In this regular update, we round-up FinTech-related financial services regulatory developments for the week ending 11 November 2022.

ICYMI

Recent updates from Herbert Smith Freehills include:

 

Global

FSB letter to G20 finance leaders and central bank governors

Tthe Financial Stability Board (FSB) has published a letter, dated 10 November 2022, from its Chair Klaas Knot to G20 finance leaders and central bank governors ahead of their 15-16 November 2022 summit.The letter covers matters including the following: non-bank financial intermediation (NBFI); improving cross-border payments; cryptoasset regulatory framework; climate-related financial risks; and global co-operation on financial stability. [11 Nov 2022]

#Cryptoassets

 

UK

FCA: AI moving from fear to trust – speech

Jessica Rusu, the FCA Chief Data, Information and Intelligence Officer has delivered a speech at the City and Financial Global summit on the regulation and risk management of artificial intelligence (AI) in financial services. The FCA has highlighted the following from Ms Rusu’s speech:

  • AI needs governance to move from fear to trust but many of the rules in financial services are already in place;
  • agency must not be attributed to AI systems as this risks removing accountability away from firms; and
  • safe and responsible AI adoption must be underpinned by high-quality data.

Ms Rusu also relayed some of the findings of the AI and machine learning survey which the FCA conducted with the PRA:

  • overall, 72% of respondents reported actively using or developing machine learning applications;
  • that trend is expected to more than triple in the next three years;
  • the largest expected uptake is in the insurance sector, followed by banking; and
  • firms reported that machine learning applications are now more advanced and increasingly embedded in day-to-day operations, with nearly eight out of ten in the later stages of development. [9 Nov 2022]
#AI

#MachineLearning

CLLS: Responses to CPs on digital assets and digital securities

The City of London Law Society (CLLS) has published the following:

  • response to Law Commission CP on Digital Assets prepared by members of the Financial Law Committee; and
  • response to the UK Jurisdiction Taskforce of the LawtechUK Panel (UKJT) CP on the Issuance and Transfer of Digital Securities under English Private Law prepared by a working group of members drawn from the Financial Law, Company and Regulatory Committees. [8 Nov 2022]
#DigitalAssets

#DigitalSecurities

 

EU

ECB: Speech on the digital euro

The European Central Bank (ECB) has published a speech by Christine Lagarde, President, on the digital euro. In her speech, Ms Lagarde spoke about the plans and model for the digital euro. In particular, she considered: the disruptive transformation of the digital euro; designing digital public money; privacy; and legal tender status. [8 Nov 2022]

#DigitalEuro

 

Australia

Scams Awareness Week 2022

Following the recent wave of large-scale data breaches and nearly $1.8 billion in reported losses due to scam activity in 2021, Australians were urged to learn how to spot a scam during national Scams Awareness Week (7-11 November 2022). The Australian Competition and Consumer Commission (ACCC), Scamwatch, the Scams Awareness Network and more than 350 organisations have partnered in a campaign to empower people to be alert to the risk of being scammed and to consciously look for red flags.

Similarly, the Australian Securities and Investments Commission (ASIC) has issued a media release targeted at consumers to raise awareness of crypto scams. The release refers to ASIC Deputy Chair Sarah Court’s comments that crypto investment scams were the main driver this year to the increase in money lost by Australians to investment scams, with crypto scam losses increasing 270% compared to 2021.

The regulator sets out its top 10 signs of a likely crypto scam, which are:

  1. You receive an offer out of the blue
  2. You see a celebrity advertisement that is actually a fake
  3. A romantic partner you only know online asks for money in crypto
  4. You get pressured into transferring crypto from your current exchange to another website
  5. You are asked to pay for a financial service with crypto
  6. The app you are using or directed to is not listed on the Google Play Store or Apple Store
  7. You need to pay more to access your money
  8. You are ‘guaranteed’ returns, or free money
  9. Strange tokens appear in your digital wallet
  10. The provider withholds investment earnings ‘for tax purposes’

