In this regular update, we round-up FinTech-related financial services regulatory developments for the week ending 24 June 2022.

ICYMI

Recent updates from Herbert Smith Freehills include:

 

Global

BISIH report on using CBDCs across borders

The Bank for International Settlements Innovation Hub (BISIH) has released a paper setting out lessons learned from practical experiments in using central bank digital currencies (CBDCs) across borders. BISIH has conducted four cross-border experiments over the last 18 months. They are part of a broader portfolio of projects that examine different aspects of retail and wholesale CBDC in both a domestic and cross-border context. [21 Jun 2022]

#CBDCs
FATF publishes outcomes of plenary discussions, including review of report on VASPs Travel Rule, DeFi, NFTs

The FATF has published the outcomes of its plenary of 14-17 June 2022 which gives an update on ongoing work and new work. The plenary discussed a targeted update on implementation of the FATF Travel Rule which reported that while there had been some progress, not all countries had started to introduce the rule, leaving a gap which leaves the virtual asset service provider (VASP) sector exposed. The report also provided an update on emerging risks and market developments related to decentralised finance (DeFi), non-fungible tokens (NFTs) and unhosted wallets.  The report is due to be published before the end of June.

Alongside the outcomes, the FATF has also published the following:

#VASPs

#TravelRule

#DeFi

#NFTs

#UnhostedWallets

 

UK

FCA/PSR: Open Banking entity – Joint Regulatory Oversight Committee

The FCA and Payment Systems Regulator (PSR) have published the terms of reference for the Joint Regulatory Oversight Committee which will oversee the planning and preparation for the future Open Banking entity, oversee the transition to the future entity, and consider the vision and strategic roadmap for further developing Open Banking. The terms of reference set out the key objectives of the Committee; its responsibilities; and a provisional timeline with key dates. [24 Jun 2022]

#OpenBanking
HMT policy paper on the review of UK AML/CFT regime

HM Treasury (HMT) has published a policy paper: Review of the UK’s anti-money laundering and countering the financing of terrorism (AML/CFT)  regulatory and supervisory regime. The review sets out the UK’s current position in ensuring an effective AML/CFT regime across the regulated sector as set out in the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). The paper makes a number of observations, including with regard to crypto-assets, digital identity technologies, and use of technology in an AML/CFT context by firms and regulators.

HMT has also published two post implementation reviews on the MLRs and on the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) Regulations. [24 Jun 2022]

#Cryptoassets

#DigitalIdentity

FCA: Data strategy update 2022 

The FCA has published an update on its data strategy for 2022. The update sets out the FCA’s progress in developing technology and data services, and improving analytics and insights to support its decision-making. Going forward the FCA plans to:

  • recruit a significant number of skilled roles, across artificial intelligence (AI), cloud engineering, digital technology, analytics, and data science, with a key focus on diversity;
  • improve its case management and triage processes;
  • collaborate with the Bank of England (BoE) and industry to standardise how information is reported and to make use of new technology to reduce the cost of reporting;
  • improve decisions at the authorisations stage by combining both publicly available and the FCA’s own internal intelligence;
  • maximise the value of existing data already held;
  • balance achieving outcomes in a compliant and proportionate way, while ensuring that the legal, policy and ethical challenges to the sharing of data are met; and
  • make greater use of information online, including social media.

The data strategy underpins the FCA’s recent three-year strategy to reduce and prevent serious harm, set higher standards and promote competition. [23 Jun 2022]

#Data

#Technology

#SocialMedia 

CMA speech: Concurrency, Open Banking, the DRCF, and regulatory appeals 

The Competition and Markets Authority (CMA) has released the text of the speech delivered by Jonathan Scott, Chair of the CMA, to the European Policy Forum’s summit on the strategic outlook for economic regulation.  Mr Scott discussed:

  • the concurrency regime;
  • Open Banking;
  • digital regulation and the role of the Digital Regulation Cooperation Forum (DRCF) which brings together the CMA with the FCA, Information Commissioner’s Office (ICO) and the Office of Communications (Ofcom); and
  • the need for consistency and coherence in the regulatory appeals regime. [23 Jun 2022]
#OpenBanking

#DigitalRegulation 

 

EU

EBA replies to the EC on the review of PSD2 

The EBA has published an opinion and letter in response to the EC’s CfA on the review of the Payment Services Directive (PSD2). In its response, the EBA puts forward more than 200 proposals which aim at enhancing competition, facilitating innovation, protecting consumers’ funds and data, and preventing exclusion from access to payment services. The proposed amendments include:

