In this regular post, we round-up FinTech-related financial services regulatory developments for the week ending 6 October 2023.
- China relaxes measures on cross-border data transfers from China
- Cyber security: A month in retrospect – September 2023 (Australia)
FSB RCG discusses high sovereign indebtedness and cryptoassets
The Financial Stability Board (FSB) Regional Consultative Group (RCG) for Sub-Saharan Africa met in Pretoria, South Africa to discuss recent global and regional macroeconomic and financial market developments and their implications for financial stability. The group also shared their experiences on how the increase in sovereign indebtedness since COVID-19 has reduced the space available for governments to combat macroeconomic downturns.
Members shared established and prospective plans to regulate cryptoasset activities with consideration of, among others, the financial stability, financial integrity and market integrity implications, as well as some of the implementation challenges members are facing.
Members also stressed the importance of monitoring non-bank financial intermediation (NBFI), including data, transparency and governance issues, and putting in place mechanisms to mitigate the financial stability risks in NBFI. [6 Oct 2023]
BIS and Bank of Korea: Report on Bank of Korea’s CBDC project
The Bank for International Settlements (BIS) and the Bank of Korea have jointly published a report on the Bank of Korea’s central bank digital currency (CBDC) project. The CBDC project will explore the future of central bank money through a pilot scheme, with input from the BIS on its design and implementation. The report presents a blueprint for the CBDC network that encompasses the issuance and circulation of both CBDC and private digital currencies. The Bank of Korea and regulatory bodies plan to conduct practical experiments involving a variety of innovative payment services, utilising the CBDC network in collaboration with financial institutions and relevant entities. The objective of this project is to stimulate innovative initiatives from the private sector and harness advanced information technology to promote constructive and responsible innovation.
The Bank of Korea and regulatory bodies will establish a working group that includes other relevant institutions, and participating banks in order to successfully execute the project and reduce legal uncertainty. On completion of the project, the Bank of Korea plans to publish a comprehensive report detailing the project’s outcomes, insights gained, and future directions. [4 Oct 2023]
BISIH: Report on mapping the world of DeFi
The BIS Innovation Hub (BISIH) has published a report on ‘Project Atlas’, a collaboration between the BISIH Eurosystem Centre and the central banks of The Netherlands and Germany, to map the world of decentralised finance (DeFi) by combining data gathered from crypto exchanges with granular data extracted from public blockchains. The report details how the proof of concept uses transactions between crypto exchanges in the Bitcoin network, along with the location of those exchanges, as a proxy for cross-border capital flows. Attribution data links on-chain transactions to crypto exchanges, which are then mapped to their geographical location (where possible).
The derived bilateral flows between countries are visualised on a globe. An initial analysis of preliminary data collected by the platform shows that cross-border flows are substantial economically and unevenly distributed across geographical regions. [4 Oct 2023]
#DeFi #Blockchain #Crypto
FCA: Speech on AI in financial services
The FCA has published a speech by its Chief Data, Information and Intelligence Officer, Jessica Rusu, on AI in financial services at the City and Financial Global AI Regulation Summit 2023. Ms Rusu began by stating a pivotal junction in deciding where to take AI has been reached. She highlighted that digital infrastructure, resilience, consumer safety and data are key to getting AI integration right.
In terms of the FCA’s expectations regarding resilience, she reiterated that firms remain responsible for their own operational resilience, including any services that they outsource to third parties. Ms Rusu also discussed regulation and governance, responsible adoption, and how the FCA is making use of AI. [6 Oct 2023]
#AI #Data #OpRes #Outsourcing
FCA: Notice of Undertaking
The FCA has issued a firm with a notice of undertaking in relation to the firm’s commitment to make changes to its e-money contract under the Consumer Rights Act 2015. The undertakings were given following the FCA raising concerns relating to terms excluding the firm’s liability as a result of account suspension, limiting compensation available to consumers, and excluding commitments that may be implied by law.
The FCA found that the first two terms were likely to be unfair and the last term was likely to lack transparency.
