In this regular update, we round-up FinTech-related financial services regulatory developments for the week ending 29 April 2022.

 

Global

BCBS Chair addresses City Week on Basel III, cryptoassets, and climate-related financial risk

Chair of the Basel Committee on Banking Supervision (BCBS) and Governor of the Bank of Spain Pablo Hernández de Cos addressed City Week on Basel III, cryptoassets and climate-related financial risks.  Key takeaways from his remarks include:

  • that, in his capacity as Governor of the Bank of Spain, Mr de Cos was concerned by discussions at EU level about deviating from the globally agreed Basel III standards;
  • that the BCBS is finalising a second consultation paper on cryptoassets which it will publish in the summer, with final standards to be agreed by the end of 2022; and
  • on climate-related financial risks, the BCBS will finalise a set of global principles for effective management and supervision of such risks in 2022; it is also conducting an holistic gap analysis across the Basel framework – spanning the regulatory, supervisory and disclosure pillars – to assess whether there are any aspects that require additional global measures. [26 Apr 2022]
#Cryptoassets
BIS: G20 TechSprint 2022 

The Bank for International Settlements (BIS) Innovation Hub and Bank Indonesia have launched the third G20 TechSprint Initiative as one of the side events of Indonesia’s G20 Presidency, focusing on developing new solutions for central bank digital currencies (CBDCs). The G20 TechSprint invites development of solutions for issuing, distributing and transferring CBDCs; deepening financial inclusion; and finding ways to link up domestic payment systems. Shortlisted teams will be invited to showcase their prototypes in July 2022; and the winners will be announced in October 2022. [26 Apr 2022]

#CBDCs

 

UK

BoE consults on RTGS – CHAPS Tariff and RTGS service beyond 2024

The Bank of England has published the following two CPs.

  • CP on real-time gross settlement (RTGS) and clearing house automated payments system (CHAPS) Tariff which proposes a new framework for the RTGS and CHAPS Tariffs, including recovering the costs of building the renewed RTGS service as well as running RTGS and CHAPS.
  • CP on RTGS service beyond 2024 which seeks industry views on what features they would like to see investment in for the next stage of roadmap for RTGS beyond 2024.

Feedback to both CPs is requested by 30 June 2022. [29 Apr 2022]

#Payments
PRA: Speech on next steps for operational resilience

The PRA has published a speech by David Bailey, Executive Director, UK Deposit Takers Supervision, on operational resilience and next steps on the PRA’s supervisory roadmap. In his speech, Mr Bailey spoke about:

  • the PRA’s operational resilience policy, focusing on the expectations for firms and the links to other key policy areas such as outsourcing and critical third parties (CTPs);
  • the initial assessments of firms’ progress based on the PRA’s supervisory work on UK banks and building societies so far; and
  • next steps in the operational resilience roadmap, focusing on expectations around what firms should be doing, and the supervisory steps the PRA will be taking. [28 Apr 2022]
#OpRes
LSB: CRM Code for APP Scams 

The Lending Standards Board (LSB) has announced that a series of updates have been made to the Contingent Reimbursement Model Code (the CRM Code) to further strengthen protections against authorised push payment (APP) scams. The updates to the Code are intended to: help improve customers’ understanding of how firms are assessing APP scam cases; help prevent scams; and make the Code accessible and relevant to a wider range of firms. [28 Apr 2022]

#APPscams
DRCF: Annual Report 2021-22, workplan 2022-23, and research papers

The Digital Regulation Cooperation Forum (DRCF), which brings together the major UK regulators tasked with regulating digital services – the CMA, FCA, Information Commissioners Office (ICO) and the Office of Communications (OFCOM), has published its Annual Report for 2021-22. The DRCF has also published its workplan and key priorities for 2022 to 2023, and the following research papers:

#Digital

#Algorithms 

PDP: Progress Update Report – April 2022

The Pensions Dashboard Programme (PDP) has published its progress update report for April 2022. The PDP is responsible for designing and creating the pensions dashboards ecosystem, which contains the digital architecture that will make pensions dashboards work. It is also responsible for developing the governance framework to enable the implementation and operation of pensions dashboards. The report outlines PDP’s activities over the past six months and its areas of focus for the next six months. [27 Apr 2022]

#Digital 
FCA speech at City Week: Critical issues in financial regulation

The FCA has published the speech delivered by CEO Nikhil Rathi during City Week 2022. Mr Rathi used the speech to catalogue the issues which are uppermost on the regulator’s agenda, ranging from the cost of living crisis through diversity and inclusion to the FCA’s own accountability and performance. Among the notable takeaways are:

