FinTech Global Regulatory Round-up – w/e 26 February 2021

The Financial Action Task Force (FATF) has published the outcomes of its February 2020 Plenary. The Plenary focused on various strategic initiatives and several country-specific processes such as improving risk-based supervision, mitigating the money laundering and terrorist financial risks of virtual assets, and strengthening the global networks. [26 Feb 2021]

#Cryptocurrencies

#AML/CTF

The Financial Stability Board (FSB) published a letter from its Chair, Randal K Quarles, to G20 finance ministers and central bank governors, ahead of their virtual meeting on 26 February 2021. The letter sets out the FSB's work programme for 2021. Among the areas of focus is improving the efficiency and accessibility of cross-border payments. The FSB intends to deliver a progress report in October on implementation of the roadmap to enhance cross-border payments, and will develop a final set of quantitative targets for making cross-border payments cheaper, faster, more transparent, and more inclusive. It will also update on regulatory and supervisory approaches to global 'stablecoins'. [25 Feb 2021]

#Stablecoins

The Bank for International Settlements (BIS) Innovation Hub and SWIFT have launched a new ISO 20022 hackathon where teams can build and showcase solutions that enhance cross-border payments, using the ISO 20022 standard for payments messages and application programming interfaces (APIs) using SWIFT's API sandbox.

Initial proposals are requested by 8 March, with 11/12 March as the kick-off session for successful applicants. The deadline for submission of solutions is 19 March, and the winners will be announced at the BIS Innovation Hub Summit on 23 - 25 March. [24 Feb 2021]

#Innovation

#Sandbox

The BIS Innovation Hub has announced that the Digital Currency Institute (DCI) of the People's Bank of China (PBC) and the Central Bank of the United Arab Emirates (CBUAE) have joined the Multiple CBDC (m-CBDC) Bridge, a central bank digital currency (CBDC) project for cross-border foreign currency payments.

The m-CBDC Bridge initiative is run in partnership with the BIS Innovation Hub (BISIH), the Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BoT). It will further explore the capabilities of distributed ledger technologies (DLT) by developing a proof-of-concept (PoC) prototype to support real-time cross-border foreign exchange payment-versus-payment transactions in multiple jurisdictions, operating 24/7. It will analyse business use cases in a cross-border context with both domestic and foreign currencies. [23 Feb 2021]

#m-CBDCBridge

#DLT

#Payments

The International Association of Insurance Supervisors (IAIS) has published its public roadmap for 2021 - 2022. The roadmap, which is guided by IAIS's Strategic Plan, outlines the projects that IAIS will undertake (or continue to undertake) over the next two years. Table 1 of the roadmap outlines the key projects and activities for 2020, whilst table 2 sets out the 2021 - 2022 roadmap projects. In terms of FinTech, the IAIS will continue to utilise its FinTech Forum (FF) to facilitate technical experts in supervisory authorities to share perspectives, challenges and developments with respect to FinTech. IAIS will also progress a FinTech Note on Outsourcing to Specialist Technology Providers. Work on conduct, culture and governance will also incorporate assessments of FinTech implications. [23 Feb 2021]

#Outsourcing

HM Treasury (HMT) has published the independent report (and accompanying executive summary document) on the UK FinTech sector by Ron Kalifa OBE. The report sets out three broad threats to the UK's FinTech sector: overseas competition, regulatory uncertainty due to Brexit, and increased time pressure due to Covid-19. The report's recommendations are set out by reference to a five point plan which requires increased focus on policy and regulation, skills development, investment, international collaboration, and national connectivity.

