IOSCO concludes Thematic Review on Technological Challenges to Effective Market Surveillance. On February 19, IOSCO published a Thematic Review on the status of implementation of its recommendations on Technological Challenges to Effective Market Surveillance issued in 2013. The IOSCO Assessment Committee conducted the review and assessed the consistency of outcomes arising from the implementation of its recommendations by market authorities in 34 IOSCO member jurisdictions. According to IOSCO, the review found that most market authorities have implemented the recommendations and have made significant progress in addressing technological challenges to market surveillance, particularly in more complex markets. However, IOSCO noted the following concerns: some regulators lack the necessary organizational and technical capabilities to conduct effective surveillance of their markets in the midst of rapid technological developments; the absence of regular review of the surveillance capabilities of market authorities; difficulties with regard to the collection and comparison of data across venues in markets with multiple trading venues; and the inability of many regulators to map their cross-border surveillance capabilities.
ESMA Proposes Guidelines on Product Supplements. On February 18, ESMA published a Consultation Paper asking for input on Guidelines on supplements that introduce new types of securities to a base prospectus. The aim of the guidelines is to harmonize the supervision of so-called ‘product supplements’ across national competent authorities as approaches to supervision in this area have diverged in the past.
The ESAs Provide a Roadmap Towards the Designation of CTPPs under DORA. On February 18, the European Supervisory Authorities (“ESAs”) announced advancements of the implementation of the pan-European oversight framework of critical Information and Communication Technology (“ICT”) third-party service providers (“CTPPs”) with the objective to designate the CTPPs and to start the oversight engagement this year. The competent authorities are required to submit Registers of Information on ICT third-party arrangements they received from financial entities by April 30, 2025.
ESMA Consults on the Criteria for the Assessment of Knowledge and Competence Under MiCA. On February 17, ESMA launched a consultation on the criteria for the assessment of knowledge and competence of crypto-asset service providers’ (“CASPs”) staff giving information or advice on crypto-assets or crypto-asset services. ESMA is seeking stakeholder inputs about, notably: the minimum requirements regarding knowledge and competence of staff providing information or advice on crypto-assets or crypto-asset services; and organizational requirements of CASPs for the assessment, maintenance and updating of knowledge and competence of the staff providing information or advice. ESMA said that the guidelines aim to ensure staff giving information or advising on crypto-assets or crypto-asset services have a minimum level of knowledge and competence, enhancing investor protection and trust in the crypto-asset markets.  ESMA indicated that it will consider all comments received by April 22, 2025.

New Industry-Led Developments

ISDA Responds to FSB Consultation on Leverage In NBFI. On February 28, ISDA responded to the Financial Stability Board’s (FSB) consultation on leverage in the non-bank financial intermediation (NBFI) sector. ISDA made the following points: overly prescriptive regulatory recommendations for all NBFI-sector firms across all geographies and market sectors could be inappropriate; the ways in which the use of leverage in the NBFI sector would create financial stability risks deserve further examination; ISDA believes the FSB should undertake a deeper analysis of the impact of the proposed measures on the cost of hedging, market liquidity and liquidity needs in times of stress; and the FSB should account for how the use of derivatives and secured financing, which the FSB characterizes as leverage-inducing activities, support key functions performed by financial markets, including: financing, hedging, price discovery, and market stabilization through countercyclical behaviors. [NEW]
ISDA and FIA Response to IOSCO on Pre-Hedging Consultation. On February 21, ISDA and FIA responded to the International Organization of Securities Commissions’ (“IOSCO”) consultation report on pre-hedging. In the response, the associations highlight that an appropriate, consistent and well-understood framework for pre-hedging is important for safe and efficient markets. The associations also noted the importance of not cutting across existing industry codes, including the FX global code, the precious metal code and the Financial Markets Standards Board’s standard for large trades, as market participants already have policies, procedures and institutional frameworks in place to comply with them.
ISDA Responds to BoE Consultation on Fundamental Rules for FMIs. On February 19, ISDA submitted a response to a consultation from the Bank of England (BoE) on a proposal to introduce a set of rules for UK financial market infrastructures (FMIs), including central counterparties (CCPs). In the response, ISDA expresses its support for the proposed fundamental rules (FRs). ISDA said it would encourage further references to transparency throughout the rules and that it believes transparency should be one of the guiding principles that CCPs should follow in the conduct of their business, and this could be reflected under FR 1, 2 and/or 3. ISDA indicated it would also welcome further references to transparency in relation to FR 9, in the context of operational resilience, noting that market participants require adequate information on CCPs’ operational resiliency to perform their third-party risk assessments. ISDA also expressed appreciation for the addition of FR 10, which recognizes the specific nature of CCPs by requiring them to identify, assess and manage the risks that their operations could pose to the stability of the financial system. ISDA said it believes the outcome of the assessment should also be shared with CCPs’ participants, which would then be able to factor this into their own risk management. [NEW]
ISDA and AFME Response to FCA on Transparency of Enforcement Decisions. On February 17, ISDA and the Association for Financial Markets in Europe (“AFME”) responded to the UK Financial Conduct Authority’s (“FCA”) consultation on greater transparency of enforcement decisions. The FCA’s proposal, which gives it the ability to publicly name firms at the start of an investigation, continues to cause trepidation across the industry. In the response, ISDA and AFME highlight concerns that the current proposals are harmful to UK competitiveness and growth and suggest a broader interpretation of the existing exceptional circumstances test could be used to meet the FCA’s objectives.

The following Gibson Dunn attorneys assisted in preparing this update: Jeffrey Steiner, Adam Lapidus, Marc Aaron Takagaki, Hayden McGovern, and Karin Thrasher.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Derivatives practice group, or the following practice leaders and authors:

Jeffrey L. Steiner, Washington, D.C. (202.887.3632, [email protected])

Michael D. Bopp, Washington, D.C. (202.955.8256, [email protected])

Michelle M. Kirschner, London (+44 (0)20 7071.4212, [email protected])

Darius Mehraban, New York (212.351.2428, [email protected])

Jason J. Cabral, New York (212.351.6267, [email protected])

Adam Lapidus – New York (212.351.3869, [email protected] )

Stephanie L. Brooker, Washington, D.C. (202.887.3502, [email protected])

William R. Hallatt , Hong Kong (+852 2214 3836, [email protected] )

David P. Burns, Washington, D.C. (202.887.3786, [email protected])

Marc Aaron Takagaki , New York (212.351.4028, [email protected] )

Hayden K. McGovern, Dallas (214.698.3142, [email protected])

Karin Thrasher, Washington, D.C. (202.887.3712, [email protected])

Attorney Advertising: These materials were prepared for general informational purposes only based on information available at the time of publication and are not intended as, do not constitute, and should not be relied upon as, legal advice or a legal opinion on any specific facts or circumstances. Gibson Dunn (and its affiliates, attorneys, and employees) shall not have any liability in connection with any use of these materials. The sharing of these materials does not establish an attorney-client relationship with the recipient and should not be relied upon as an alternative for advice from qualified counsel. Please note that facts and circumstances may vary, and prior results do not guarantee a similar outcome.

Derivatives, Legislative and Regulatory Weekly Update (March 7, 2025)

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