With the undertaking, the firm:
- agreed to remove all three terms from its e-money contracts with consumers from January 2024;
- agreed to not use these three terms (or similar terms with the same effect) in its future contracts with consumers;
- asserted that the terms have been in use since October 2021;
- asserted that it has not relied on the three terms in an unfair way in practice; and
- fully cooperated with the FCA in resolving its concerns. [4 Oct 2023]
PSR consults on APP fraud reimbursement SD for FPS participants
The Payment Systems Regulator (PSR) has issued Consultation Paper 23/10: Specific Direction of FPS participants – implementing the reimbursement requirement (CP23/10) CP23/10 sets out the PSR’s proposed specific direction (SD) on payment service providers (PSPs) that participate in Faster Payments (FPS) This proposed SD contains the reimbursement requirement, the obligation to follow the reimbursement rules and the obligation to report data to Pay.UK. It will also place an ongoing obligation on indirect access providers to inform the PSR of any indirect PSP customers to whom they provide access.
Responses are requested by 19 October 2023.
This is one of three proposed legal instruments that the PSR will use to implement the reimbursement policy (the other two were consulted on in July 2023). The PSR intends to publish all three legal instruments by the end of 2024, which is a change from the timeline set out in June in PS23/3. Similarly, the regulator now intends that the requirement to reimburse will come into effect on 7 October 2024. This timeline is discussed in Chapter 4 of CP23/10.
Noting that the BoE has also announced its intention that similar reimbursement requirements should apply CHAPS, the PSR comments that it is considering giving a direction for direct and indirect CHAPS participants If it decides to give a direction, we expect to consult on this by the end of Q1 2024. This is discussed in Chapter 5 of CP23/10. [2 Oct 2023]
#APPfraud #Payments #CHAPS #FPS
HMT: Joint statement on the UK-US Financial Regulatory Working Group meeting
HM Treasury (HMT) and the US Treasury have issued a joint statement on the eighth official meeting of the UK-US Financial Regulatory Working Group. The meeting focused on several key themes, including digital finance. The Working Group will reconvene in 2024. [2 Oct 2023]
HMT: PS on payment service contract termination, changes to Threshold Conditions to protect free speech
HMT has published a policy statement (PS) with the implementation, timings and next steps related to forthcoming rule changes on payment service contract termination rules. The PS outlines details of the approach to amending the Payment Services Regulations 2017 (PSRs 2017) and confirms that a draft statutory instrument (SI) will be published before the end of 2023. In addition, HMT intends to consult on changes to the Threshold Conditions (rules that determine whether a bank can operate) to ensure that banks protect freedom of speech. The notice period for payment service framework contract terminations is to increase from two months to 90 days, and banks will be required to give customers clear and tailored explanations for why they had closed an account, with limited exceptions where such disclosure would be unlawful. HMT will be launching a public consultation to consider how these changes are best delivered, ahead of legislating in 2024 via secondary legislation through the powers granted in the Financial Services and Markets Act 2023. [2 Oct 2023]
EIOPA sets out strategic priorities for 2024
EIOPA has published the Single Programming Document 2024-2026 which outlines the activities the regulator will undertake in the period 2024-2026. Among the strategic priorities which EIOPA has identified for this period is supporting consumers, the market and the supervisory community through digital transformation. [6 Oct 2023]
ESMA consults on shortening the standard settlement cycle
The European Securities and Markets Authority (ESMA) has issued a call for evidence (CfE) on the shortening of the settlement cycle. In 2014, the Central Securities Depositories Regulation (CSDR) introduced for the first time in the EU a requirement for all transactions in transferable securities which are executed on trading venues to be settled by no later than the second business day after the trading takes place. Due to recent developments, the question of shortening the securities settlement cycle has emerged.
In this CfE, ESMA is seeking feedback on the following issues:
- what would be the impact of the reduction of the securities settlement cycle in the operations of market players;
- what would be the benefits and the costs that a shorter securities settlement cycle would bring;
- if it is concluded that a mandatory shorter settlement cycle should be imposed, how and when a shorter settlement cycle could be achieved; and
- what are the impacts on the EU’s capital markets resulting from international developments related to securities settlement.
Responses are requested by 15 December 2023. In terms of next steps, ESMA will publish and submit to the European Commission (EC) a feedback report with its main findings in the course of 2024. ESMA may provide an earlier report to the EC identifying possible regulatory actions to address the impact for EU market participants of the US move to T+1.
In parallel, ESMA is consulting central banks as well as the TARGET2-Securities (T2S) operator on what would be the impact of a shorter settlement cycle for the operation of T2S. [5 Oct 2023]
ESMA consults on crypto market rules
- sustainability indicators for distributed ledgers;
- disclosures of inside information;
- technical requirements for white papers;
- trade transparency measures; and
- record-keeping and business continuity requirements for crypto-asset service providers.