  • merging the PSD2 and the Electronic Money Directive (EMD);
  • clarifying the application of strong customer authentication (SCA)  and the transactions in scope;
  • addressing new security risks for customers such as social engineering fraud where customers are tricked into initiating a payment transaction;
  • addressing concerns about authentication approaches (e.g. based on smartphones) that have led to exclusion of certain groups of society from using payment services online;
  • addressing underlying issues and obstacles to the provision of payment initiation services (PIS) and account information services (AIS), including the proposals for (i) AIS providers to apply their own SCA with their customers instead of relying on the authentication procedures by banks, (ii) empower customers to remain in control of their data; and (iii) support the development of high-quality interfaces across the EU;
  • moving from ‘Open banking’ to ‘Open finance’ (or otherwise the expansion from access to payment accounts data towards access to other types of financial data) and the opportunities and potential challenges associated with it, based on the PSD2 experience;
  • addressing the enforcement shortcomings in relation to the implementation and application of SCA for e-commerce card-based transactions and the removal of obstacles to the provision of AIS and PIS;
  • addressing unwarranted de-risking practices by banks affecting payment and e-money institutions; and
  • adjusting the prudential requirements, in particular in relation to initial capital, own funds, the use of professional indemnity insurance, the proposal for recovery and wind-down for significant payment institutions and possible consolidation group supervision. [23 Jun 2022]
#Payments

#PSD2

#EMD

#OpenFinance

 

Australia

Quarterly Statement by the Council of Financial Regulators – June 2022

The Council of Financial Regulators (Council), including the Australian Competition and Consumer Commission (ACCC), the Australian Transaction Reports and Analysis Centre (AUSTRAC), the Australian Taxation Office (ATO), and the Australian Financial Complaints Authority (AFCA) has released its quarterly statement. The Council’s focus was on developments in crypto assets and de-banking. The Council also:

  • agreed on the importance of a robust regulatory framework to protect investors and guard against financial stability risks presented as a result of crypto assets and de-banking;
  • focused upon the pass through of the Reserve Bank of Australia’s (RBA’s) cash rate increases to retail interest rates, and agreed to monitor this issue closely;
  • endorsed a wider roll-out of the Council’s Cyber Operational Resilience Intelligence-led Exercises (CORIE); and
  • discussed the exposure draft of the International Sustainability Standards Board’s (ISSB’s) sustainability and climate disclosure standards, and agreed to provide a joint submission.  [23 Jun 2022]
#Cryptoassets

#OpRes

 

Hong Kong

Government gazettes amendments to AMLO to introduce licensing regime for VASPs and other AML/CFT enhancements

The Government has gazetted amendments to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) to enhance Hong Kong’s anti-money laundering and counter-terrorist financing (AML/CFT) regulatory regime.  A Legislative Council (LegCo) brief sets out an overview of the amendments, which follows the consultation conclusions published by the Financial Services and the Treasury Bureau in May 2021 on the proposed changes (see our previous update and briefing).

The amendments address three areas:

  • A new licensing regime for virtual asset service providers (VASPs) to be administered by the SFC – Any person who seeks to carry on a business of operating a virtual asset exchange is required to apply for an SFC licence.  The person is required to meet the fit and proper test as well as AML/CFT and other regulatory requirements.
  • A new two-tier registration regime for dealers in precious metals and stones (DPMSs) to be administered by the Commissioner for Customs and Excise – Financial institutions that are already regulated under the AMLO and conduct regulated activities of DPMSs ancillary to their principal businesses will be exempted from registration.
  • Amendments to address various technical issues identified in the Financial Action Task Force (FATF)’s mutual evaluation report on Hong Kong and in other FATF contexts.

It is proposed that the above amendments will come into effect on 1 January 2023, except for the provisions relating to the VASP regime which will come into effect on 1 March 2023. The amendments will be introduced into the LegCo for first reading on 6 July 2022.

The SFC and Customs and Excise Department will make preparations for the implementation of the new regimes, which will include drafting of relevant rules and guidelines.  [24 Jun 2022]

#VASPs

#AML/CFT

HKMA publishes 2021 annual report

The HKMA has published its 2021 Annual Report, which contains an overview of the HKMA’s work in 2021 and priorities and plans for 2022.

