FinTech Global Regulatory Round-up – w/e 11 December 2020

#LEI

#GLEIF

#IdentityVerification

The Bank for International Settlements (BIS) has published report prepared by the Consultative Group on Innovation and the Digital Economy (CGIDE) on enabling open finance through APIs.

This is the first project undertaken by the CGIDE. It looks at technical issues surrounding the development of an identification and authentication API that could be used to implement privately and publicly administered open finance solutions with seamless scalability. In particular, it analyses an API architecture based on an authentication app for mobile phones developed and maintained by a central validator.

Comments on the report are requested by 31 January 2021. [8 Dec 2020]

#APIs

#OpenFinance

#MobileBanking

The International Monetary Fund (IMF) has published the remarks of Kristalina Georgieva , IMF Managing Director at the (Virtual) Conference on Financial Inclusion and Cybersecurity, co-hosted by the IMF, Carnegie Endowment for International Peace, World Bank, and the World Economic Forum (WEF). Ms Georgieva remarked that, 'cyber threats can have a grave impact on financial stability... And in threatening financial stability, cyber attacks can also deny people the benefits of financial inclusion'. She identified digital financial inclusion as a top priority during recovery from Covid. [10 Dec 2020]

#Covid19

#DigitalFinancialInclusion

The IMF has published a staff discussion note which examines the link between cyber risk and financial stability. [7 Dec 2020]

The Department for International Trade (DIT) has announced that the UK has signed continuity trade deals with Singapore and Vietnam. In particular, DIT highlights that the UK-Singapore deal secures benefits for UK financial technology (FinTech) firms, as Singapore has agreed to launch a review in 2021 to consider an increase in the limits imposed on e-wallet payments, which affect UK firms operating in Singapore; and discuss opportunities for UK firms to apply to become Digital Wholesale Banks in Singapore. This is in addition to additional customer services points permitted for UK retail banks already operating in Singapore as part of this agreement.

UK International Trade Secretary Liz Truss and Chan Chun Sing, Singaporean Minister for Trade and Industry, have also announced their intention to launch negotiations for a Digital Economy Agreement (DEA).

The UK-Singapore and UK-Vietnam joint statements have been published. [11 Dec 2020]

HM Treasury (HMT) has published a joint statement by UK Chancellor Rishi Sunak and the Brazilian Economy Minister Paulo Guedes from the fourth UK-Brazil Economic and Financial Dialogue (EFD). The ministers agreed a number of measures, including a commitment to enhance collaboration on asset management, fintech and Open Banking

Senior officials will meet to take stock in H1 2021, and the next EFD will be held in Brazil in 2021. [11 Dec 2020] 

#OpenBanking

The European Payments Council (EPC) has published its 2020 annual report on payment threats and fraud trends. It provides an overview of, and suggested controls and mitigations for, the most important threats and 'fraud enablers' in the payments landscape, including social engineering and phishing, malware, Advanced Persistent Threats (APTs), (Distributed) Denial of Service ((D)DoS), botnets and monetisation channels. [7 Dec 2020]

#APTs

#DDOS

#BigTech

#BigData

#Competition

#DigitalEU

On 14 December, the Council of Europe working party on financial services will meet to discuss the Proposal for a Regulation of the European Parliament and of the Council on markets in crypto-assets (MICA). [7 Dec 2020]

#Crytpoassets

#VirtualCurrencies

The European Securities and Markets Authority (ESMA) has published 2020 XBRL taxonomy files and an update to the Conformance Suite to facilitate implementation of the European Single Electronic Format (ESEF) Regulation. [7 Dec 2020]

#Reporting

The European Parliament has published a summary note of the 5th meeting of the FinTech Working Group which was held on 1 December 2020. The meeting focused on global stablecoins (GSCs); participants heard from Nouriel Roubini (Professor of Economics at New York University's Stern School of Business), Jörg Kukies (State Secretary at the German Federal Ministry of Finance) and Stuart Levey (CEO of Diem - former Libra- Association).

#CBDCs

#Cryptoassets

#VirtualCurrencies

The European Parliament has published a briefing prepared by its Think Tank entitled, 'Regulating digital gatekeepers: Background on the future of the digital markets act'. [8 Dec 2020]

#DataPortability

#Interoperability

CFR has announced that it has released a Cyber Operational Resilience Intelligence-led Exercises (CORIE) framework to test and demonstrate the cyber maturity and resilience of institutions within the Australian financial services industry. The CORIE framework has been developed to aid in preparation and execution of industry-wide cyber resilience exercises. One of the main aims of the CORIE framework is to provide data and reporting to inform relevant Australian regulators of systemic weaknesses that may present a risk to the integrity and stability of Australian financial markets. The framework is also designed to identify actions to uplift the cyber resilience of financial institutions. This will be achieved by using exercises that mimic the tactics, techniques and procedures of real-life adversaries, creating and utilising tools, and using techniques that may not have been anticipated and planned for. [8 Dec 2020]

#Cyber

#OpRes

The SFC has published additional guidance in the form of frequently asked questions (FAQs) on the use of external electronic data storage, in response to feedback from licensed corporations (LCs) and other stakeholders.