Responses to the consultation are requested by 14 December 2023. ESMA will publish a final report and submit the draft technical standards to the European Commission (EC) for endorsement by 30 June 2024 at the latest. ESMA will also publish a third consultation package with the remaining 18-month mandates in Q1 of 2024. [5 Oct 2023]
ESMA: DLTR reports
ESMA has published the following reports on the DLT Pilot Regime (DLTR):
- Study on extraction of transaction data; and
- Study on how financial instrument transactions are registered in various DLTs.
The DLTR entered into force on 23 June 2022 and aims to foster innovation in the EU’s capital markets sector. It allows eligible firms to operate DLT market infrastructures for trading and settlement purposes.
The reports were prepared for ESMA by PwC EU Services EESV and reflect only the views of the authors. [5 Oct 2023]
EC: Call for tenders on developing sustainability standards for crypto
The European Commission (EC) has issued a call for tender for the development of a methodology and sustainability standards for mitigating the climate impact of cryptoassets. The description highlights evidence that cryptoassets may cause significant harm on the climate and environment, depending on the consensus mechanism used. The EC notes that increasing demand for cryptoassets and expansion of mining could undermine EU’s efforts to achieve its climate and sustainability goals, in line with the Paris Agreement. The EC aims to develop a methodology to ‘measure the climate and environmental impact of the consensus mechanisms’ and ‘assess the feasibility of establishing environmental sustainability standards for crypto-assets with a view to the adoption of future legislative action in the area of crypto-asset financial regulation’. The deadline for tender submissions to undertake the work is 10 November 2023. [5 Oct 2023]
EP adopts DMD(FS)
The European Parliament (EP) has formally adopted the new Distance Marketing Directive for Financial Services (DMD(FS)). The legislation awaits formal adoption by the Council before publication in the Official Journal of the EU (OJ) and entry into force 20 days later. Member states will then have 24 months to transpose the rules into national law and another six months to apply them. [5 Oct 2023]
EBA: 2024 Work Programme
- providing a data infrastructure at the service of stakeholders;
- developing oversight and supervisory capacity for the Digital Operational Resilience Act (DORA) and the Markets in Crypto Assets Regulation (MiCAR); and
- increasing attention on innovation and consumers (including access to financial services) while preparing the transition to the new anti-money laundering and countering the financing of terrorism (AML/CFT) framework. [4 Oct 2023]
#DORA #MiCAR #AML
EBA Q&As on PSD2
The European Banking Authority (EBA) has published responses to questions on the Revised Payment Services Directive (PSD2) regarding:
- the evidence or records to be stored by account servicing payment service providers (ASPSPs) for payment initiation service (PIS) and account information service (AIS) requests;
- the reading of the term ‘means of payment’ in the EBA’s guidelines on the limited network exclusion (LNE);
- strong customer authentication and secure communication, in particular the statistics to be published by ASPSPs;
- the meaning of ‘service downtime’ in the context of major incident reporting;
- when ASPSPs are required to offer redirected authentication with biometrics to users; and
- whether it is allowable to use the same strong customer authentication (SCA) element to authorise a payment and at the same time (using the same session ID) approve the payee as a trusted beneficiary. [2 Oct 2023]
SFC and Police establish joint working group on VATPs
The SFC has announced the establishment of a dedicated working group with the Hong Kong Police Force (Police) to strengthen joint efforts to monitor and investigate illegal activities relating to virtual asset trading platforms (VATPs). The working group was established after a high-level meeting of the two parties on 28 September 2023.
The working group allows the SFC and the Police to:
- facilitate the sharing of information on suspicious activities and breaches of VATPs;
- implement a mechanism to assess the risks of suspicious VATPs; and
- enhance coordination and collaboration in related investigations. [4 Oct 2023]
#Crypto #VirtualAssets #VATP
HKEX to launch Synapse, a settlement acceleration platform for Stock Connect, on 9 October 2023
Synapse is a new integrated settlement acceleration platform and is part of the HKEX’s ongoing commitment to the development of Stock Connect – the efficient, accessible and cost-effective channel for investors participating in capital markets in Mainland China and Hong Kong. It will eliminate sequential processes, offering real-time visibility and insights into the settlement process for all market participants. Asset managers, brokers, custodians and clearing participants will benefit from real-time data synchronisation and improved scalability, helping them handle the growing volume of trades through Northbound Stock Connect.