In particular, under the “Banking Stability” section, the HKMA sets out its work and/or plans regarding (among others):

  • supervisory work, such as that in relation to credit risk, operation and technology risks, liquidity and market risks, combating money laundering and terrorist financing, and wealth management and MPF-related businesses;
  • promoting regtech adoption involving a two-year roadmap, with initiatives and events such as the regtech conference and regtech adoption practice guides;
  • cooperation with overseas supervisors and participation in regional and international forums;
  • implementation of Basel standards in Hong Kong;
  • enhancing the supervisory policy framework in relation to over-the-counter derivatives transactions and other areas such as operational risk management and climate risk management;
  • promoting green and sustainable banking in Hong Kong;
  • operationalising the resolution regime for Hong Kong and contributing to international resolution policy development;
  • promoting financial inclusion and a sound bank culture;
  • handling banking complaints, conducting investigations and collaborating with the SFC in respect of enforcement actions.

Under the “International Financial Centre” section, the HKMA sets out its work and/or plans regarding (among others):

  • promoting Hong Kong as fintech hub in Asia via various initiatives (including the “Fintech 2025” strategy, fintech adoption in the banking sector, proposed wholesale and retail central bank digital currency, and the pilot launch of the commercial data interchange);
  • enhancing Hong Kong as the dominant gateway to Mainland China and the global offshore RMB business hub, an asset and wealth management centre, a green and sustainable finance hub, a hub for corporate treasury centres and a financing hub for infrastructure investments;
  • retail payment systems and crypto-assets (in particular payment-related stablecoins).

The HKMA has also included a standalone section on “Sustainability”, outlining its work and initiatives as well as guidance published. It has also published its first sustainability report as an integral part of the annual report.  [24 Jun 2022]

#RegTech

#OpRes

#Cryptoassets

 

HKMA publishes report on observations from Tech Baseline Assessment and next steps to support adoption of fintech by banking industry

The HKMA has published a report detailing its key observations from the Tech Baseline Assessment and its next steps to further support the industry’s adoption of fintech.

As part of its “Fintech 2025” strategy, the HKMA is promoting an all-round fintech adoption by banks and encouraging the full digitalisation of their operations from front-end to back-end.  The Tech Baseline Assessment was rolled out as part of the “All banks go fintech” initiative announced in June 2021 (see our previous update).

The following are some key observations from the assessment:

  • Banks are prepared to dedicate healthy amounts of financial and talent investment to fintech adoption, and most expect to make good progress in achieving their fintech adoption objectives by 2025;
  • Adoption of the surveyed fintech business areas is expected to increase across the board in the areas of risk management and compliance (regtech), payment (paytech), and lending (lendingtech), as well as investment/wealth management services (investech/wealthtech), insurance business (insurtech) and green banking (greentech); and
  • Banks intend to extensively utilise both established (such as cloud, application programming interface and low code automation) and more novel technology types (such as artificial intelligence (AI) and distributed ledger technology (DLT)).

The HKMA plans to formulate a detailed roadmap of initiatives in the next few months to further promote developments in the fintech business areas of investech, wealthtech, insurtech and greentech, as well as the technology categories of AI and DLT.  It will work closely with other local authorities such as the SFC, the Insurance Authority and the Mandatory Provident Fund Schemes Authority to identify opportunities for cross-sectoral collaboration.  [23 Jun 2022]

#Tech

#AI

#DLT

 

SFC publishes annual report for year ending 31 March 2022

The SFC has published its Annual Report 2021-22, which summarises its work during the year ended 31 March 2022 and sets out its priorities for upholding market integrity and strengthening Hong Kong’s status as a premier international financial centre amidst a fast-changing environment.

The following are some of the matters highlighted in the annual report:

  • Strategic priorities, including continuing with the front-loaded regulatory approach and progressing with initiatives in relation to listing matters, licensing and supervision of intermediaries, asset and wealth management, market risk management, enforcement, green and sustainable finance, technology, and regulatory collaboration;
  • Market development, such as implementing a new regime for special purpose acquisition companies, the cross-boundary Wealth Management Connect Pilot Scheme, as well as concluding a consultation on a new regulatory regime for virtual asset exchanges and providing guidance to intermediaries who wish to engage in virtual asset-related activities;
  • Enforcement, including market surveillance, investigations (of which 220 were commenced) and prosecutions (28 criminal charges laid), and disciplinary and other enforcement actions; and
  • Regulatory cooperation, such as conducting separate joint operations involving listed companies with the Hong Kong Police Force and the Independent Commission Against Corruption, and responding to 95 requests for information and bilateral meetings from overseas regulators and industry bodies.  [22 Jun 2022]
 
#VirtualAssets

 

Singapore

MAS at the inaugural Point Zero Forum

MAS has published the speech delivered by Mr Heng Swee Keat, Deputy Prime Minister and Coordinating Minister for Economic Policies, at the inaugural Point Zero Forum. The Minister spoke about three double helixes of – Swiss-Singapore collaboration, Digital-Sustainability drivers, and Regulator-Industry partnership.