  • making reference to the Business Plan and 2022-25 Strategy published earlier in April in which the FCA committed to a focus on reducing and preventing serious harm, Mr Rathi reported that the number of firms not obtaining authorisation has increased from one in 13 to one in seven;
  • that the final proposals for the New Consumer Duty will be issued in July, and the FCA envisages ‘fewer future rule changes’ thanks to the positive industry engagement on the development of the policy change;
  • speaking about the FCA’s own accountability and performance, Mr Rathi said that over 250 new employees had joined ‘this year’, including individuals with expertise in crypto and anti-money laundering (AML);
  • also on crypto, the FCA’s first crypto-sprint – which is due to take place in May – has received over 500 applications; and
  • on the regulation of crypto business, Mr Rathi noted that ambiguity remained, with ‘most adults’ not aware that crypto is not regulated by the FCA apart from the narrow AML remit; he called for clarity on Financial Services Compensation Scheme (FSCS) coverage and for policymakers to address the challenge presented by offshore promoters and operators.

Mr Rathi was among a number of speakers at City Week 2022, the annual event organised by City & Financial Global, with the City of London Corporation, Department for International Trade (DIT), TheCityUK and UK Finance. [26 Apr 2022]

#CryptoSprint 
FCA introduces Early and High Growth Oversight for newly authorised firms

The FCA has confirmed that, following the conclusion of a successful pilot, it will expand its Early and High Growth Oversight approach to provide ‘closer support’ for newly authorised businesses by the end of 2023. Early and High Growth Oversight provides enhanced supervision for firms as they get used to their regulatory status and supports them to understand their obligations so they can meet expected standards as they grow. Firms which are to be include in the new approach will be notified by the FCA directly; over 2022 and 2023, the regulator expects that Early and High Growth Oversight will take in around 300 newly authorised firms. [26 Apr 2022]

#StartUps

 

EU

ESMA: Final report on certain aspects of retail investor protection

The European Securities and Markets Authority (ESMA) has published a final report containing its recommendations to the European Commission (EC) on certain aspects of retail investor protection. ESMA’s recommendations include:

  • requiring machine readability of disclosure documents to facilitate the development of searchable databases accessible by the public;
  • addressing information overload by proposing to define what is vital information and by using digital techniques such as layering of information;
  • development of a standard EU format of information on costs and charges and other disclosures;
  • enabling national competent authorities (NCAs) and ESMA to require the use of risk warnings for specific financial instruments;
  • addressing aggressive marketing communications; and
  • addressing issues related to misleading marketing campaigns on social media and the use of online engagement practices, such as the use of gamification techniques by firms or third parties.

ESMA also expresses its support for the EC’s proposals to prohibit receipt of payment for order flow (PFOF).

The European Insurance and Occupational Pensions Authority (EIOPA) has also published a final report setting out its advice to the EC on retail investor protection in relation to the sale of insurance-based investment products (IBIPs). [29 Apr 2022]

#RetailInvestment
ECB: CfEI on digital euro front-end prototyping 

The European Central Bank (ECB) has published a call for expression of interest (CfEI) on digital euro front-end prototyping. The CfEI invites payment service providers, banks and other relevant companies to join an exercise to develop prototype user interfaces. Selected front-end providers will form a pool of providers with which the ECB can collaborate on the development of prototypes that address specific use cases for the payment process. The prototyping exercise will begin with an information session in June to discuss specific expectations for the project, including use cases.

Expressions are requested by 20 May 2022. [28 Apr 2022]

#DigitalEuro 

 

Hong Kong

HKMA publishes sixth issue of Regtech Adoption Practice Guide on AI-based regtech solutions  

The HKMA has published the sixth issue of its Regtech Adoption Practice Guide, focusing on regtech solutions utilising artificial intelligence (AI).  The guide series was launched by the HKMA in June 2021 as part of its regtech adoption roadmap to provide banks with detailed practical guidance on the adoption of regtech solutions (see our previous update for the fifth issue).

The topics covered in the sixth issue include:

  • How AI-based regtech solutions can be used to support risk management and regulatory compliance, including benefits and key barriers and risks;
  • Practical implementation guidance to banks on the implementation of AI-based regtech solutions, including the key components of implementation (with particular focus on the key barriers and risks of adopting such solutions for banks);
  • Two use cases on the adoption of AI-based regtech solutions – (1) automated supervision of financial product sales process against regulatory requirements and (2) federated learning technology to enable bankruptcy detection.  [28 Apr 2022]
#AI

#RegTech

HKMA issues discussion paper on policy and design issues for introducing rCBDC (e-HKD) in Hong Kong and invites feedback

The HKMA has issued a discussion paper to invite views from the public and the industry on key policy and design issues for introducing retail central bank digital currency (rCBDC), ie, e-HKD, in Hong Kong.  Members of the public and the industry are invited to submit their feedback by 27 May 2022.

