In this weekly post, we round-up FinTech-related financial services regulatory developments for the week ending 30 June 2023.
- Managing business risk and integrating AI tools: Legal leaders take on the challenge
- The IP in AI – What you need to know
- Surging cyber incidents: Regulatory activity and class claims in Australia
- Cyber security: A month in retrospect (Australia)
- EU Digital Markets Act update: Potential gatekeepers submit notifications
BIS FSI publishes summary of FSB proposals on cryptoasset regulation
The Financial Stability Institute (FSI) at the Bank for International Settlements (BIS) has published an executive summary of the FSB’s proposed framework for the international regulation of cryptoasset activities. The summary provides a useful, short overview of the topics. [29 Jun 2023]
FATF reports on Recommendation 15 implementation – VA and VASPs, DeFi, NFTs, P2P, stablecoins
The Financial Action Task Force (FATF) has published an update report on: country compliance with FATF’s Recommendation 15 and its Interpretative Note (R.15/INR.15) regarding virtual assets (VA) and virtual asset service providers (VASPs), including the Travel Rule; and on emerging risks and market developments, including with regard to decentralized finance (DeFi), peer-to-peer transactions (P2P), non-fungible tokens (NFTs), unhosted wallets, and stablecoins. Among the findings are:
To address the findings of the report, the FATF will:
#cryptoassets #virtualassets #DeFi #P2P #NFTs
IMF Fintech Note: Institutional Arrangements for Fintech Regulation
The International Monetary Fund (IMF) has published Institutional Arrangements for Fintech Regulation: Supervisory Monitoring. The paper discusses the effective monitoring of new developments in fintech such that new risks are promptly and accurately identified and addressed. It identified four broad approaches to improve access to data, monitor new developments and help determine regulatory responses: (i) existing supervisory structures; (ii) innovation hubs; (iii) sandboxes; and (iv) TechSprints.
The paper held that, for most authorities, existing supervisory structures will allow them to effectively monitor new fintech developments and respond to challenges. [27 Jun 2023]
#FintechRegulation #Sandboxes #TechSprint
FCA: Changes to Handbook – cryptoassets fin proms instrument
HHJ Pelling KC provides an update on issues in cryptocurrency fraud claims
The Courts and Tribunals Judiciary service has published the speech delivered by His Honour Judge Mark Pelling KC in which he provided an update on issues in cryptocurrency fraud claims to the ThoughtLeaders4 Annual Crypto in Disputes Conference. During his talk, Judge Pelling noted the Law Commission’s final report, ‘Digital Assets’ which was published on 29 June, commenting on the recommendations made and noting in particular, the novel proposal that HM Government (HMG) establish a panel of industry experts to provide non-binding guidance on developments in the digital asset space. He also discussed the evolving characteristics of fraud claims relating to cryptocurrencies. [30 Jun 2023]
BoE speech: Enhancing cross-border payments
The Bank of England (BoE) Executive Director for Banking, Payments and Innovation Victoria Cleland addressed the Global Payments Summit in Cape Town on the topic of cross-border payments. Ms Cleland outlined the BoE’s recent achievements in respect of enhancing cross-border payments, including change to the UK real-time gross settlement (RTGS) service. She also discussed the road ahead, with reference to international engagement via the Financial Stability Board (FSB), Committee on Payments and Market Infrastructures (CPMI), and others. [29 Jun 2023]
FOS reports on fraud and scam complaints, warns of uptick in ‘hybrid’ scams
In a press release, the FOS has reported that it received 21,918 complaints concerned frauds and scams in 2022/23, which is up by almost a fifth against the 18,450 complaints received in 2021/22. Of those, 10,985 concerned authorised push payment (APP) scams – a 17% increase from 2021/22. There was also an increase in complex scam complaints – over a third of APP scam complaints concerned investment scams, the majority including an element of cryptocurrency. There is also an increase in ‘hybrid’ scams, which the FOS explains involve romance scams, purchase scams, and ‘safe account’ scams (where victims are scammed into moving money to cryptocurrency accounts for safe keeping). The FOS highlights that the measures banks have in place need to respond to these changes in tactics.
