FinTech Global Regulatory Round-up – w/e 16 July 2021

GFXC: Outcomes from review of FX Global Code

The Global Foreign Exchange Committee (GFXC) has published the outcomes of the 3-year review of the FX Global Code (the Code) and an updated version of the Code. The outcomes document sets out the updates to eleven of the Code's fifty-five principles. The updates to the Code aim to strengthen the guidance on anonymous trading, algorithmic trading and transaction cost analysis, disclosures and settlement risk. [15 Jul 2021]

BIS research: FinTech and digital transformation – market structure and public policy

The Bank for International Settlements (BIS) has published research which draws on the underlying economics of financial services and their industrial organisation to examine – with recent empirical evidence – the implications of digital innovation for market structure and attendant policies, including financial and competition regulation. The paper identifies a need for coordination between financial regulators, competition authorities, and industry regulatory bodies to manage trade-offs between stability and integrity, competition and efficiency, and consumer protection and privacy. [14 Jul 2021]

G20 Finance Ministers and Central Bank Governors Communiqué

The G20 Finance Ministers have published a Communiqué outlining the result of their discussions after their third official meeting under the Italian G20 Presidency on 9 and 10 July 2021. Topics discussed at the meeting included digital transformation and work on the G20 Sustainable Finance Working Group (SFWG) which will present a multi-year G20 Roadmap for sustainable finance to G20 Finance Ministers and Central Bank Governors at their October meeting. Cross-border payments, global stablecoins and financial inclusion were also discussed, amongst other topics, at the meeting. [12 Jul 2021] 

#GlobalStablecoins

DCMS publishes Digital Regulation plan for feedback

The Department for Digital, Culture, Media & Sport (DCMS) has published a policy paper setting out HM Government's (HMG's) plan for digital regulation. The paper sets out three guiding principles for the development of digital regulation: active promotion of innovation; achievement of forward-looking and coherent outcomes; and exploitation of opportunities in and addressing challenges in the international arena.

Feedback on the paper is requested by 28 September 2021. The annex to the plan provides a timeline of key forthcoming digital regulation activity over the next 12 months, which is drawn from the broader overview of HMG's activity. [16 Jul 2021]

TSC: Responses to Net Zero and Future of Green Finance report

The House of Commons Treasury Committee (TSC) has published responses from the FCA, Bank of England (BoE) and HM Treasury to the Committee's thirteenth report of Session 2019–21, Net Zero and the Future of Green Finance. The responses address a number of the TSC recommendation, including that the FCA consider undertaking further 'green fintech challenges' to leverage innovation. [16 Jul 2021]

FCA: Business Plan 2021/22

The FCA has published its Business Plan for 2021/22. The Business Plan sets out the FCA's priorities for 2021/22. In particular, the FCA will focus on:

• delivering for consumers by continuing to take forward the priorities from last year’s Business Plan, as well as the new consumer duty;
• enhancing market integrity by reinforcing the effectiveness of UK wholesale markets and enhancing its supervisory approach to specific issues; and
• important cross-market issues which include fraud, financial resilience, operational resilience, improving diversity and inclusion, enabling a more sustainable financial future, and international cooperation.

The FCA has also published a speech by Nikhil Rathi, CEO, delivered at the Business Plan webinar. In his speech, Mr Rathi spoke about the FCA's commitment to being more:

• innovative by taking advantage of data and technology to increase its ability to act decisively in the interests of consumers;
• assertive by testing the limits of its powers;
• adaptive by working flexibly to respond to ever-changing challenges; and
• clear when measuring success by highlighting what outcomes matter and what metrics are used to measure them. [15 Jul 2021]

#Innovation

#Data

PSR: Annual Report and Accounts 2020/21

The Payment Systems Regulator (PSR) has published its Annual Report and Accounts for 2020/21, which sets out its achievements over the past year. The PSR has also published an accompanying factsheet which highlights some of the key aspects of the Annual Report. [15 Jul 2021]

CLLS response to FCA DP on strengthening financial promotion rules for high-risk investments and firms approving financial promotions

The City of London Law Society (CLLS) has published a response to the FCA's Discussion Paper (DP 21/1) on strengthening financial promotion rules for high-risk investments and firms approving financial promotions. The CLLS makes a number of observations, including with regard to the complexity of the financial promotions regime for high-risk investments, and recommends a wider review of the regime. [14 Jul 2021]

FCA: Tackling online harm - financial promotions

The FCA has published a letter from Nikhil Rathi, Chief Executive, to Stephen Timms, Chair of the House of Commons' Work and Pensions Committee, on tackling online harm, including fraud, in the context of financial promotions. The letter sets out:

• the changes to financial promotion restrictions under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 as a result of Brexit;
• the FCA's powers to tackle online fraud and enforcement considerations in respect of online platforms;
• the powers that the FCA would like to see included within the Online Safety Bill; and
• the FCA's ScamSmart pension fraud campaign. [13 Jul 2021]