Following the announcement of its “Fintech 2025” strategy in June 2021 (see our previous update), the HKMA commenced a project to study the prospect of introducing e-HKD in Hong Kong. The first part of the study focused on technical aspects, and a whitepaper setting out the HKMA’s initial findings was published in October 2021 (see our previous update). The second part of the study focused on the policy and design aspects, which is the subject of the present discussion paper.

The issues that are examined in the discussion paper include:

  • Potential benefits and challenges;
  • Design considerations, including issuance mechanism, interoperability with large-value and retail payment systems, privacy and data protection, and legal considerations; and
  • Use cases.

To facilitate stakeholders in providing their feedback, the HKMA has highlighted the issues for comment in the form of 12 discussion questions (see section 7 of the discussion paper).

Mr Eddie Yue, the Chief Executive of the HKMA, has published an inSight article which sets out four key issues concerning the future direction of e-HKD.  [27 Apr 2022]

#CBDCs

#rCBDC

HKMA launches Regtech Knowledge Hub

The HKMA has launched the Regtech Knowledge Hub to encourage greater sharing of regtech adoption experience and expertise within the regtech ecosystem in Hong Kong.  This forms part of the HKMA’s two-year regtech promotion roadmap announced in November 2020 (see our previous update).

The hub provides an online platform for the regtech community to share success stories and experience, including industry use cases.  The hub also acts as a central repository for the HKMA’s regtech-related information, including past circulars, guidance papers, and research reports.

The launch of the hub is accompanied by three innovative regtech use cases featuring:

  • a digital ledger technology-based foreign exchange settlement solution that helps reduce FX settlement risk;
  • alternative credit risk assessment solutions for small and medium-sized enterprises enabled by application programming interface and federated learning; and
  • artificial Intelligence solutions for corporate loan credit risk assessment.  [26 Apr 2022]
#RegTech
HKMA executive director delivers keynote speech on next generation approaches to AML and HKMA’s AML work

Ms Carmen Chu, the HKMA’s Executive Director (Enforcement and AML) delivered a keynote speech at the Association of Certified Anti-Money Laundering Specialists’ 13th Annual AML and Anti-Financial Crime Conference – APAC.

Ms Chu made various observations, including the following:

  • The increase in online activities and remote banking is fuelling a surge in fraud and money mules, which requires speedy detection and disruption to address emerging threats and protect banks and customers.
  • New technologies are driving changes in international standards, where virtual assets are now subject to the same anti-money laundering (AML) regulation as traditional financial assets, and cybersecurity risk and investor protection are under close check globally.
  • The Hong Kong money laundering and terrorist financing risk assessment is currently being updated.  The banking sector remains at “high” risk of being exploited for illicit fund flows.

Ms Chu highlighted three areas of the HKMA’s work where innovation is accelerating the move to next-generation approaches to AML:

  • Analytics – Network analytics was selected as the theme of the HKMA’s first AML Regtech Lab launched last year.  The HKMA’s AML surveillance enhancement programme is a long-term commitment and investment in data, technology as well as supporting capabilities and culture.  Its objective is to better understand and target higher risks in banks.
  • Monitoring – The HKMA is currently undertaking thematic work, supported by a leading regtech provider, to review performance of a number of banks’ transaction monitoring systems.  It is also updating its guidance on name screening, transaction monitoring and suspicious transaction reporting, incorporating sound practices as well as insights from engagement with other stakeholders.
  • Link-up – The HKMA, banks and law enforcement agencies are linked up through public-private partnerships, notably the Fraud and Money Laundering Intelligence Taskforce, which has been scaled up since its inception in 2017.  HKMA has also been working with the Anti-Deception Coordination Centre to strengthen the banking industry’s capability to intercept fraudulent payments.  [25 Apr 2022]
#Technology

#CyberSecurity

 

Singapore

MAS MD Mr Ravi Menon interviewed about cryptoassets

MAS has published the keynote interview Mr Ravi Menon, Managing Director, MAS at the Financial Times’ Crypto & Digital Assets Summit. Mr Menon spoke about MAS’ approach to the crypto ecosystem and the expectations of crypto service licensees, as well as MAS’ stance on central bank digital currencies (CBDCs) and decentralised finance (DeFi).

recording of the interview is also available. [27 Apr 2022]

#Cryptoassets

 

Philippines

BSP announces pilot of wholesale CBDC

The Bangko Sentral ng Pilipinas (BSP) has announced that it plans to pilot a wholesale central bank digital currency (CBDC) as part of its efforts to promote the stability of the country’s payment system. Dubbed Project CBDCPh, the pilot will test the use of CBDCs for large-value financial transactions on a 24/7 basis across a limited number of financial institutions.  [26 Apr 2022]

#CBDCs
#CBDCPh

 

 

Ukraine-related sanctions

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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.