FinTech Global Regulatory Round-up – w/e 30 April 2021

FCA consults on strengthening investor protections in SPACs

The FCA has published a consultation paper (CP21/10) on proposed changes to its Listing Rules for special purpose acquisition companies (SPACs). CP21/10 sets out the FCA's proposals to amend the rules to allow an alternative approach for listed SPACs that have structural features embedding important investor protections, and provide adequate disclosures to mitigate key risks for investors.

Currently a SPAC listing is typically suspended at the point it identifies an acquisition target. Suspension seeks to preserve market integrity during a period when limited information on a prospective deal could result in disorderly trading in a SPAC’s shares. However, suspension results in investors being locked into a SPAC at the point a target is announced, potentially for many months prior to completion. The FCA is proposing that SPACs that comply with higher levels of investor protection should not be subject to this requirement.

The proposals seek to encourage a wider range of SPAC listings, offer a better choice of investment opportunities, and alternative routes to public markets for private companies. Feedback is requested by 28 May 2021.

FCA consults on financial promotions rules for high risk investments

The FCA has published a discussion paper (DP21/) setting out its proposals to strengthen its financial promotion rules for high-risk investments (including, for example, shares or bonds bought through a crowdfunding platform and peer to peer loans) and for authorised firms which approve financial promotions. DP21/1 follows on from the FCA's Call for Input on Consumer Investment and also from recent interventions to address harm from high risk investments. The FCA is seeking views on the classification of high-risk investments, the segmentation of the high-risk investment market, and the responsibilities of firms which approve financial promotions. Feedback on the discussion paper is requested by 1 July 2021. In addition to this DP, the FCA plans to undertake testing of ideas informed by behavioural research. It will then consult on rule changes later this year.

Separately, the FCA will publish a full response to the Call for Input, together with the next steps of its wider consumer investment strategy, later in the year. Alongside this, the FCA will also publish the second summary of its work to tackle harm in the consumer investment market, covering activities up to the end of the financial year 2020/21. [29 Apr 2021]

#Crowdfunding

#Marketing

FCA insights from 2020 Cyber Coordination Groups

The FCA has published a broad overview and insight into the discussions held at its quarterly Cyber Coordination Group meetings. Among the topics of discussion were: various cyber threats and emerging trends including ransomware, denial of service attacks, cloud security, and artificial intelligence (AI); the challenges to cyber-security increased by Covid-19 and remote working; and supply chain security. [29 Apr 2021]

#AI

#Covid-19

FCA: Evaluation report on digital sandbox pilot

The FCA has published an evaluation report of the digital sandbox pilot. The report sets out the findings of the pilot, including how it accelerated the development of innovative products and solutions within financial services, as well as key lessons learned from the pilot phase. Among other things, the report finds that access to a digital testing environment successfully accelerated development times for the vast majority of participants, as well as benefiting other aspects such as improving product design and refining early-stage business models.

The FCA will be launching a second phase of the digital sandbox pilot focused on sustainable finance later in the year. [27 Apr 2021]

#Innovation

Statement on Kalifa Review

The Chancellor of the Exchequer, Rishi Sunak, has delivered a statement to both Houses of Parliament on HM Government's (HMG's) response to the Kalifa Review. The statement summarises the actions being taken in response to the Review’s recommendations. These include:

• the creation of a Centre for Finance, Innovation and Technology (CFIT) to accelerate growth in the FinTech sector;
• FCA-led development of a ‘regulatory scalebox’;
  in line with HMG's response to the Listing Review, the FCA will consult on reducing the 'free float' requirement and dual class share structures;
• the launch of a Central Bank Digital Currency (CBDC) Taskforce to coordinate the exploration of a potential UK CBDC;
• the additional of a FinTech cohort to the Department for International Trade's (DIT's) Export Academy Initiative and a new DIT Fintech Champions scheme; and
• a financial markets infrastructure (FMI) sandbox to facilitate exploration of technology solutions for settlement. [26 Apr 2021]

#RegulatorySandbox

#ListingReview

#CBDC

HMT: Answer to written question on cryptocurrencies

HM Treasury (HMT) has published its answer to a written question on cryptocurrencies. The question concerned the progress that has been made following HMG’s consultation on cryptocurrencies. The answer from HMT notes that HMG is reviewing responses to the consultation and will outline next steps in due course. HMG’s near-term priority is to ensure the framework supports the safe use of cryptocurrencies and it continues to monitor emerging risks in this area. [26 Apr 2021]

Draft Payment and Electronic Money Institution Insolvency Regulations 2021

The draft Payment and Electronic Money Institution Insolvency Regulations 2021 have been published (and accompanying explanatory memorandum). The draft Regulations create a new special administration regime for payment and electronic money institutions. [26 Apr 2021]

EIOPA discussion paper on blockchain and smart contracts

The European Insurance and Occupational Pensions Authority (EIOPA) has published a discussion paper on blockchain and smart contracts in insurance which aims to provide a high-level overview of risks and benefits of blockchain and smart contracts in insurance from a supervisory perspective, as well as to gather feedback from stakeholders.

