FinTech Global Regulatory Round-up - w/e 13 November 2020

The Financial Stability Board (FSB) has published the recordings of two virtual workshops:

• BigTech firms in emerging market and developing economies; and
• the use of supervisory and regulatory technology by authorities and regulated institutions. [12 Nov 2020]

#BigTech

#RegTech

#SupTech

#VirualCurrency

The Financial Stability Board (FSB) has published a discussion paper, for public consultation, entitled 'Regulatory and Supervisory Issues Relating to Outsourcing and Third-Party Relationships'. Drawing on a survey conducted by the FSB Standing Committee on Supervisory and Regulatory Cooperation, the paper highlights several issues and challenges relating to FIs' interactions and outsourcing arrangements with third parties. The paper does not propose any specific principles or standards; instead, it seeks to promote greater global dialogue among FIs, supervisory authorities and third parties.

Feedback is requested by 8 January 2021. Responses will be published on the FSB’s website unless expressly requested otherwise. [9 Nov 2020]

#Outsourcing

The Bank for International Settlements (BIS) has published a working paper entitled 'Inside the regulatory sandbox: effects on fintech funding'. The paper specifically analyses how entering the UK's FCA regulatory sandbox affects financial technology (FinTech) firms' ability to raise funding. The paper finds that entry into the sandbox is associated with a higher probability of raising funding and an increase of about 15 percent in the average amount of funding raised. [9 Nov 2020] 

#Sandbox

#FinTechFunding

The FCA has published CEO Nikhil Rathi's speech at the Mansion House. Mr Rathi noted that the industry and the FCA face significant issues and challenges in the coming months – including, but not limited to, Covid-19, the end of the Brexit transition period, and Libor transition. However, these immediate challenges should not divert attention from the long-running issues that are reshaping financial services, such as climate change, intergenerational differences, economic pressures, and technology.

Towards the end of his speech, Mr Rathi turned to the transformation of the FCA itself, noting that the programme was ambitious, ranging across culture, people and technology. He also particularly highlighted the FCA's continuing focus on diversity and inclusion both as an organisation and as a regulator. [13 Nov 2020]

#RegTech

#SupTech

VirtualCurrency

The FCA has published a speech on the end of the transition period and getting ready for a new environment delivered by its Executive Director of International, Nausicaa Delfas, at the UK's Regulatory Regime for Financial Services Summit. Amongst other things, Ms Delfas highlights:

• the need for continued preparations ahead of the UK's exit from the transition period;
• the aim to ensure the UK's regulatory approach to financial services remains effective and appropriate; and
• the intention to build on its global role outside the EU. [12 Nov 2020]

#SupTech

The FCA has published Primary Market Bulletin No 31, which covers:

• recent developments relating to the listings of cannabis-related businesses;
• updates on implementation of the European Single Electronic Format (ESEF);
• Covid-19-related temporary policy measures on corporate reporting;
• changes to the Prospectus Regulation;
• information on FCA's engagement with issuers in respect of continuing obligations under the Market Abuse Regulation (MAR), Listing Rules and Disclosure Guidance & Transparency Rules; and
• the rebranding of Sponsor Supervision to Primary Market Specialist Supervision.

The Bulletin also has links through to the FCA's reviews of corporate governance disclosures by listed issuers and delayed disclosure of inside information (DDII). With regard to the review of corporate governance disclosures by listed issuers, the FCA highlights both areas where disclosures could be improved and issues of particular concern. While in respect of DDII, the FCA says it has identified a number of areas where it will be increasing its oversight, including to raise awareness of DDII notification requirements and MAR in general. [11 Nov 2020]

#RegTech

HM treasury (HMT) has published an oral statement to Parliament made by Chancellor Rishi Sunak on 9 November 2020 regarding the future of the UK's financial services. The Chancellor set out plans to bolster the dynamism, openness and competitiveness of the sector, which include:

• issuing the UK's first ever Sovereign Green Bond;
• becoming the first country to make Task Force on Climate-related Financial Disclosures (TCFD) aligned disclosures mandatory;
• reviewing the UK's listing regime to attract firms; and
• leading the global conversation on new technologies like stablecoins and Central Bank Digital Currencies (CBDC).

The UK’s Joint Government-Regulator TCFD Taskforce has published an interim report and accompanying roadmap, which outlines the UK’s approach to implementing the recommendations of the TCFD and achieving the UK's expressed intention to make TCFD-aligned disclosures mandatory. [10 Nov 2020]

#CBDC

The European Banking Authority (EBA) has published a speech delivered by its Chair, Jose Manuel Campa, at the 2020 EBA Policy Research Workshop on the impacts, risks and opportunities of new technologies in the banking sector. Mr Campa underlined the importance of the application of new technologies in the banking sector in a period of increased experimentation and roll-out of new technologies across the EU financial sector, and immense technology-enabled change. [12 Nov 2020]

#Banking

VirtualCurrency

The EU Commission has published a regulation amending Delegated Regulation 241/2014 on own funds requirements for institutions under the Capital Requirements Regulation (CRR II), as regards the deduction of software assets from Common Equity Tier 1 (CET1) items.

The regulation will enter into force one day following its publication in the Official Journal of the EU (OJ). [12 Nov 2020]

ESMA has updated three statements which address the impact of Brexit on reporting under EMIR and the Securities Financing Transactions Regulation (SFTR) and the operation of ESMA databases and IT and data systems after the end of the transition period. [10 Nov 2020]

#IT

#DataSystems

The SFC has reprimanded and fined a licensed corporation HK$2.1 million for regulatory breaches relating to failures in its electronic trading systems.