These FAQs follow the SFC’s 31 October 2019 circular (see our earlier update) setting out requirements for using external electronic data storage providers (EDSPs) to exclusively keep records or documents required to be kept under the Securities and Futures Ordinance (SFO) or the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Regulatory Records).

The 2019 circular requires LCs exclusively storing their Regulatory Records with EDSPs to provide the SFC with either a signed undertaking from the EDSP (for non-Hong Kong based EDSPs) or a notice issued by the LC to the EDSP (for Hong Kong based EDSPs).

The latest FAQs provide that as an alternative to the undertaking from the EDSP, the SFC will accept an undertaking from each of the two managers-in-charge (MICs) appointed for the purposes of the 2019 circular or (with the consent of the SFC) one MIC or one responsible officer, substantially in the form of the template in Appendix 1 to the FAQs (PDF / Word versions), subject to various conditions set out in Q10 of the FAQs.  LCs may also approach the SFC to propose or discuss other alternatives which may satisfy the SFC’s regulatory objectives and requirements.

Among other things, the FAQs also state that where any LC’s electronic Regulatory Records have been kept exclusively with an EDSP or an affiliate before the date of the FAQs (ie, 10 December 2020), without the SFC’s prior approval in writing under section 130 of the SFO, the LC should notify the SFC’s Licensing Department and apply for such approval as soon as practicable.  The SFC has made consequential changes to its FAQs on premises for business and record keeping which discusses the approval required under section 130.  [10 Dec 2020]

#EDSPs

The SFC has made available the following materials from the anti-money laundering and counter-financing of terrorism (AML/CFT) webinars which took place earlier this month (see our earlier update regarding the dates, rundown and speakers for the webinars):

• Update on major AML/CFT regulatory developments (delivered by the SFC), covering topics including:
  • international and Hong Kong AML/CFT regulatory developments (such as international focus on virtual assets, use of digital identity for customer due diligence and proposed legislative amendments);
  • counter financing of proliferation of weapons of mass destruction regime;
  • the SFC’s AML/CFT initiatives (such as money laundering and terrorist financing risk assessment of the Hong Kong securities sector, and consultation on proposed amendments to AML/CFT guidelines);
  • the SFC’s findings from inspections of AML/CFT controls and compliance practices.

• Suspicious transactions reporting overview and statistics (delivered by the Joint Financial Intelligence Unit (JFIU)), covering topics including:
  • the JFIU and its role;
  • key money laundering and terrorist financing-related legislation;
  • suspicious transactions reporting requirements, reporting procedures and statistics;
  • case studies.  [8 Dec 2020]

#CFT

#VirtualAssets

#DigitalIdentity

The Insurance Authority has made available materials from an online sharing session on 4 December 2020 regarding key observations of insurers’ anti-money laundering and counter-financing of terrorism (AML/CFT) control on virtual customer onboarding.

The session was delivered by the Insurance Authority’s Market Conduct Division and covered the following topics (among others):

• onboarding in a virtual world;
• key AML/CFT regulatory requirements (Anti-Money Laundering and Counter-Terrorist Financing Ordinance, guideline GL3 and circular of 5 August 2020);
• key AML/CFT considerations – expectations, good practices and alerts (AML/CFT risk assessment, additional measures for non-face-to-face channels, identity information, insurance premium collection, transaction monitoring, use of technology, straight-through process, and customer due diligence by insurance intermediaries);
• digital identity.  [7 Dec 2020]

#AML

#CFT

#CustomerOnboarding

#DigitalIdentity

The HKMA has published an inSight article, “A new trend for fintech - cross-border payment” by its Chief Executive, Mr Eddie Yue.

Mr Yue notes that although domestic payment services around the world have become highly digitalised, development in cross-border payment is lagging behind, and the global community is still short of good solutions to address well-known issues such as long processing time, high cost and low transparency.

The HKMA has been progressing on this front with various initiatives (among others):

• The HKMA has been proactive in building local financial infrastructure to provide a multi-currency, multi-dimensional platform that will link up our payment systems with those of the neighbouring regions and international systems to facilitate faster and safer cross-border payment.
• The HKMA launched a joint research project in 2019 with the Bank of Thailand to address cross-border payment issues by using central bank digital currencies (CBDCs) and a blockchain platform.  The research project has entered its second stage, including exploring specific business applications as well as the operability and scalability of the platform to allow the participation of three or more CBDCs.
• The HKMA will consider leveraging the Faster Payment System (FPS)’s advantages of around-the-clock operations and instantaneous payment to enhance cross-border bank remittance services so that corporate and personal account holders in Hong Kong can receive overseas remittances or remit money to destinations abroad more speedily. It is studying how to make use of the linkages with similar systems overseas to allow Hong Kong people to make payment directly through the FPS at overseas tourist hot spots.
• The HKMA and the Digital Currency Institute of People’s Bank of China (PBOC) are discussing the technical pilot testing of using e-CNY, the digital renminbi issued by the PBOC, for making cross-border payments, and are making relevant technical preparations.  [4 Dec 2020] 

#Cross-border

#FPS

#CBDCs

#Blockchain

MAS has launched the Singapore Financial Data Exchange (SGFinDex). SGFinDex is the first public digital infrastructure to use a national digital identity and a centrally managed online consent system to enable individuals to access, through applications, their financial information held across different government agencies and with participating financial institutions.  

