In this regular update, we round-up FinTech-related regulatory developments for the week ending 25 March 2022.

 

Global

Project Dunbar – Experimental mCBDC platform for international settlements

The Bank for International Settlements (BIS) Innovation Hub, the Reserve Bank of Australia, Bank Negara Malaysia (BNM), the Monetary Authority of Singapore (MAS), and the South African Reserve Bank have announced the completion of prototypes for a common platform enabling international settlements using multiple central bank digital currencies (mCBDCs).  Details and conclusions of Project Dunbar, as the collaboration is called, have been published in a report.

The BIS Innovation Hub, Singapore is inviting feedback on the report. [24 Mar 2022]

#mCBDC

#Settlements

#ProjectDunbar

FSB: Report on fintech and market structure during Covid-19

The Financial Stability Board (FSB) has published a report on the impact of Covid-19 on fintech and market structure, and its implications for financial stability. The main finding of the report is that Covid-19 has accelerated the trend toward digitalisation of retail financial services. The report also highlights the benefits and drawbacks of bigtech and fintech firms’ expansion into financial services. It also outlines the types of actions authorities have taken during the pandemic that may impact market structure and the role of different firms in providing digital financial services. [21 Mar 2022]

#FinTech

#Markets

#Covid-19

 

UK

BoE announces CBDC collaboration with MIT

The Bank of England (BoE) has announced that it has agreed a collaboration with the Massachusetts Institute of Technology (MIT) on a 12-month research project on central bank digital currency (CBDC). The BoE explains that, ‘the work is focused on exploratory technology research and is not intended to develop an operational CBDC’. [25 Mar 2022]

#CBDCs
CMA issues statement on future oversight of Open Banking

The Competition and Markets Authority (CMA) has published its recommendations for the future oversight and governance of Open Banking, which include the establishment of a new Joint Regulatory Oversight Committee led by the FCA and the Payment Systems Regulator (PSR) to provide effective regulatory oversight.

In a joint statement published alongside the CMA’s recommendations, the FCA, HM Treasury (HMT), the PSR, and the CMA have outlined their plans to establish the Joint Regulatory Oversight Committee to oversee the development of Open Banking beyond the CMA’s Open Banking remedies. The new Joint Regulatory Oversight Committee will draw up proposals for the design of the future entity by the end of 2022. [25 Mar 2022]

#OpenBanking
DIT: Statement on negotiations with Canada on trade deal 

The Department for International Trade has published a statement announcing the launch of negotiations with Canada on a new Free Trade Agreement. The new agreement will build on the existing UK-Canada Trade Continuity Agreement, further developing it in areas such as innovation, digital, data, the environment and women’s economic empowerment. [25 Mar 2022]

#Digitalisation

#Innovation 

FCA: Notice to FCA regulated firms with exposure to cryptoassets

The FCA has published a notice to FCA regulated firms reminding them of their existing obligations when they are interacting with or exposed to cryptoassets and related services. It also sets out some areas of risk that the FCA believes firms need to consider, including:

  • consumer confusion around the regulated status of cryptoassets where regulated firms provide services involving cryptoassets;
  • financial crime and whether a cryptoasset business has been registered;
  • prudential considerations;
  • custody considerations; and
  • domestic and international engagement. [24 Mar 2022]
#Cryptoassets
FCA issues operational resilience insights for insurance firms

The FCA has published a new webpage: Operational resilience insights for insurance firms. The page sets out the FCA’s observations – examples of good practice and areas for improvement –  which it gleaned from sampling how 47 firms responded to its final operational resilience rules and guidance. The FCA directs firms to use its observations to review their approaches to operational resilience against the FCA’s observations and consider what actions they still need to take. [24 Mar 2022] 

#OpRes

#Insurance 

FCA updates webpage: Operational and cyber resilience in relation to Ukraine conflict

The FCA has updated its webpage: Russian invasion of Ukraine: operational and cyber resilience to include links to the actionable guidance issued by the National Cyber Security Centre (NCSC). [24 Mar 2022]

#OpRes

#CyberResilience

PRA: Letter to CEOs of banks and designated investment firms on the treatment of cryptoassets under the current frameworks

The PRA has published a template version of its Dear CEO letter to CEOs of banks and designated investment firms addressing the PRA’s expectations of their treatment of cryptoassets under the current frameworks. The PRA notes that firms have taken limited exposure to cryptoassets to date. Given this, and pending international regulatory updates, the letter aims to highlight aspects of the existing framework that the PRA expects firms to consider when measuring and mitigating risks resulting from crypto activities. The PRA reminds firms that while no one part of the current framework fully captures crypto risks, a combination of strong risk controls, operational risk assessments, robust new product approval processes, Pillar 1, Pillar 2, and ongoing monitoring arrangements should provide firms with an appropriate interim treatment.