Available as an optional service, Synapse will support institutional investors participating in Northbound Stock Connect to better manage their post-trade operations across different time zones, in particular with regard to adhering to the Mainland securities market’s T+0 settlement cycle. It will be linked with the DTCC through its institutional trade processing service. This integration will enable global investors and HKEX participants to benefit from the central matching of cross-border transactions using the DTCC’s CTM service, which will automatically generate and send settlement instructions to the Synapse platform, streamlining the trade confirmation and settlement notification process.
The Hong Kong Securities Clearing Company Limited (HKSCC) has published a circular regarding the launch of Synapse, and another circular regarding the amendments to the General Rules of CCASS (marked-up version) and the CCASS Operational Procedures (marked-up version) as well as the new Synapse terms and conditions (attached at Appendix 3 to the second circular). The amendments to the rules and procedures and the new terms and conditions will come into effect on 9 October 2023. [4 Oct 2023]
MAS collaborates with BISIH and central banks on cross-border transactions innovation
The Monetary Authority of Singapore (MAS) has published an article discussing the collaboration between itself, the Bank for International Settlements Innovation Hub (BISIH) and central bank partners in Singapore, Australia, Korea and Malaysia, to launch ‘Project Mandala’, which explores the feasibility of encoding jurisdiction-specific policy and regulatory requirements into a common protocol for cross-border use cases such as foreign direct investment, borrowing and payments. [5 Oct 2023]
MAS: Response to Parliamentary question on locally incorporated tech companies’ IPOs
MAS has published the responses delivered in Parliamentary to a question on encouraging locally incorporated tech companies to choose the Singapore Exchange (SGX) over foreign stock markets for their initial public offerings (IPOs) and on attracting investors to investing in IPOs or tech companies currently listed on the Singapore Exchange (SGX).
Responding on behalf of the Deputy Prime Minister, Mr Alvin Tan, Minister of State, Ministry of Trade and Industry and Ministry of Culture, Community and Youth, and Board member of MAS, commented that the challenge of maintain a ‘vibrant and attractive’ market is not unique to Singapore as IPOs have declined globally and many jurisdictions face a trend of local companies looking to list on overseas markets. While government agencies and SGX have established a number of initiatives in recent years to support the attractiveness of Singapore’s equities market, the Minister warned against an overly prescriptive approach of making government support conditional on local listing.
Concluding, the Minister said that the situation continues to be monitored, and measures will be updated where necessary to adapt to shifts in global capital markets. [4 Oct 2023]
MAS: Response to Parliamentary question on AI
MAS has published a response to the following Parliamentary questions: (a) how has the MAS used artificial intelligence (AI) in its supervision of financial institutions; (b) whether this has resulted in positive outcomes; and (c) what is the long-term role of AI in its regulatory framework? The response explains that:
- financial supervision is primarily a data-driven activity, and MAS adopts a risk-based approach to its supervision, which entails focusing more supervisory resources on riskier financial institutions (FIs), as identified by data, frameworks, and processes; and
- the advancement of data analytics techniques like AI and machine learning has expanded the toolkit for MAS to make better sense of the various risk signals in the voluminous data it receives. [3 Oct 2023]
#AI #DataAnalytics #SupTech
MAS: Incident reporting template
MAS has published an incident reporting for financial institutions to report incidents to MAS, including incidents relating to IT systems, cyber attacks, information loss and liquidity. [2 Oct 2023]
BNM: Update on DITO framework
Bank Negara Malaysia (BNM) has published an update on the outcome of the consultation paper on the Exposure Draft (ED) on Licensing and Regulatory Framework for Digital Insurers and Takaful Operators (DITO Framework) published in November 2022. The ED outlines the proposed framework to facilitate the entry of DITOs in Malaysia that can offer strong value propositions to realise the policy outcomes of inclusion, competition, and efficiency.