The SFC’s investigation found that for a brief period of time on 28 February 2019, the licensed corporation submitted 16,935 erroneous market making quotes to the market, resulting in 8,042 stock option trades being executed at prices that deviated from the then prevailing market prices.  The cause of the incident was a logic error in the symbol mapping programme used by the licensed corporation’s exchange connectivity application for sending market making quotes.

The SFC considers that the licensed corporation’s internal controls (including regular testing) in place at the time had failed to prevent and promptly detect the errors, which constituted breaches of the electronic trading requirements and other requirements under the SFC’s main code of conduct.  [9 Nov 2020]

#ElectronicTrading

#Enforcement

VirtualCurrency

The Monetary Authority of Singapore (MAS) has announced the launch of a S$35 million Productivity Solutions Grant (PSG) for the financial services sector to help smaller financial institutions adopt digital solutions for more streamlined data reporting to MAS. The grant is currently applicable to banks and will be subsequently expanded to include insurers and capital market intermediaries.

The PSG will co-fund up to 30% of qualifying expenses for the adoption of digital solutions from the pre-approved managed service solution providers, capped at $250,000 per project for banks. Eligible banks can now apply for funding. [9 Nov 2020]

#DigitalSolutions

VirtualCurrency

MAS' Cyber Security Advisory Panel (CSAP) has stressed the need for financial institutions to review their security controls given the elevated technology-related risks arising from remote working and safe management measures due to Covid-19. At its fourth annual meeting with MAS management on 5 November 2020, the Panel shared its insights on cyber risks in the new operating environment and made several recommendations.

Key recommendations from the CSAP meeting include:

• reviewing risk profiles and adequacy of risk mitigating measures;
• maintaining oversight of third-party vendors and their controls; and
• strengthening governance over the use of open-source software (OSS). [10 Nov 2020]

#Cyber

MAS has announced the issue of a consultation paper on the types of information required for non-face-to-face verification of an individual’s identity. These proposed requirements come against the backdrop of rising impersonation scam cases, and seek to address the risks arising from theft and misuse of an individual’s personal particulars.

Under the proposed Notice, it would be mandatory for a financial institution to use at least one of the following types of information for non-face-to-face verification, through channels such as phone banking or online banking, before it undertakes any transactions or request from an individual:

• information that only the individual knows, such as password or PIN;
• information that only the individual has, such as one-time password generated by a hardware token issued to the individual or software token activated on the individual’s mobile device;
• information that uniquely identifies the individual, based on the individual’s biometrics, such as face or fingerprint recognition; or
• information that is only known between the individual and the financial institutions, such as account transaction information.

Feedback is requested by 9 December 2020. [10 Nov 2020]

#IdentityVerification

Singapore Exchange (SGX) has announced it is pioneering the use of SingPass to authorise, or sign, transactions that require a high level of security. SGX's Central Depository (CDP) began offering SingPass access including transaction signing from 26 October 2020 for its CDP Internet online services.

The introduction of SingPass is part of a larger plan to bring all CDP customers on-board CDP Internet in 2021. A total of 1.2 million CDP account holders will then be able to view their securities portfolio in real time. They will also have free access to 24 months of past account statements and 60 days of CDP notifications.

Enabling SingPass use for CDP internet marks further progress in SGX’s ‘CDP Goes Digital’ initiative. [9 Nov 2020]

#CentralDepository

The SEC has published a statement following recent publication of a no-action letter (NAL) by the Wyoming Division of Banking which included its views relating to the definition of ‘bank’ and ‘qualified custodian’ under the Investment Advisers Act of 1940 and Rule 206(4)-2 thereunder (the Custody Rule). The purpose of the SEC’s letter is to encourage interested parties to engage with SEC Staff directly on the application of the Custody Rule to digital assets, including with respect to the definition of ‘qualified custodian’. [9 Nov 2020]

#DigitalAssets

#VirtualCurrency

The Fed has published a literature review on central bank digital currencies (CBDCs). The review covers areas such as the effect on commercial banks, the implications for monetary policy and financial stability, and considerations for future research. [9 Nov 2020]

#CBDC

The OCC has published its Semiannual Risk Perspective for Fall 2020, in which it reports the key issues facing the federal banking system and the effects of Covid-19 on the industry. In particular, the report states that:

• credit risk is increasing as the downturn impacts customers’ ability to service debts;
• strategic risk is an emerging issue due to the historically low rate environment, potential credit stress and their effect on bank profitability;
• operational – and specifically cybersecurity – risk is elevated as institutions respond to new working environments and an evolving and complex operating environment;
• compliance risk is elevated as a result of a combination of changing working environments, and the requirement to quickly operationalize federal, state, and proprietary programs designed to support businesses and consumers. [9 Nov 2020]

#Cyber

The CFTC has announced that the US District Court for the District of Colorado has entered a judgement against a Colorado-based company and its manager for fraudulently soliciting and misappropriating funds from clients in a digital asset and foreign exchange (forex) Ponzi scheme.

The order requires the company and individual to pay:

• $450,302 in restitution to defrauded clients;
• a civil monetary penalty of $450,302; and
• the CFTC’s costs.

The defendants are also permanently enjoined from engaging in conduct that violates the Commodity Exchange Act (CEA) and CFTC regulations, as well as banned from registering with the CFTC and trading in any CFTC-regulated markets. [4 Nov 2020]

#DigitalAssets