The PRA notes that the long-term treatment of cryptoassets will likely differ from that under the current framework. As the long-term framework is developed, the PRA will consult where this results in proposed changes to the regulatory framework. The PRA is also launching a survey of firms covering existing crypto exposures and future plans for 2022. Responses are requested by 3 June 2022. [24 Mar 2022] 

#Cryptoassets
BoE: Responses to DP on new forms of digital money

The Bank of England (BoE) has published a summary of the responses to its discussion paper (DP) published in July 2021 which had set out the BoE’s emerging thoughts on new forms of digital money, including both systemic stablecoins and a UK central bank digital currency (CBDC). Although the BoE has not yet made a decision on any of the topics in the DP, feedback showed a strong support for the BoE to continue with its work in this area. The BoE noted that respondents were particularly clear about the following: access to cash should be preserved; the BoE should continue to engage with stakeholders including the wider public; and any regulation for systemic stablecoins should be clear, proportionate, and risk-based. [24 Mar 2022] 

#DigitalMoney 
BoE: FPC publication on cryptoassets and DeFi

The BoE’s Financial Policy Committee (FPC) has published Financial Stability in Focus: Cryptoassets and decentralised finance. The publication addresses:

  • the role of cryptoassets and decentralised finance (DeFi) in the financial system;
  • financial stability implications of cryptoassets and associated markets;
  • risks to financial stability;
  • the FPC’s approach to monitoring risks from cryptoassets;
  • the FPC’s assessment of financial stability risks from cryptoassets and DeFi; and
  • regulatory initiatives to migitgate risks from cryptoassets and DeFi. [24 Mar 2022]
#Cryptoassets

#DeFi 

ASA: Guidance on the advertisement of cryptoassets

The Advertising Standards Authority (ASA) has published an enforcement notice to over 50 companies which advertise cryptocurrencies, instructing them to review their adverts and to ensure they understand and are complying with the rules so that consumers are treated fairly. The enforcement notice provides guidance to the crypto industry on how to remain compliant; it also warns that the ASA will monitor for compliance and implement sanctions if there is no improvement. The guidance requires that advertisers:

  • should clearly state that cryptocurrencies are unregulated in the UK and that the value of investments are variable and can go down;
  • must not state or imply that investment decisions are trivial, simple, easy or suitable for anyone; and
  • must not imply a sense of urgency to buy or create a fear of missing out, or that investments are ‘low risk’.

The notice applies to adverts for cryptocurrencies, crypto exchanges and/or promotions which otherwise involve the transfer, sale or supply of cryptocurrencies, targeted at UK consumers or that are targeted globally on behalf of UK-based advertisers. [22 Mar 2022]

#Cryptoassets

 

EU

EP/ECON: Report on the proposal for a regulation on MiCA

The European Parliament’s (EP) Committee on Economic and Monetary Affairs (ECON) has published a report with its amendments to the European Commission’s (EC) proposal for a regulation on a pilot regime for market infrastructures based on markets in crypto-assets (MiCA) and amending Directive (EU) 2019/1937. [23 Mar 2022]

#MiCA
EP/ECON: Report on DLT Pilot regime

The European Parliament’s (EP) Committee on Economic and Monetary Affairs (ECON) has published a report with its amendments to the Commission’s proposal for a regulation on a pilot regime for market infrastructures based on distributed ledger technology (DLT) (DLT Pilot). [21 Mar 2022]

#DLT 

 

Australia

Treasury consultation regarding crypto asset secondary service providers

The Australian Government has published a consultation paper arising from the recommendations made by the Senate Select Committee in December 2021 in respect of consulting on a licensing and custody regime for crypto asset secondary service providers.

In this consultation paper, the Treasury seeks feedback on its proposals and options to support minimum standards of conduct by crypto asset secondary service providers and safeguards for consumers. The consultation is open until 27 May 2022.  [21 Mar 2022]

#Cryptoassets

 

Hong Kong

SFC issues circular on managing risks of business email compromise 

The SFC has issued a circular to licensed corporations (LCs) regarding business email compromise, a type of cyber fraud where fraudsters posing as known business contacts dupe unwary staff into making payments or providing sensitive information. The SFC has recently received reports of such incidents from LCs, which resulted in leakage of client information and significant financial losses to the LCs.

In the circular, the SFC sets out examples of the typical actions taken by fraudsters, such as forging an email address which appears to be that of a genuine client or business contact to communicate with the target LC.  The SFC notes that, in most cases where fraudsters succeeded, the LCs had not verified or properly checked the identities of the email senders, despite the existence of red flags.  LCs should note the examples of business email compromise provided in the annex to the circular.

The SFC reminds LCs of their obligations regarding internal control procedures and financial and operational capabilities under paragraph 4.3 of the SFC’s main code of conduct, especially at times when remote working arrangements are common (see our previous update).  They should strengthen internal controls in areas such as keeping of client contact information, amendment of client particulars, and email requests for order placing or fund transfer, and should stay alert to red flags and promptly follow up on irregularities (such as significant payments to overseas bank accounts).

The SFC reiterates that it is the senior management’s responsibility to oversee LCs’ implementation of internal control policies and procedures for the effective management of business email compromise risks, and to ensure that adequate resources are allocated to control functions.  LCs should provide regular training to staff to enhance their vigilance and familiarity of internal protocols.

