FinTech Global Regulatory Round-up – w/e 29 January 2021

The Financial Stability Board (FSB) has published the public responses it has received to the Regulatory and Supervisory Issues Relating to Outsourcing and Third Party Relationships Discussion Paper issued in November 2020.

#Outsourcing

#OpRes

The FCA has published Consultation Paper 21/3 (CP21/3) 'Changes to the SCA-RTS and to the guidance in "Payment Services and Electronic Money - Our Approach" and the Perimeter Guidance Manual', in which it proposes to:

• amend the technical standards on strong customer authentication (SCA) and common and secure methods of communication (SCA-RTS), having identified barriers to the success of open banking in the UK;
• amend the guidance in its Approach Document (AD) titled 'Payment Services and Electronic Money - Our Approach' including: changes to the guidance on SCA, safeguarding and prudential risk management and the FCA's expectations on notifications under the limited network and electronic communication exclusions; and
• amend its guidance in the Perimeter Guidance Manual (PERG).

Feedback to questions 5 and 6 relating to contactless payments is requested by 24 February 2021, and feedback to the remaining aspects of the consultation is requested by 30 April 2021. [28 Jan 2021]

#Payments

#EMoney

The FCA has published a new webpage providing an update on mortgages, consumer credit, banking and payments during Covid-19, which confirms the FCA's finalised guidance on repossessions for mortgages and consumer credit, and sets out the FCA's intention to consult on an increase in the limit for contactless payments. [27 Jan 2021]

#Contactless

The Payment Systems Regulator (PSR) has published the minutes of the FCA/PSR Access to Cash Steering Group and Working Group meetings that took place in November and December 2020, including the minutes of Working Group 4 which focuses on Digital Transition.

#Digital

The European Insurance and Occupational Pensions Authority (EIOPA) has published for consultation a Discussion Paper (DP) on open insurance, specifically in relation to access to and sharing of insurance-related data. Key areas of the DP include:

• open insurance definition and use cases;
• risks and benefits of open insurance;
• regulatory barriers; and
• possible areas to consider for a sound open insurance framework.

Feedback is requested by 28 April 2021. [28 Jan 2021]

The European Central Bank (ECB) has published its Single Supervisory Mechanism (SSM) supervisory priorities for 2021, which draw on an assessment of key risks and vulnerabilities in the banking sector. While the ECB highlights its four priority areas for 2021 as credit risk management, capital strength, business model sustainability, and governance, it also identifies cyber and digitalisation as areas of interest. [28 Jan 2021]

#Digitalisation

The European Central Bank (ECB) has published an Opinion on a proposal for a regulation on cross-border payments in the EU. The ECB generally welcomes the codification exercise set forth by the proposal, but suggests certain amendments regarding references to the euro foreign exchange reference rates issued by the ECB (ECBRRs). [26 Jan 2021]

The HKEX has issued a circular to inform stock exchange participants and holders of stock exchange trading rights that the SFC has approved amendments to the Rules of the Exchange to facilitate the inclusion of eligible A-shares listed on the Shanghai Stock Exchange (SSE) Sci-Tech Innovation Board (STAR Market) in Stock Connect.  This follows the announcement by HKEX that such inclusion will take effect on 1 February 2021 (see our previous update).  The rule amendments will come into effect on the same day.

The HKEX has also issued a circular to China Connect exchange participants regarding the details of an optional post release test on 30 January 2021.  [22 Jan 2021]

The HKMA has published presentation materials for its upcoming briefing to the Legislative Council (LegCo) Panel on Financial Affairs on 1 February 2021.  Updates are provided in various areas, such as:

• Banking stability:
  • Basel regulatory standards – The HKMA is making preparations to implement various standards through amendments to the Banking (Capital) Rules and Banking (Exposure Limits) Rules (slide 56).
  • Anti-money laundering and counter-financing of terrorism – Consultation is ongoing on the government’s proposals to introduce (among others) a licensing regime for virtual asset service providers and various technical amendments such as flexibility regarding measures in non-face-to-face situations (slide 57).
  • Resolution regime – The current legislative priority is the finalisation of rules requiring certain financial contracts to recognise any suspension of termination rights (slide 58).
  • Investor protection – Apart from issuing guidance relating to sale of financial products, the HKMA is collaborating with industry associations to introduce more than one credit reference agency in Hong Kong (slides 60-61).