Having carefully considered the feedback and additional insights gained, BNM is taking the opportunity to refine several aspects of the DITO Framework. This includes enhancements to provide clarity for emerging and innovative business models such as embedded insurance and insurance-as-a-service (IAAS). This aims to encourage wider participation from players in the insurance and takaful value chain that can deliver the intended policy outcomes of the DITO Framework. BNM plans to finalise the framework by the first half of 2024. [5 Oct 2023]
#DigitalInsurers #DITO #IAAS
BNM joins BISIH, central banks and financial institutions on Project Mandala
BNM has announced its participation in a collaboration with the BIS Innovation Hub (BISIH), Reserve Bank of Australia (RBA), Bank of Korea (BOK), and Monetary Authority of Singapore (MAS), and financial institutions on ‘Project Mandala’. Project Mandela will explore protocols for embedding policy and regulatory compliance in cross-border transactions, via use cases such as foreign direct investment, borrowing and payments. [5 Oct 2023]
RBI Statement on Developmental and Regulatory Policies
The Reserve Bank of India (RBI) has published its latest Statement on Developmental and Regulatory Policies which highlights forthcoming developments. This Statement includes the following:
- The RBI proposes to extend the Payments Infrastructure Development Fund (PIDF) Scheme for two years to December 31, 2025. Also, it is proposed to include beneficiaries of PM Vishwakarma Scheme in all centres under the PIDF Scheme. Further, based on the feedback received from industry, deployment of emerging modes of payment acceptance, such as soundbox devices and Aadhaar-enabled biometric devices, are proposed to be encouraged under the PIDF Scheme. The amendments will be notified shortly.
- At present, Card-on-File (CoF) token can only be created through a merchant’s application or webpage. The RBI proposes to introduce CoF token creation facilities directly at the issuer bank level. Instructions in this regard will be issued separately. [6 Oct 2023]
#Payments #Biometric #CoFToken
RBI extends search function on UDGAM portal to 30 banks
The RBI has extended its Centralised Web Portal उद्गम UDGAM (Unclaimed Deposits – Gateway to Access inforMation), launched on August 17, 2023 to facilitate public searching of unclaimed deposits across multiple banks in one place, to 30 banks, covering around 90% of such unclaimed deposits (in value terms) in Depositor Education and Awareness (DEA) Fund. [5 Oct 2023]
IFSCA: Quarterly bulletin
The International Financial Services Centres Authority (IFSCA) has published its quarterly bulletin, covering the period April to June 2023. In addition to regulatory updates in various sectors, the bulletin discusses IFSCA’s FinTech engagements, including partnering with the GFIN for the Greenwashing TechSprint. [4 Oct 2023]
BSP: FSF commitment to a resilient, sustainable, and inclusive financial system
Bangko Sentral NG Pilipinas (BSP) has published an article outlining the Financial Sector Forum’s (FSF’s) commitment to intensify efforts in building a resilient, sustainable, and inclusive financial system through its ongoing work in the areas of (i) financial conglomerate supervision, (ii) sustainable finance, (iii) information exchange, (iv) financial technology, and (v) consumer protection and education. [5 Oct 2023]
Treasury: Joint Statement on the U.S.-UK Financial Regulatory Working Group
The Treasury has released the Joint Statement on the U.S.-UK Financial Regulatory Working Group, following the eighth meeting of the group on September 6 in Washington, D.C. The Working Group meeting focused on several key themes, including: economic and financial stability outlook; international banking issues; developments in the non-bank sector; climate-related financial risks and sustainable finance; international engagement; and digital finance.
Updates on recent developments in cryptoasset markets were shared, and avenues for future work and international engagement highlighted. Participants agreed on the importance of effective regulation and oversight of cryptoassets and markets, and reiterated their support for the international work on through the FSB and other international standard setting bodies.
Participants also briefly discussed U.S. and UK approaches to central bank digital currencies (CBDCs), digital payments, distributed ledger technology (DLT) and artificial intelligence (AI). The Working Group maintained the importance of comprehensive regulation in the area of digital finance, as well as its commitment to fostering responsible digital financial innovation, including through the parallel bilateral Financial Innovation Partnership, which brings together subject-matter experts for technical discussions that supplement discussions in the Working Group. [29 Sep 2023]
#Crypto #CBDCs #DLT #AI
NYDFS Superintendent provides update on virtual currency initiative & releases guidance for feedback
New York State Department of Financial Services (NYDFS) Superintendent Adrienne A. Harris has issued an update on an ongoing initiative to strengthen DFS oversight of virtual currencies, and released guidance for consultation. Designated as the VOLT initiative, this ongoing project has focused on enhancing NYDFS’s Vision, Operations, Leadership, and Technology in order to further cement its role as the leading regulator of virtual currency in the nation. In furtherance of this initiative, Superintendent Harris published proposed guidance which adopts enhanced criteria for coin-listing and delisting procedures, as well as updated guidance on the framework for designating coins or tokens to the NYDFS greenlist.
The proposed guidance is open for public feedback until October 20, 2023. [19 Sep 2023]
#VirtualCurrencies #VOLT #CoinListing