Running from 21 to 23 June 2022, the Point Zero Forum was an invite-only, in-depth engagement forum bringing together founders, investors, and policymakers to focus on two significant new market opportunities built on Web 3.0 architecture: tokenisation and sustainable finance. The event was convened by the Swiss Secretariat for International Finance (SIF) and Elevandi (a company set up by MAS to advance FinTech in the digital economy).  [22 Jun 2022]

#Crypto

#Cryptoassets

 

MAS announces first use case of NovA! – ESG risk assessment for originating, underwriting and servicing of sustainability linked loan

MAS has announced that the first use case of NovA! will be to help financial institutions (FIs) assess the sustainability performance of Singapore’s real estate sector. NovA! is part of the National Artificial Intelligence (AI) Programme in Finance. In the initial phase, the programme will focus on enhancing FIs’ ability to assess Environmental, Social, Governance (ESG) risk for originating, underwriting and servicing of sustainability linked loans.

A demo version of the use case will be released during the Singapore FinTech Festival 2022 in November. In early 2023, a beta version will be released for testing by FIs, followed by further fine-tuning for eventual industry adoption of the solution. A white paper documenting the product design and AI features will be published in mid-2023.  [21 Jun 2022]

#AI

#GreenTech

MAS and SFA invite entries for 2022 FinTech awards

MAS and the Singapore FinTech Association (SFA) have announced the launch of the 2022 Singapore FinTech Festival Global FinTech Awards. The theme for the 2022 Awards is ‘Embracing Digital, Charting the New Normal’.  Underscoring the importance of ESG, a new sustainability criteria has been included on top of the previous judging criteria of impact, practicality, interoperability, and uniqueness and creativity.

There are nine award categories for both corporates and individuals. The deadline for submitting applications is 19 August 2022. Winners will be announced during the Singapore FinTech Festival.  [20 Jun 2022]

#Interoperability

 

Thailand

SECT consultation – ICO portal and digital token offerings

The Securities and Exchange Commission, Thailand (SECT) has launched a public hearing on proposed amendments to the rules and regulations on the digital token portal service provider (ICO portal) supervision and digital token offering regarding, among other things, the handling of conflicts of interest during the process of digital token issuance and allowing outsourcing for certain activities.

Feedback on the proposals is requested by 23 July 2022.   [23 Jun 2022]

#DigitalTokens

 

India

RBI issues draft Master Direction on outsourcing IT services

The RBI has issued the Draft Master Direction on Outsourcing Information Technology (IT) Services for comment. The draft covers:

  • requirements to assess the criticality of the outsourcing, and the consideration of applicable laws, regulations, rules and guidelines when conducting due diligence in relation to outsourcing IT services;
  • the governance framework, including the requirement to have a Board-approved IT outsourcing policy;
  • ongoing due diligence of, and engagement with, service providers;
  • the content of the outsourcing agreement;
  • risk management arrangements, business continuity and disaster recovery planning;
  • outsourcing within a group or conglomerate;
  • additional requirements for cross-border outsourcing; and
  • the requirement to have a clear exit strategy.

Feedback is requested by 22 July 2022. [22 Jun 2022]

#Outsourcing

#IT

RBI releases Payments Vision 2025

The RBI has published Payments Vision 2025 which takes, as its core theme: ‘E-Payments for Everyone, Everywhere, Everytime’. Payments Vision 2025 has been prepared with input from various stakeholders and guidance from the Board for Regulation and Supervision of Payment and Settlement Systems of the RBI. The activities to be taken up during the period up to 2025 as part of Vision 2025 are captured across five anchor goalposts: Integrity; Inclusion; Innovation; Institutionalisation; and Internationalisation. They cover 47 specific initiatives and 10 expected outcomes. [17 Jun 2022]

#Payments

#Innovation 

RBI Speech: Disruptions & Opportunities in the Financial Sector

The RBI has published the address delivered by Shri Shaktikanta Das, Governor at the Financial Express Modern BFSI Summit in Mumbai on June 17, 2022. The RBI Governor shared his views on the possible implications of technology for the financial services sector. He also highlighted a number of RBI initiatives, including: the establishment of the RBI innovation hub; the Regulatory Sandbox enabling framework; work on a CBDC; the recent phishing simulation exercises with selected supervised entities; and the RBI’s current work on developing guidelines on digital lending.  [17 Jun 2022]

#CBDCs

#DigitalLending

 

 

Ukraine-related sanctions information

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.