Please see our briefing here. [26 Feb 2021]

The FCA has announced the following senior appointments as part of its transformation programme set out in December 2020:

• Stephanie Cohen will become Chief Operating Officer (COO);
• Jessica Rusu will become the FCA's first Chief Data, Information and Intelligence Officer (CDIIO);
• Sarah Pritchard will become Executive Director, Markets; and
• Emily Shepperd will take up the newly created role of Executive Director, Authorisations. [25 Feb 2021]

#PeopleMoves

The Bank of England (BoE) has published its plan, titled 'Transforming data collection from the UK financial sector: a plan for 2021 and beyond', to improve its ability to collect data over the next decade. The BoE's vision is that it gets the data it needs to fulfil its mission at the lowest possible cost to industry. Three key reforms are central to achieving this, namely:

• defining and adopting common data standards;
• modernising reporting instructions; and
• integrating reporting

The PRA and FCA have also published the template version of a related 'Dear CEO' letter sent to regulated firms, and will hold a Town Hall on data collection for dual-regulated firms in late April 2021. [23 Feb 2021]

The European Securities and Markets Authority (ESMA) has launched a consultation on RTS on crowdfunding under the European Crowdfunding Service Providers Regulation (ECSPR). The draft RTS cover: complaint handling; conflicts of interest management; business continuity planning (BCP); authorisation; client information requirement; onboarding; and regulatory reporting.

Feedback is requested by 28 May 2021.The majority of the technical standards will be submitted to the EU Commission for adoption before 10 November 2021, although some will be delivered by 20 May 2022. [26 Feb 2021].

ESMA has issued its first questions and answers (Q&A) document in relation to the European crowdfunding service providers for business Regulation (ECSPR), clarifying in particular the use of Special Purpose Vehicles (SPVs) under the ECSPR. The ECSPR entered into force on 9 November 2020, and ESMA will release further related Q&As in due course. [25 Feb 2021]

The European Central Bank (ECB) opinion on a proposal for a Regulation on cross-border payments in the Union has been published in the Official Journal of the EU (OJ). The proposed Regulation would require payment service providers (PSPs) and parties providing currency conversion services to express the total currency conversion charges as a percentage mark-up over the latest available euro foreign exchange reference rates (ECBRRs) issued by the ECB. The ECB notes that the reference to the ECBRRs in the proposed regulation may create incentives for some market participants to trade at the ECBRRs. Therefore, the ECB recommends that the reference to the ECBRRs in the proposed Regulation is removed and replaced by a foreign exchange benchmark rate which falls within the scope of the EU Benchmarks Regulation and which may be used in the context of the currency conversion charges. [25 Feb 2021]

The EU Parliament has issued a press released following discussion of the Digital Services Act and the Digital Markets Act in two EU Parliament Committee meetings. European Commission Executive Vice-President Margrethe Vestager presented the legislative proposals saying that the goal is to create a single European rulebook to tackle various challenges currently faced with online platforms.

The debate in the Internal Market committee is available here and in the Economic and Monetary Affairs committee here (scroll to 17:50). [24 Feb 2021]

#DigitalMarketsAct

The European Securities and Markets Authority (ESMA) has published the statement delivered by Chair Steven Maijoor at the Committee on Economic and Monetary Affairs' (ECON) exchange of views in relation to GameStop share trading and related phenomena. Mr Maijoor focused on issues including investor protection, trading, market abuse, and post-trading processes. Mr Maijoor also said that the likelihood of similar events happening in the EU appears limited, especially because European short position levels are lower than in the US, and short positions have reduced markedly since the end of January 2021.

Mr Maijoor's statement follows on from an earlier statement on the investor protection-related issues of social media-driven share trading. [23 Feb 2021]

#RetailInvestment

#SocialMedia

The European Banking Authority (EBA) has published an Opinion on the supervisory actions national competent authorities (NCAs) should take to ensure that account servicing payment providers (ASPSPs) remove any remaining obstacles that prevent third party providers from accessing payment accounts, which restrict EU consumers' choice of payment services. The Opinion is intended to contribute to a level playing field across the EU and to a consistent application and supervision of relevant requirements under the Payment Services Directive (PSD2) and the EBA Regulatory Technical Standards (RTS) on strong consumer authentication and common and secure communication. The EBA expects NCAs to assess the progress made by ASPSPs in their jurisdictions and, where obstacles remain, NCAs should take supervisory actions by 30 April 2021. [22 Feb 2021]