Feedback is requested by 29 July. [21 Apr 2021]

#SmartContracts

APRA Chair Wayne Byres speaks to the Committee for the Economic Development of Australia

APRA Chair Mr Wayne Byres spoke to the Committee for the Economic Development of Australia. Mr Byres focused on three important issues that are critical to the financial sector’s long-term strength: climate-related risks; governance, culture, remuneration and accountability; and cyber security risks. On cyber security risks, Mr Byres emphasised the necessity of APRA working closely with other government bodies such as the Council of Financial Regulators (CFR) and the Department of Home Affairs. Moreover, APRA is working on a process of independent cyber security reviews across all APRA-regulated industries, and developing a cyber defence testing regime alongside the CFR.  [28 Apr 2021]

APRA approves a large Australian bank’s acquisition of an Australian smartbank

APRA has granted approval to a large Australian bank (under section 14(1)(a) of the Financial Sector (Shareholdings) Act 1998) to hold a 100% stake in an Australian smartbank (the Company) and its holding company. The approval is subject to the relevant scheme of arrangement between the Company and its members receiving court approval under Part 5.1 of the Corporations Act.  [28 Apr 2021]

HKMA publishes 2020 annual report

The HKMA has published its 2020 annual report, which contains an overview of the HKMA's key areas of work in 2020 and plans for 2021.

In particular, under the "Banking Stability" section, the HKMA sets out its work and/or plans regarding (among others):

• supervisory work, such as that in relation to credit risk, operation and technology risk, liquidity and market risk, smart banking, combating money laundering and terrorist financing, wealth management and MPF-related businesses;
• implementation of Basel standards in Hong Kong;
• improving the supervisory policy framework, including regulating over-the-counter derivative transactions and updating various guidelines and supervisory documents, such as those relating to recovery planning, liquidity risk, and group-wide supervision;
• operationalising the resolution regime for Hong Kong and contributing to international resolution policy development;
• promoting green and sustainable banking in Hong Kong;
• promoting consumer protection, financial inclusion and a sound bank culture;
• handling complaints, conducting investigations and collaborating with the SFC in respect of enforcement actions.

#SmartBanking

HKMA Deputy Chief Executive delivers speech on AML/CFT reflections and priorities

The HKMA has published a speech delivered by its Deputy Chief Executive, Mr Arthur Yuen, at the Association of Certified Anti-Money Laundering Specialists' 12^th Annual Anti-Money Laundering and Anti-Financial Crime Conference, APAC, on 26 April 2021.

Mr Yuen highlighted areas of development in anti-money laundering and counter-financing of terrorists (AML/CFT) upon his reflection of the previous three years since he last spoke at the event in 2018, in particular:

• Digital and online innovation have helped improved remote access to financial services, allowed financial institutions to protect their workforces through work-from-home arrangements, and provided data analytics to raise red flags on networks of Covid-19 fraud accounts.

Mr Yuen also discussed three priorities going forward:

• Adaptability in implementation of Financial Action Task Force Standards – Financial institutions should consider wider adoption of regulatory technology (regtech), as well as more efficient and effective AML/CFT measures;
• Adoption of AML/CFT regtech – The human element remains critical to identifying and developing the skills required to advance AML/CFT regtech adoption, while being supported by a culture and capacity of innovation;
• Information sharing in AML/CFT efforts – This is a key part of the response to the proliferation of online scams, including investment fraud.  The FMLIT is increasing the number of bank members from 10 to 15, and the HKMA is taking steps through thematic work to improve the industry's analytics capability, including the thematic review observations just published (see summary above).  [26 Apr 2021]

#RegTech

#AML/CFT

HKMA publishes materials for upcoming briefing to LegCo Panel on Financial Affairs on 3 May 2021

The HKMA has published presentation materials for its upcoming briefing to the Legislative Council (LegCo) Panel on Financial Affairs on 3 May 2021.  Updates are provided in various areas, such as:

Banking stability

• Basel regulatory standards – The HKMA is preparing legislative amendments to implement such standards, including amendments to the Banking (Capital) Rules and the Banking (Exposure Limits) Rules (slide 55).
• Anti-money laundering and counter-financing of terrorism – The HKMA has encouraged banks to refer to its report "AML/CFT Regtech: Case Studies and Insights" to determine the appropriate regtech adoption (slide 56).

Financial infrastructure

• Fintech – The HKMA has expanded the central bank digital currency research project, and launched cross-border resting with the Global Financial Innovation Network for trialling new technologies, products or business models in multiple jurisdictions (slide 66).
• Interest rate benchmark reforms – The HKMA will continue working with the Treasury Markets Association to promote the use of HONIA, and facilitate authorised institutions in preparing for LIBOR discontinuation (slide 69).