Consumers are advised that if they think they have fallen victim to a crypto scam, they should take immediate action, including reporting the scam to their bank or financial institution and asking them to stop any transactions.  [7 and 8 Nov 2022]

#Crypto
#Scams

 

Hong Kong

Insurance Authority Head of Market Conduct and General Counsel delivers presentation on key lessons learnt during Covid-19 and future of conduct supervision

Mr Peter Gregoire (Head of Market Conduct and General Counsel of the Insurance Authority) delivered a presentation at the Insurance E-Summit 2022 of the Vocational Training Council on 11 November 2022 regarding the future of conduct supervision in the insurance market.

Mr Gregoire discussed five key lessons which the Insurance Authority learnt from regulating during Covid-19, and how these informed its strategy for conduct supervision in the future:

  • Digitalisation – Adapting conduct supervision to new situations in light of the increase in digital distribution, such as introducing temporary facilitative measures and issuing guidance;
  • Regtech – Embracing regtech in areas including the licensing e-portal, e-CPD platform and anti-money laundering screening software;
  • Proactive supervision – Undertaking proactive conduct supervision, such as informal mystery shopping;
  • Use of data – Using conduct indicators (such as complaint data, data from financial statements indicating potential unlicensed selling, and CPD compliance data) to identify emerging issues before they become problems;
  • Getting the culture right – Corporate culture will be a key focus for the Insurance Authority’s supervision going forward.  A culture of acting ethically and with integrity in line with the conduct principles (under section 90 of the Insurance Ordinance) provides the foundation of trust in the insurance market.  [11 Nov 2022]
#Digital

#RegTech

#Data

 

Singapore

MAS and NY Fed collaborate on wCBDC experiment

The Monetary Authority of Singapore (MAS) and the Federal Reserve Bank of New York’s Innovation Center (NYIC) have announced Project Cedar Phase II x Ubin+, a joint experiment to investigate how wholesale central bank digital currencies (wCBDCs) could improve the efficiency of cross-border wholesale payments involving multiple currencies. A report detailing the experiment and findings of Project Cedar Phase II x Ubin+ will be released in 2023.  [11 Nov 2022]

#CBDCs

 

Thailand

OIC: The insurance industry in 2023

At a press conference on strategic themes and trends in insurance supervision in 2023, the Secretary-General of the Thai Office of Insurance Commission (OIC) discussed a range of measures to drive the insurance industry in 2023, from development of infrastructure to support the implementation of IFRS17 on financial reporting to begin from 1January 2025, enhancing law and regulation, stress testing and scenario risk analysis, enhancing product approval processes and governance, upgrading the existing sandboxes to a Smart Sandbox, encouraging the use of technology and developing a Cyber-resilience assessment framework, accelerating the level of protection of insurance benefits by extending the information system used in the insurance claim process to the E-Arbitration system, promotion of research and vocational training, and developing a SMART OIC.  [8 Nov 2022]

#Sandbox
#CyberResilience

 

India

NPCI introduces BHIM App open source license model

The National Payments Corporation of India (NPCI) has announced the launch of its Bharat Interface for Money (BHIM) App open source license model under which the source code of BHIM App will be licensed to all regulated entities participating in the Unified Payments Interface (UPI) ecosystem who do not have an UPI app of their own.  The aim is to empower these entities to offer their customers the benefit of UPI and to boost financial inclusion.  [9 Nov 2022]

#Payments
SEBI consults on cloud framework

SEBI has published a consultation paper on cloud framework. The proposals do not envisage limiting the use of any cloud deployment model, but stresses that the regulated entity remains accountable for all aspects related to the cloud services.  Cloud services should be taken only from the MeitY empanelled cloud service provider’s data centres which should hold a valid STQC or equivalent audit status. In a multi-tenant cloud architecture, controls should ensure that data is isolated and inaccessible to any other tenant.  Data should be encrypted at any lifecycle stage.  The regulated entity should retain complete ownership of its data and associated data, encryption keys, logs etc. residing in cloud, and is responsible for ensuring compliance with legal and regulatory requirements. The regulated entity would be required to monitor cloud deployments through a security operations centre, and should make arrangements for audit and inspection of the cloud service provider.  Responses are sought by 14 November 2022.  [4 Nov 2022]