• Financial infrastructure:
  • Fintech – The HKMA is progressing with various initiatives, such as a commercial data interchange, a research project on Central Bank Digital Currency, and a connection between eTradeConnect and the People’s Bank of China Trade Finance Platform (slide 68).
  • Interest rate benchmarks – The HKMA will continue to work with the Treasury Markets Association to promote the use of HONIA and has developed key milestones for the LIBOR transition (slide 71).

• Hong Kong as an international financial centre
  • Private equity – The limited partnership fund regime has been in operation since 31 August 2020 and the HKMA is working with the government to develop legislative proposal to enable foreign funds to re-domicile to Hong Kong (slide 77).
  • Green finance – The Green and Sustainable Finance Cross Agency Steering group launched its green and sustainable finance strategy for Hong Kong in December 2020.  In addition, the HKMA, a founding member and first regional anchor for the Asia Chapter of the Alliance for Green Commercial Banks, will work with the International Finance Corporation to jointly launch targeted initiatives in the region. (slides 78-79).  [25 Jan 2021]

#Data

#CBDC

#eTradeConnect

Bank Indonesia has issued BI Regulation No. 22/23/PBI/2020 on Payment System (in Indonesian language), an overarching regulation that seeks to implement a major overhaul of the payment licensing framework in Indonesia.  The regulation will use activity and risk-based approach instead of the previous institutional-based approach to classify and regulate companies in the payment sector.

Under the new regulation, Bank Indonesia will classify payment companies into two categories based on their activities:

• payment services providers (penyedia jasa pembayaran, PJP), covering: (i) provision of information on source of funds, (ii) initiation of payments and/or acquiring services, (iii) management of source of funds, and (iv) remittance services. There are three sub-categories under this category;
• payment system infrastructure operators (penyelenggara infrastruktur sistem pembayaran, PIP), covering clearing and settlement services.

PJPs and PIPs will also be classified into three categories based on the risk that their system failure or disruption may potentially cause to the payment system, ie, (i) systemic payment companies, (ii) critical payment companies, and (iii) general payment companies.

Another notable change introduced by this regulation relates to foreign shareholding limits. The regulation sets out two different tests that have to be satisfied, namely a total shareholding test and a control test.

This regulation will take effect on 1 July 2021.  Companies which are in the process of applying for a payment licence from Bank Indonesia will have to ensure compliance with this regulation.  As for existing licensed payment companies, Bank Indonesia will be converting their licences by 1 July 2021.  Such licensed payment companies will have to indicate whether they will be able to comply with the relevant capital, risk management, and information system capability requirements within two years. [29 Jan 21]

The Commodity Futures Trading Commission (CFTC) has filed a federal civil enforcement action in the US District Court for the Southern District of New York, charging an individual from New York with fraud for operating a Ponzi scheme involving digital assets such as bitcoin and ether. The individual allegedly solicited more than $5 million of investments from individuals. The CFTC is seeking restitution, disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act and CFTC regulations, as charged.

In a parallel criminal action, the individual has also been charged by federal criminal complaint in the US District Court for the Southern District of New York. [26 Jan 2021]

#DigitalAssets

#Crypto

The Financial Industry Regulatory Authority (FINRA) has released a podcast episode titled ‘Revolutionizing the Digital Experience: Form U4 and FINRA Gateway’, which focuses on recent changes introduced by FINRA in relation to registration and disclosure, specifically the FINRA Gateway and a new Form U4 filing experience. [26 Jan 2021]

#Disclosure

The New York Department of Financial Services (NYDFS) has announced additional details on its first-ever TechSprint, which will focus on digital regulatory reporting in the virtual currency industry. The TechSprint will be held virtually during the first two weeks of March 2021, opening on March 1 and culminating with Demo Day on March 12. [21 Jan 2021]

#DigitalReporting

#VirtualCurrencies