LCs are also reminded to refer to the SFC’s guidance on control measures and techniques for managing cybersecurity risks and guarding against email scams.  [24 Mar 2022]

#CyberFraud

 

Singapore

Project Dunbar – Experimental mCBDC platform for international settlements

In a press release on the MAS website, the Bank for International Settlements (BIS) Innovation Hub, the Reserve Bank of Australia, Bank Negara Malaysia (BNM), MAS, and the South African Reserve Bank have announced the completion of prototypes for a common platform enabling international settlements using multiple central bank digital currencies (mCBDCs).  Details and conclusions of Project Dunbar, as the collaboration is called, have been published in a report.

Sopnendu Mohanty, Chief FinTech Officer, MAS commented: ‘Project Dunbar marks a key milestone in advancing the efficiency of cross border payments globally. The strong collaboration between participating central banks, commercial banks and technology solution providers has established the foundation for developing future ready payment rails.’

The BIS Innovation Hub, Singapore is inviting feedback on the report.  [22 Mar 2022]

#mCBDC

#Settlements

#ProjectDunbar

 

Malaysia

SCM registers IEO operators

The Securities Commission Malaysia (SCM) has announced that it has registered two Initial Exchange Offering (IEO) operators to promote responsible innovation in the digital assets space. The registered IEO operators will provide an alternative avenue for eligible companies to raise funds by issuing digital tokens in Malaysia. An issuer may raise funds up to RM100 million from retail and more sophisticated investors, subject to the limits provided in the SCM’s Guidelines on Digital Assets. Prior to hosting the issuer’s digital token on their platform, the IEOs will:

  • carry out assessments to verify the issuer’s digital value proposition;
  • review the issuer’s proposal and disclosures made in its Whitepaper; and
  • undertake comprehensive due diligence on the issuer and its token offering.  [23 Mar 2022] 
#DigitalAssets

#DigitalTokens

Project Dunbar – Experimental mCBDC platform for international settlements

In a press release on the Bank Negara Malaysia (BNM) website, the Bank for International Settlements (BIS) Innovation Hub, the Reserve Bank of Australia, BNM, the Monetary Authority of Singapore (MAS), and the South African Reserve Bank have announced the completion of prototypes for a common platform enabling international settlements using multiple central bank digital currencies (mCBDCs).  Details and conclusions of Project Dunbar, as the collaboration is called, have been published in a report.

BNM Assistant Governor Fraziali Ismail said: ‘The successful completion of Project Dunbar has produced meaningful insights on how a multi-CBDC platform may potentially solve complex issues in the cross-border payment space. The project is a testament to the importance of central bank collaboration in supporting the development of next-generation payment infrastructures. We intend to carry these insights through other proofs-of-concept as we continue our CBDC exploration journey.’

The BIS Innovation Hub, Singapore is inviting feedback on the report.  [22 Mar 2022]

#mCBDC

#Settlements

#ProjectDunba

 

Thailand

BoT summary of feedback and next steps – Repositioning the financial sector

The Bank of Thailand (BoT) has reported on the outcome of its public consultation on repositioning Thailand’s financial sector.  The BoT plans to incorporate the feedback and recommendations received, and will consult on the engagement of banking groups in digital business, the payment system, managing the transition towards greater environmental sustainability, and the virtual bank licensing framework by the second quarter of 2022. A further consultation on the open banking policy will follow in the third quarter of 2022.  [25 Mar 2022]

#Digitalisation
#VirtualBanking

 

India

RBI releases framework for geo-tagging of payment system touch points

The Reserve Bank of India (RBI) has released a framework for geo-tagging of payment system touch points. The RBI explains that geo-tagging touch points will facilitate monitoring of the availability of payment acceptance infrastructure such as point of sale (PoS) terminals and quick response (QR) codes. The monitoring will inform future policy interventions in the payment infrastructure.

Banks and non-bank payment system operators are required to submit the contact details of the nodal officer responsible for submitting required information into the Centralised Information Management System (CIMS) by 31 March 2022. The RBI will communicate the timeline for reporting in due course.  [25 Mar 2022]

#Payments
#QRcodes
RBI Governor inaugurates a new innovation hub

The Governor of the RBI, Shri Shaktikanta Das has inaugurated the Reserve Bank Innovation Hub (RBIH) in Bengaluru. Plans for the RBIH were first announced in November 2020. The RBI has set up the RBIH as a Section 8 company under Companies Act, 2013 to encourage and nurture financial innovation in a sustainable manner through an institutional set-up. Operating with an independent board, the RBIH will foster an ecosystem that focuses on promoting access to financial services and products for the low-income population. [24 Mar 2022]

 
#InnovationHub

 

Regular updates on sanctions and other developments that may impact businesses with interests or operations in Ukraine and/or Russia are available on our FSR and Corporate Crime Notes blog here.


Disclaimer

Herbert Smith Freehills LLP is licensed to operate as a foreign law practice in Singapore. Where advice on Singapore law is required, we will refer the matter to and work with licensed Singapore law practices where necessary.