#CBDC

MAS announces RegTech grant scheme and enhanced DAG scheme

The Monetary Authority of Singapore (MAS) has announced a new Regulatory Technology (RegTech) grant scheme and an enhancement of the Digital Acceleration Grant (DAG) scheme to accelerate technology adoption in the financial sector. MAS will commit $42 million for the RegTech grant scheme and enhanced DAG scheme. The RegTech grant scheme, which is available to Singapore-based financial institutions (FIs), aims to promote the adoption and integration of technology solutions in the risk management and compliance functions of FIs.

The DAG was launched in April 2020 to help smaller FIs and FinTech firms adopt digital solutions to better cope with the impact of Covid-19, and to position themselves for recovery and growth. MAS received over 1,100 applications for the scheme. In view of this strong response, MAS will commit an additional S$30 million to the DAG till 31 December 2021. Eligibility for the DAG will be extended to life insurance and general insurance agencies that employ not more than 200 agents and employees. [30 Apr 2021]

#DigitalAccelerationGrant

Singapore & Thailand link real-time payment systems

The Monetary Authority of Singapore (MAS) and the Bank of Thailand (BoT) have launched the linkage of Singapore’s PayNow and Thailand’s PromptPay real-time retail payment systems. The first of its kind globally, the linkage is the culmination of several years of extensive collaboration between MAS and BoT, both countries’ payment system operators, bankers’ associations, and participating banks. Customers of participating banks in Singapore and Thailand will be able to transfer funds of up to S$1,000 or THB25,000 daily across the two countries, using just a mobile number. [29 Apr 2021]

#Innovation

MAS report on critical infrastructure for an inclusive digital economy

With opening remarks delivered by its Managing Director Mr Ravi Menon, MAS has launched a report on the foundational digital infrastructure necessary for an inclusive digital economy and seamless cross-border transactions around the world.

The report highlights four key pillars that underpin effective foundational digital infrastructures:

• Digital Identity to ensure authentication and validation of an individual’s identity, while protecting privacy and security of information;
• Authorisation and Consent to ensure transparent and secure digital transactions through authorised use of data and mechanisms for obtaining users’ consent;
• Payments Interoperability to ensure systems for clearing and settlement of payments between users are interoperable, for seamless domestic and cross-border transactions; and
• Data Exchange to enable users to make their data accessible to third parties for the benefit of the users, such as for payments, financial planning, and more.

MAS will engage other financial regulators, the financial industry, and the international technology community to advance work on foundational digital infrastructures. The next phase of the initiative will focus on building a consortium of countries who are keen to explore the digital infrastructure potential for cross-border use. [26 Apr 2021]

DoJ Announces that Massachusetts Man Pleads Guilty to Operating Nationwide Scheme to Steal Social Media Accounts and Cryptocurrency

A Massachusetts man pleaded guilty to conducting a scheme to take over victims’ social media accounts and steal hundreds of thousands of dollars in cryptocurrency.

According to court documents and statements made in connection with the plea proceeding the individual admitted that he and one or more co-conspirators targeted victims who appeared to have significant amounts of cryptocurrency and those who had high value or “OG” (slang for “original gangster”) social media account names. Using an illegal practice known as “SIM-swapping,” the individual and others conspired to hack into and take control of these victims’ online accounts to obtain things of value, including OG social media account names and cryptocurrency.

As alleged in the indictment, SIM-swapping attacks involve convincing a victim’s cellphone carrier to reassign the victim’s phone number from the SIM card (Subscriber Identity Module card) inside the victim’s cellphone to the SIM card inside a cellphone controlled by the cybercriminals. Cybercriminals then pose as the victim with an online account provider and request that the provider send account password-reset links or an authentication code to the SIM-swapped device now controlled by them. The cybercriminals can then reset the victim’s account log-in credentials and use those credentials to access the victim’s account without authorization, or “hack into” the account. [28 Apr 2021]

#CyberSecurity

#SocialMedia

A dual Russian-Swedish national was arrested at Los Angeles International Airport on criminal charges related to his alleged operation of the longest-running bitcoin money laundering service on the darknet.

According to court documents, the individual operated a cryptocurrency company since 2011. His company was the longest-running cryptocurrency “mixer,” gaining notoriety as a go-to money laundering service for criminals seeking to hide their illicit proceeds from law enforcement. Over the course of its decade-long operation, his company moved over 1.2 million bitcoin – valued at approximately $335 million at the time of the transactions. The bulk of this cryptocurrency came from darknet marketplaces and was tied to illegal narcotics, computer fraud and abuse activities, and identity theft.

The individual is charged by complaint with money laundering, operating an unlicensed money transmitting business, and money transmission without a license in the District of Columbia. [28 Apr 2021]

#MoneyLaundering