With regard to uphold rates, the FOS comments that the rate for fraud remains higher than the average or all financial products and services (35%) – with the rate for all frauds including APP scams being 45%, and the rate for APP scams alone being 54%. [28 Jun 2023]
Law Commission makes recommendations regarding the law relating to digital assets
The Law Commission of England and Wales has published a report setting out recommendations for reform and development of the law relating to digital assets. The Commission explains that the common law of England and Wales is well placed to provide a coherent and globally relevant regime for existing and new types of digital asset. Its recommendations include:
FCA: JROC launches VRP and future entity working groups
The FCA has announced that the Joint Regulatory Oversight Committee (JROC) has set up dedicated workstreams to action the six key themes and priorities outlined in its recommendations for the next phase of open banking in the UK. This includes launching two new working groups on variable recurring payments (VRP) and future open banking entity.
The VRP working group will develop a blueprint for the phased roll-out of non-sweeping VRP by the end of September 2023, while the future entity working group will consider the design of the future open banking entity, including its role, structure, and funding.
The working groups will report to the JROC by the end of September 2023 and the JROC will publish its views in an update towards the end of 2023. [27 Jun 2023]
JROC publishes commercial pricing principles for open banking
The Joint Regulatory Oversight Committee (JROC) has published a joint paper setting out five high-level principles for banks and registered third parties to follow when agreeing a premium Application Programming Interface (API) commercial model.
The JROC sets out that fees and charges for premium APIs should:
The paper notes that these principles should be read collectively rather than individually, and that they should be used as a guide to making progress, piloting commercial models and testing new premium APIs. [26 Jun 2023]
EP and Council reach provisional political agreement on eID, amending the eIDAS Regulation
The European Parliament (EP) and the Council have reached provisional political agreement on the core elements of a new framework for a European digital identity (eID).
The EC had proposed a framework for an eID via a European digital identity wallet in June 2021. The proposed new framework amends the 2014 regulation on electronic identification and trust services for electronic transactions in the internal market (eIDAS regulation). The proposal requires Member States to issue a digital wallet under a notified eID scheme, built on common technical standards, following compulsory certification.
Technical work will continue to complete the legal text in accordance with the political agreement. The revised regulation will then need to be formally adopted by the Parliament and the Council before it can be published in the EU’s Official Journal (OJ) and enter into force 20 days later.
ECB contact group meeting marks start of exploratory work on using DLT in wholesale settlement
The European Central Bank (ECB) has issued a press release following the first meeting of the new technologies for wholesale settlements contact group (NTW-CG) which took place on 21 June. The ECB explained that the meeting marked the start of the Eurosystem’s exploratory work on how wholesale financial transactions recorded on distributed ledger technology (DLT) platforms could be settled in central bank money.
ECB Supervisory Board member address Finance AML Europe 2023
The ECB has published the address delivered by Elizabeth McCaul, Member of the Supervisory Board of the ECB to the Leaders in Finance Anti-Money Laundering (AML) Europe 2023 event. Ms McCaul spoke about:
EP: ECON votes to update SEPA, ensuring accessibility of instant payments in euro
In a press release, the European Parliament (EP) has announced that its Economic and Monetary Affairs Committee (ECON) has voted on new rules to update the Single European Payment Area (SEPA) legislation to ensure instant credit transfers are accessible to consumers and businesses across the EU. The ECON negotiators are now ready to start talks with the Council, which has already adopted its position. [29 Jun 2023]
EC puts forward new financial data access and payments package, facilitating open banking
The European Commission (EC) has presented proposals to modernise European payments legislation, including facilitating open banking. Two sets of measures are proposed:
The European Commission (EC) is now accepting comments on the proposed legislative texts:
Feedback is requested by 25 August 2023. [28 Jun 2023]
#OpenBanking #OpenFinance #Data
EC sets out Single Currency Package – supporting the use of cash and providing a framework for a digital euro
The EC has put forward a new Single Currency Package which comprises two mutually supportive sets of measures to ensure that people have both payment options – cash and digital – when they want to pay with central bank money. The package comprises:
The European Commission (EC) is now accepting comments on the proposed legislative texts:
Feedback is requested by 25 August 2023. [28 Jun 2023]
EC/ECB: Why Europe needs a digital euro
The ECB has published to its blog a new piece co-authored by Fabio Panetta, Member of the Executive Board of the ECB, and Valdis Dombrovskis, Executive Vice-President of the EC which sets out, at a high level, key arguments in favour of introducing a digital euro – from consumer convenience through to maintaining the global position of the euro, monetary sovereignty and financial stability. The article has also been published in several European newspaper. [28 Jun 2023]
FINI: Information provided on market practice sessions, market rehearsals and rule updates for launch in October 2023, and second MOU addendum signed
The HKEX has announced that its new IPO settlement platform, Fast Interface for New Issuance (FINI), will be launched in October 2023. FINI is intended to modernise and digitalise the IPO settlement process and drive efficiency by shortening the time between the pricing of an IPO and the trading of shares from five business days (T+5) to two business days (T+2).