The ECB has published an Opinion on a proposal for a regulation on markets in crypto-assets, also amending Directive 2019/1937. The ECB welcomes the European Commission's initiative to establish a harmonised framework at EU level for crypto-assets and related activities and services. However, the ECB believes that some aspects of the proposed regulation require adjustment and proposes specific amendments to the text. [22 Feb 2021]

#MiCA

The ECB has published its latest European System of Central Banks (ESCB) Legal Conference Book which contains a range of articles on regulatory topics. There is a chapter dedicated to discussion of CBDCs (from page 166) which features articles from authors at the ECB and the Banque de France. [22 Feb 2021]

#DLT

In his 2021-2022 budget speech, Hong Kong's Financial Secretary, Mr Paul Chan, set out his proposals for financial services, among other areas. Regarding Fintech, the Hong Kong Science and Technology Parks Corporation and Cyberport will collaborate with the HKMA to attract more financial, technology or research institutes to set up laboratories in Hong Kong, focusing on areas such as regulatory technology (RegTech) and cyber security, with a view to fostering the development of more novel financial products, and the HKMA is considering enhancing its Fintech Supervisory Sandbox by providing "through-train" vetting and funding arrangements for those promising FinTech solutions to reduce the time for the launch of innovative financial products.

The SFC has announced its support for the measures proposed by Mr Chan.  [24 Feb 2021]

#Cyber

#Sandbox

#Innovation

The Hong Kong Monetary Authority (HKMA) has signed a memorandum of understanding (MOU) with the Central Bank of the United Arab Emirates (CBUAE) to enhance collaboration on FinTech between the two authorities, with a view to strengthening co-operation between the two jurisdictions in promoting innovative financial services and regulatory development. Under the MOU, the two authorities have agreed that the CBUAE will join the multiple central bank digital currency (CBDC) bridge project collaboratively implemented by the HKMA, the Bank of Thailand, the Digital Currency Institute of the People’s Bank of China and the Bank for International Settlements Innovation Hub Centre in Hong Kong (more information below).  [23 Feb 2021]

#CBDC

The HKMA has announced the joining of the Central Bank of the United Arab Emirates (CBUAE) and the Digital Currency Institute of the People’s Bank of China (PBC DCI) to the second phase of Project Inthanon-LionRock, a central bank digital currency project for cross-border payments initiated by the HKMA and the Bank of Thailand. The multiple bank digital currency bridge (m-CBDC Bridge) project is supported by the Bank for International Settlements Innovation Hub Centre in Hong Kong.  The m-CBDC project aims to:

• further explore the capabilities of distributed ledger technology (DLT), through developing a proof-of-concept (POC) prototype, to facilitate real-time cross-border foreign exchange payment-versus-payment transactions in a multi-jurisdictional context and on a 24/7 basis;
• explore business use cases in a cross-border context using both domestic and foreign currencies;
• further foster a conducive environment for more central banks in Asia as well as other regions to jointly study the potential of DLT in enhancing the financial infrastructure for cross-border payments.

The main goal is to alleviate the pain points in cross-border fund transfers, such as inefficiencies, high cost and complex regulatory compliance. The participating central banks will take into account the results of the POC work to evaluate the feasibility of the m-CBDC Bridge project for cross-border fund transfers, international trade settlement and capital market transactions.  [23 Feb 2021]

#DLT

The Securities and Futures Commission (SFC) has published its quarterly report summarising its work and key developments from October to December 2020. These include, among other things, intermediaries related initiatives, such as previewing new electronic licensing functions on the WINGS platform, granting the first licence to a virtual asset trading platform in Hong Kong (for professional investors only), sharing of the findings of the SFC inspections of AML/CFT controls and compliance practices, including the roles and responsibilities of senior management in managing risks and ensuring compliance. [23 Feb 2021]

#VirtualAssets

OJK has published on its website OJK Circular Letter No. 6/SEOJK.05/2021  on Guidelines on the Implementation of Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) for Indonesian Peer-to-Peer Lending Platforms (in Indonesian language). The guideline provides detailed requirements in relation to implementation of AML/CTF by P2P lending platforms including the requirements to maintain AML/CTF policies and procedures on identification and verification of its customers and beneficial owner (KYC), data retention, and reporting obligations to the Indonesian Financial Transaction Reports and Analysis Centre (PPATK). The guidelines also require P2P lending platforms to submit several reports to OJK, which include, among others, periodic reports on customers data update and reports on amendments of AML/CTF policies and procedures.