#SocialMedia

UK signs free trade deal with Norway, Iceland and Liechtenstein

The Department for International Trade (DFIT) has published a press release outlining the contents of a free trade deal between the UK, Norway, Iceland and Liechtenstein. The agreement will enable "innovative FinTech firms [...] to provide financial services into Norway, Iceland and Liechtenstein, without having to provide that service elsewhere first". [12 Jul 2021]

#Innovation

EBA: CP on draft guidelines on the limited network exclusion under PSD2

The European Banking Authority (EBA) has published a consultation on draft guidelines on the limited network exclusion under the revised Payment Services Directive (PSD2). To address significant inconsistencies on how the limited network exclusion is applied across the EU, the EBA proposes to issue own-initiative guidelines to clarify specific aspects of the application of the exclusion, including:

• how a network of service providers or a range of goods and services should be assessed in order to qualify as ‘limited’;
• the use of payment instruments within limited networks;
• the provision of excluded services by regulated financial institutions; and
• the submission of notification to competent authorities.

Feedback is requested by 15 October 2021. [15 Jul 2021]

ECB launches digital euro project

The European Central Bank (ECB) has launched the investigation phase of a digital euro project. The investigation phase will last 24 months and aim to address key issues regarding design and distribution. During the project’s investigation phase, the eurosystem will focus on a possible functional design that is based on users’ needs. It will involve focus groups, prototyping and conceptual work. The project will also shed light on the changes to the EU legislative framework which might be needed and that will be discussed with, and decided by, European co-legislators. Finally, the investigation phase will assess the possible impact of a digital euro on the market, identifying the design options to ensure privacy and avoid risks for euro area citizens, intermediaries and the overall economy. It will also define a business model for supervised intermediaries within the digital euro ecosystem. [14 Jul 2021]

#CBDC

EFRAG discussion paper on cryptoassets

The European Financial Reporting Advisory Group (EFRAG) has published a discussion paper on accounting treatment of cryptoassets in the context of International Financial Reporting Standards (IFRS). Feedback to the discussion paper is requested by 31 July 2021. [14 Jul 2021]

#Accounting

ECB: Report: Annual report on the outcome of the 2020 SREP IT Risk Questionnaire

The ECB has published its annual assessment of IT and cyber risk as part of the Supervisory Review and Evaluation Process (SREP). Observations presented in the report are based on data from the end of 2019, i.e., prior to the pandemic. [12 Jul 2021]

HKMA Deputy Chief Executive publishes inSight article on new personal credit products by virtual banks and importance of ensuring customer protection

The Deputy Chief Executive of the HKMA, Mr Arthur Yuen, has published an inSight article regarding the new personal credit products offered by virtual banks and the importance of ensuring customer protection.

Mr Yuen noted that all eight virtual banks in Hong Kong have commenced operation and are offering new products which lead to a new and different customer experiences.  Some of these products include deposit-linked personal loan products, salary-linked personal loan products and new modes of instalment payments for card spending. Mr Yuen notes that there are also some “buy now pay later (by instalments)” services which may not necessarily be regulated and reminds customers to consider whether these platforms provide adequate protection when using such services.

Given that it may take more time for customers to understand the features of the new innovative products, the HKMA requests banks to consider the needs of their customers when designing such products.  Banks should make clear disclosure of the product features and risks and inform customers of the applicable terms and conditions, such as the relevant loan interest rates and the consequences of failing to make loan repayment.  Banks must continue to uphold the principles of customer-centric services and treat customers fairly.

Mr Yuen also reminds virtual banks to comply with the HKMA's circular of 4 September 2020 on enhanced disclosure measures in respect of digital platforms for the application of unsecured loan and credit card products (see our previous update). [12 Jul 2021]

MAS launches global challenges to accelerate innovation in responsible AI solutions

MAS has announced the launch of the inaugural Global Veritas Challenge. The competition seeks to accelerate the development of solutions which validate artificial intelligence and data analytics (AIDA) solutions against the fairness, ethics, accountability and transparency (FEAT) principles, to strengthen trust and promote greater adoption of AI solutions in the financial sector.

FinTech firms, solution providers and financial institutions are invited MAS to submit innovative solutions to address eight problem statements which focus on validating the fairness of AI solutions for selected banking use cases in: product marketing; risk, compliance and fraud monitoring; loan origination and know-your-customer; and credit scoring and profiling.

Applications are requested by 30 July 2021. [12 Jul 2021]

#DataAnalytics

#AIDA

BOT and SECT advise caution on use of digital assets

Both the BOT and the Securities and Exchange Commission, Thailand (SECT) have issued releases advising caution with regard to the use of digital assets.

The BOT release explains that it does not support the use of digital assets as a means of payment.  However, the BOT recognises the importance of financial innovation and applications towards enhancing the efficiency of payment systems to support economic activities and will continue to ensure that the public receives the full benefits of innovative developments. Currently, the BOT is developing a central bank digital currency (CBDC), as well as forming policy guidelines to regulate fiat-backed or other forms of stablecoins to provide more reliable digital payment channels for all.