FINI will operate on a cloud-based platform, enabling different stakeholders such as IPO sponsors, underwriters, legal advisers, banks, clearing participants, share registrars and regulators to collaborate and perform their respective roles in an IPO digitally. The platform will also incorporate a new public offer pre-funding model to help alleviate the scale of funds that are locked up in over-subscribed IPOs.
Following the recent completion of external user testing (see our previous update), the HKEX has arranged for market practice sessions and market rehearsals to take place in July and August 2023 respectively, which will involve simulating end-to-end IPO settlement operations under FINI. Details are set out in a circular issued by the Hong Kong Securities Clearing Company Limited (HKSCC). IPO market participants are strongly encouraged to participate to ensure that their staff and systems can support FINI from the first day of its live operations. In addition, two webinar briefings will be held in July 2023 for all FINI users. Details are available in the above circular and the deadline for registration is 3 July 2023.
The HKEX has also published updates to relevant Listing Rules, HKSCC Rules and HKSCC Operational Procedures, which will take effect on the commencement date of FINI. They are available on the “Launch of FINI Platform” webpage, together with an information paper.
In addition, the SFC and The Stock Exchange of Hong Kong Limited (SEHK) have signed a second addendum to the Memorandum of Understanding Governing Listing Matters (MOU). This second addendum will facilitate the HKEX’s plan to introduce FINI in the second half of 2023. Among other things, it sets out provisions that signify the acceptance and consent of the SFC and the SEHK to the electronic receipt of information and documents, and to the use of electronic signatures on information and documents provided by issuers and their advisers and agents via FINI. [28 Jun 2023]
Green Technology and Finance Development Committee established and holds first meeting
Under the chairmanship of the Financial Secretary, Mr Paul Chan, the Green Technology and Finance Development Committee has been established and held its first meeting.
The committee has been set up following the Financial Secretary’s commitment in the 2023-24 budget to assist with promoting the development of Hong Kong into an international green technology and finance centre. The committee is comprised of representatives from relevant policy bureaux, departments and financial regulators. There are also 13 non-official members from relevant industries, whose term will run from 23 June 2023 to 22 June 2025.
At the first meeting, the committee learnt about the Government’s goals and strategies for achieving carbon neutrality and the work by relevant policy bureaux and financial regulators in driving the development of green technology and finance. Members also discussed and shared views on further promoting development in these areas.
Looking forward, Mr Chan envisions Hong Kong strengthening co-operation with its sister cities in the Greater Bay Area, in addition to attracting funds, technology and talent from within the region and around the world, and channelling funds to support green transformation in the region, with a focus on accelerating the development of the ‘dual engine’ of green technology and green finance. [23 Jun 2023]
MAS publishes speech by Deputy PM at Point Zero forum
MAS has published a speech by Heng Swee Keat, Deputy Prime Minister and Coordinating Minister for Economic Policies, at the Point Zero Forum. Issues discussed include fostering safe and responsible use of AI; commitment to sustainability and the green transition; and building and renewing trust for cross-border digital finance.