In the next phase, individuals will be able to access information on their insurance policies and their stock holdings. [7 Dec 2020]

#SGFinDex

#DigitalInfrastructure

MAS has announced several initiatives to enhance financial cooperation between Singapore and China. The measures will build on existing areas of collaboration and are intended to facilitate financing and investment activities in support of a post-Covid-19 recovery in Singapore and China.

The initiatives include:

• RMB Cooperation: MAS recently launched a new RMB 25 billion initiative to enhance RMB market liquidity, through MAS’ money market operations.
• Cooperation between Singapore and Chinese exchanges:  MAS and the China Securities Regulatory Commission (CSRC) are facilitating efforts by Singapore and Chinese exchanges to collaborate in new areas such as exchange traded funds.
• Digital Finance: MAS and the People’s Bank of China will strengthen cooperation in digital finance to support tourism, trade and e-commerce.
• Green Finance: MAS will work with Chinese central and provincial counterparts to broaden cooperation in green finance. [8 Dec 2020]

#e-Commerce

The Reserve Bank of India (RBI) has announced that the per transaction limit for Additional Factor of Authentication for contactless card transactions will be increased to ₹ 5,000/-. The change shall come into effect from 1 January 2021. [4 Dec 2020]

#Contactless

In an effort to increase retail and non-institutional participation, SEBI has announced the phased introduction of a single login credential for e-voting for demat account holders via their demat accounts/websites of depositories.  [9 Dec 2020]

The  Securities and Exchange Commission (SEC) has adopted rules to modernize the infrastructure for the collection, consolidation, and dissemination of market data for exchange-listed national market system stocks (“NMS market data”).  The rules will expand the content of NMS market data and replace the historical “exclusive SIP” model with a decentralized model of “competing consolidators”. [9 Dec 2020]

#NMSMarketData

The CFTC approved amendments to CFTC Regulation Part 38 to address the potential risk of a designated contract market’s (DCM) trading platform experiencing a market disruption or system anomaly due to electronic trading. The final rules set out three principles applicable to DCMs concerning:

• the implementation of exchange rules applicable to market participants to prevent, detect, and mitigate market disruptions and system anomalies associated with electronic trading;
• the implementation of exchange-based pre-trade risk controls for all electronic orders; and
• prompt notification to Commission staff of any significant market disruptions on their electronic trading platforms.

and include acceptable practices, which provide that a DCM can comply with these principles by adopting and implementing rules and risk controls reasonably designed to prevent, detect, and mitigate market disruptions and system anomalies associated with electronic trading. [8 Dec 2020]

U.S. Treasury Secretary Steven T. Mnuchin hosted a discussion with Finance Ministers and Central Bank Governors from Canada, France, Germany, Italy, Japan, the United Kingdom, the European Commission, and the Eurogroup.  The heads of the IMF, World Bank, and Financial Stability Board (FSB) also attended.  The discussion covered:

• domestic and international economic responses underway and strategies to achieve a robust recovery throughout the global economy;
• ongoing responses to the evolving landscape of crypto assets and other digital assets and national authorities’ work to prevent their use for malign purposes and illicit activities.
• strong support across the G7 on the need to regulate digital currencies, and for the G7 joint statement on digital payments issued in October. [7 Dec 2020]

#DigitalAssets

#DigitalCurrencies

#Payments

Fed Governor Michelle Bowman gave a speech at the Independent Community Bankers of America ThinkTECH Policy Summit (virtual event) on 4 December discussing the quantum leap in the use of digital deposit, digital payments and online lending, and the importance of the adoption of digital banking services for historically underserved and disadvantaged communities.  She referred to the Fed’s plans to:

• publish a white paper early in 2021 that would document examples of community bank partnerships with fintech companies, outline effective practices for managing those arrangements, and seek to identify benefits and challenges of different approaches outlined;
• produce a vendor due diligence guide to assist banks in understanding, monitoring and mitigating risks associated with their third party vendors; and
• work with the Office of the Comptroller of the Currency and Federal Deposit Insurance Corporation to enhance and align interagency guidance for third-party risk management. [4 Dec 2020]

#Payments

#OnlineLending

#DigitalBanking

The SEC announced that its Strategic Hub for Innovation and Financial Technology, commonly referred to as FinHub, will become a stand-alone office focused on innovation and financial technology. Valerie A. Szczepanik will continue to lead FinHub as its first director and will report directly to the SEC Chairman. Designating FinHub as a stand-alone office strengthens the SEC's ability to continue fostering innovation in emerging technologies in its markets consistent with investor protection. The office will continue to lead the SEC's work to identify and analyze emerging financial technologies affecting the future of the securities industry, and engage with market participants, as technologies develop. [3 Dec 2020]