The guidelines came into effect on 29 January 2021. [26 Feb 2021]

#AML/CTF

The Securities and Exchange Commission, Thailand (SECT) is seeking public comments on proposals on the qualifications of cryptocurrency investors and for a knowledge test to be conducted before providing digital asset investment services. SECT’s regulatory proposal aims to create an appropriate mechanism for investor protection suitable for the level of risk associated with the digital asset product. The public hearing ends on 27 March 2021. SECT will conduct a live talk on its Facebook page on 24 March 2021, 2pm – 4pm. [25 Feb 2021]

#RetailInvestment

The Department of Justice (DoJ) has announced that a Serbian individual has been charged in an indictment filed in the Eastern District of New York for his alleged participation in a coordinated cryptocurrency scheme in which he solicited US investors using two fraudulent online investment platforms. The individual has been charged with one count of conspiracy to commit securities fraud, one count of securities fraud, one count of conspiracy to commit wire fraud, and one count of conspiracy to commit money laundering. [23 Feb 2021]

#Crypto

The Securities and Exchange Commission (SEC) has published a speech titled “Atomic Trading” delivered by Commissioner Hester M Peirce to the George Washington University Law School Conference on Regulating the Digital Economy. Ms Peirce said that the SEC – along with other regulators – is still reviewing the recent market volatility regarding so-called “meme stocks” such as GameStop stock. Ms Peirce also described the challenges that the SEC faces as it decides whether and how to react to these events with new or modified regulations and, more generally, as it considers its role as a regulator of the digital economy. [22 Feb 2021]

#RetailInvestment

#SocialMedia

The DoJ has announced that three North Korean computer programmers have been charged with participating in a wide-ranging criminal conspiracy to conduct a series of cyberattacks; steal and extort more than $1.3 billion of money and cryptocurrency from financial institutions and companies; create and deploy multiple malicious cryptocurrency applications; and develop and fraudulently market a blockchain platform. The DoJ’s actions expand on a case brought by the Federal Bureau of Investigation (FBI) in 2018.

The individuals were members of units of the Reconnaissance General Bureau (RGB) – a military intelligence agency of the Democratic People’s Republic of Korea (DPRK) – which are known by several names in the cybersecurity community, including Lazarus Group and Advanced Persistent Threat 38 (APT38).

In another case unsealed on the same day, a Canadian-American citizen agreed to plead guilty in a money laundering scheme and admitted to being a high-level money launderer for multiple criminal schemes, including ATM “cash-out” operations and a cyber-enabled bank heist organised by North Korean hackers. [17 Feb 2021]

#FinancialCrime

#Crypto

The New York Attorney General (NY AG), Letitia James, has filed a lawsuit against a company that runs a virtual currency trading platform and the company’s CEO and Chief Operating Officer (COO), alleging that the defendants – through their mobile application and securities offerings – repeatedly violated New York’s Martin Act. To raise capital, the defendants allegedly unlawfully sold unregistered securities in the form of a digital token, while making material misrepresentations about their management team. Through their virtual currency based mobile application, the defendants allegedly unlawfully acted as unregistered commodities broker-dealers. The defendants also allegedly misrepresented the full extent of trading fees charged to investors. Ms James is seeking an order to, among other things, permanently enjoin the defendants from engaging in certain securities and commodities business within or from the State of New York, and appoint a receiver to wind down the platform’s operations, and recoup funds for investors. [17 Feb 2021]