#Cloud

 

Philippines

BSP says cashless mailing fosters an inclusive digital payments system

The Bangko Sentral ng Pilipinas (BSP) has said that the adoption of electronic payments in malls facilitates an inclusive digital payments ecosystem. During the launch of ‘Cashless Malling at SM’ in Pasay City, BSP Deputy Governor Bernadette Romulo-Puyat underscored that the digitalization of mall transactions will enable more Filipinos to enjoy the benefits of digital finance. These include the safety, convenience, and speed of electronic payments. BSP Deputy Governor Mamerto E Tangonan also highlighted that digital payments encourage unbanked Filipinos to open a bank or electronic wallet account, which enables them to save money and access credit. [8 Nov 2022]

#Digital
#Payments

 

Vietnam

SBV approves banking sector’s plan to implement National Strategy On Developing A Digital Economy And Digital Society By 2025, with orientations to 2030

On November 3, 2022, the SBV issued Decision No. 1887/QD-NHNN approving of the Banking sector’s Plan to implement the National Strategy on Developing a Digital Economy and Digital Society by 2025, with orientations to 2030 issued by Decision No. 411/QD-TTg dated March 3, 2022 of the Prime Minister.  The Plan includes: (i) developing digital payments through promoting financial inclusion and non-cash payments; (ii) improving the legal frameworks; (iii) developing and promoting the use of digital platforms; (iv) developing digital databases; (v) ensuring information safety and cyber security; (vi) developing digital skills, digital IDs and a digital culture; (vii) developing digital businesses and supporting businesses to implement the digital transformation in the banking sector; and (viii) other tasks and solutions. [7 Nov 2022]

#Digital
#CyberSecurity

 

US

SEC charges creator of global crypto Ponzi scheme and three US promoters in connection with $295 million fraud

The Securities and Exchange Commission (SEC) has announced charges against various individuals for their roles in a fraudulent crypto Ponzi scheme that raised more than 82,000 bitcoin, valued at $295 million at the time, from more than 100,000 investors worldwide. According to the SEC’s complaint, filed in the US District Court for the Western District of Washington, one defendant created and controlled a multi-level marketing program that operated from 2016 through to 2018 and promised profits from the trading activities of a purported crypto asset trading bot. The SEC alleges that the defendants lured investors with false representations that the bot made “millions of microtransactions” every second, and that investors would receive minimum returns of 0.35 percent daily. However, instead of deploying investor funds for the purported trading bot, one defendant allegedly siphoned off investor funds for his own benefit and to pay a network of worldwide promoters, including the other defendants. [4 Nov 2022]

#Crypto
CFTC penalizes and permanently bans Texan from trading and registration for virtual currencies fraud

The CFTC has announced that it has issued an order simultaneously filing and settling charges against a Texas resident. The order requires the defendant to pay a $177,000 civil monetary penalty, permanently bans him from soliciting or trading in commodity interests and virtual currencies, or registering with the CFTC in any capacity, and requires him to cease and desist from any further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged.

The order finds from approximately May 2018 to 2019, the defendant participated in a fraudulent scheme involving a website platform engaged in alleged managed virtual currency trading. According to the order, the defendant knowingly or recklessly misrepresented that he was the CEO of the website and fraudulently solicited customers on its behalf. [4 Nov 2022]

#VirtualCurrencies

 

 

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.

 

 

 

Karen Anderson
Karen Anderson
Partner
+44 20 7466 2404
Cat Dankos
Cat Dankos
Regulatory Consultant
+44 20 7466 7494
Mary O'Donnell
Mary O'Donnell
FSR and CCI Professional Support Paralegal
+44 20 7466 3493

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.