The SECT release is addressed to public and listed companies and urges companies to be cautious, and to ensure compliance with relevant law and regulation. [8 Jul 2021]

SEC: Greek national charged with selling “insider trading tips” on the Dark Web

The Securities and Exchange Commission (SEC) has charged a Greek national with perpetrating a fraudulent scheme to sell what he called “insider trading tips” on the Dark Web. According to the SEC’s complaint, from at least December 2016 through to early 2021, the defendant engaged in a deceptive scheme to offer and sell so-called “insider trading tips” on Dark Web marketplaces to purchasers whom the defendant offered an unfair advantage for trading securities in the public markets. As alleged in the complaint, the defendant claimed that the information he was selling consisted of order-book data from a securities trading firm that was provided to the defendant by an employee of the firm. The defendant allegedly sold those “tips” through one-off sales, as well as weekly and monthly subscriptions. The defendant allegedly sold over 100 subscriptions to investors via the Dark Web over the course of the scheme. The complaint alleges that, in addition to order-book information, the defendant sold the pre-release earnings reports of publicly traded companies. The complaint further alleges that the defendant acknowledged to federal authorities that this information was “sensitive and more importantly illegal to use or share.” The SEC’s complaint charges the defendant with violating the antifraud provisions of the federal securities laws. The complaint seeks injunctive relief, disgorgement, prejudgment interest and penalties against the defendant. [9 Jul 2021]

#InsiderTrading

SEC: Three Individuals charged with insider trading

The SEC has charged three individuals with insider trading in advance of an announcement by a large beverage corporation that it was going to “pivot” from its existing beverage business to blockchain technology, which caused the company’s stock price to soar. According to the SEC’s complaint, an undisclosed control person of the company who helped drive this business change within the company and signed a confidentiality agreement not to disclose the company’s business plans, tipped his friend and broker of such plans, including by sharing with him a draft of the company’s press release. The broker, in turn, allegedly passed the material non-public information on to a third party. Within hours of receiving this confidential information, the third party purchased 35,000 shares of the company’s stock. According to the complaint, the company’s stock price skyrocketed after the press release was issued, spiking more than 380% intraday. Within two hours of the announcement, the third party sold his shares for over $160,000 in illicit profits. The SEC’s complaint charges the defendants with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and seeks permanent injunctions and civil penalties as to all defendants, and, additionally, an officer and director bar as to one defendant in particular. [9 Jul 2021]

CFTC: Permanent ban and penalty against foreign trading platform

The Commodity Futures Trading Commission (CFTC) has announced that the US District Court for the Southern District of Texas entered a default judgment against a foreign trading platform based in St. Vincent and the Grenadines. The order imposes permanent trading, solicitation, and registration bans to restrict the platform from entering into transactions involving commodity interests and prohibits it from violating provisions of the Commodity Exchange Act, as charged. The order also requires the defendant to pay a civil monetary penalty of $374,864. The order stems from a CFTC complaint filed on 24 September 2020, that charged the platform with engaging in illegal, off-exchange transactions in Ether, Litecoin and Bitcoin, in addition to precious metals and foreign currency, with retail customers on a leveraged, margined, or financed basis and acting as a futures commission merchant (FCM) without CFTC registration as required. The order finds that from at least March 2018 through to the present, the platform offered or engaged in unlawful retail commodity transactions in Ether, Litecoin, Bitcoin, gold, and silver. The defendant violated the Commodity Exchange Act by failing to conduct these transactions subject to the rules of a board of trade that had been designated or registered with the CFTC as a contract market. The order further finds that the platform, through its employees and agents, acted as an FCM by soliciting or accepting orders for retail commodity and foreign currency transactions and acting as a counterparty for these transactions; and in connection with these activities, it accepted money, securities, or property (or extended credit in lieu thereof) in the form of Bitcoin and other assets to margin trades or contracts that resulted or may have resulted. [9 Jul 2021]

DoJ: Cryptocurrency fraudster sentenced in money laundering and securities fraud

The Department of Justice (DoJ) has announced that a Swedish man was sentenced to 15 years in prison for securities fraud, wire fraud and money laundering charges that defrauded thousands of victims of more than $16 million. According to court documents, the defendant ran an investment fraud scheme from 2011 until his arrest in Thailand in June 2019. The defendant induced victims to purchase shares in a scheme using cryptocurrency such as Bitcoin and other online payment platforms. The defendant promised victims astronomical returns tied to the price of gold. Instead, the funds provided by victims were transferred to the defendant’s personal bank accounts, and he then used proceeds to purchase expensive homes, a racehorse and a resort in Thailand. The defendant’s fraud targeted financially insecure investors, causing severe financial hardship for many of them. Meanwhile, the defendant went to great lengths to prolong his scheme, including rebranding, offering updates and account statements that provided assurances to the victims of the states of their assets, and offering explanations for the payout delays – including falsely claiming to be working with the SEC. As part of the sentence, the defendant was also ordered to forfeit a Thai resort and various other properties and accounts, and issued a money judgment in the amount of $16,263,820. The United States is seeking restitution on behalf of the defendant’s victims. [8 Jul 2021]