Mr Keat concluded his speech by reiterating the importance of strengthening collaboration to chart the way ahead for fintech. [26 Jun 2023]
#AI #MachineLearning #GreenTech
MAS proposes framework for Digital Asset Networks
MAS has published a report proposing a framework for designing open, interoperable networks for digital assets. The report was jointly developed with subject matter experts at the Bank for International Settlements’ (BIS) Committee on Payments and Market Infrastructure (CPMI), with contributions from participating financial institutions.
The report is part of MAS’ effort to ensure that emerging digital asset networks are underpinned by international standards which promote safe and efficient financial market infrastructure. [26 Jun 2023]
MAS releases toolkit for use of AI in Financial Sector
MAS has announced the release of an open-source toolkit for the responsible use of AI in the financial industry. The Veritas Toolkit 2.0, developed by an MAS-led consortium of 31 industry players, aims to help financial institutions (FIs) carry out the assessment methodologies for the Fairness, Ethics, Accountability and Transparency (FEAT) principles. The FEAT principles provide guidance to firms offering financial products and services on the responsible use of AI and data analytics.
The consortium also published a white paper detailing the key lessons learnt by seven FIs which piloted the integration of Veritas methodology with their internal governance framework. [26 Jun 2023]
OJK rolls out new regulation on AML, CTF and counter-proliferation financing (CPF) in the financial services sector
On 14 June 2023, the Financial Services Authority (Otoritas Jasa Keuangan or ‘OJK’) issued OJK Regulation No. 8 of 2023 on the Implementation of AML, CTF and CPF Program in the Financial Services Sector (‘OJK Regulation 8/2023’), revoking OJK Regulation No. 12/POJK.01/2017 on the same subject (as amended, ‘OJK Regulation 12/2017’) (both in Indonesian language). Set out below are the key changes introduced by OJK Regulation 8/2023.
A full list of reporters can be seen below. Notable additions are trustees and IT-based crowdfunding platform operators.
OJK 8/2023 enters into full force and effect as of 14 June 2023. Existing reporters must adjust their AML, CTF and CPF program to comply with OJK Regulation 8/2023 within 6 months thereafter. [30 Jun 2023]
SCM launches Islamic fintech initiative
The Securities Commission, Malaysia (SCM) has announced the launch of FIKRA ACE, a fintech initiative that aims to enhance the Islamic capital market (ICM) ecosystem by facilitating the development of Islamic fintech through a structured approach. The initiative will identify companies with fintech solutions to nurture, grow, and connect with the ICM ecosystem in various segments. The initiative also aims to support the Islamic fintech space by building capacity and a talent pipeline for the industry.
Companies with innovative fintech solutions are invited to submit applications by 4 August 2023. [27 Jun 2023]
CFTC Division of Enforcement creates two new task forces for cybersecurity & emerging tech, and environmental fraud
The Commodity Futures Trading Commission’s (CFTC’s) Division of Enforcement has announced it has established two new task forces. The Cybersecurity and Emerging Technologies Task Force will address cybersecurity issues and other concerns related to emerging technologies (including artificial intelligence). The Environmental Fraud Task Force will combat environmental fraud and misconduct in derivatives and relevant spot markets. The task forces are comprised of attorneys and investigators across different offices within the Enforcement Division, who will prosecute cases, serve as subject matter experts, and coordinate efforts with the CFTC’s other divisions and offices. [29 Jun 2023]
#cyber #emergingtech #AI
CFTC announces that Federal Court orders Ohio man to pay over $50 million for fraudulent digital asset trading scheme
The CFTC has announced that on June 13, Judge Naomi Reice Buchwald of the US District Court for the Southern District of New York issued a default judgment granting a permanent injunction against an Ohio resident. The order bans the defendant from trading in any CFTC-regulated markets and registering with the CFTC. It also requires him to pay $27 million in restitution to defrauded victims and a $27 million civil monetary penalty in connection with a fraudulent digital asset trading scheme. [28 Jun 2023]
#cryptocurrencies #digital assets