FinTech Global Regulatory Round-up – w/e 2 July 2021

FATF report on data pooling, collaborative analytics and data protection

The Financial Action Task Force (FATF) has published a stocktake of data pooling, collaborative analytics and data protection. FATF explains that data pooling and collaborative analytics can help financial institutions better understand, assess and mitigate money laundering and terrorist financing. The report considers:

• commercially available and emerging technologies that facilitate advanced anti-money laundering (AML) and counter-terrorist financing (CTF) analytics within regulated entities; and
• technologies that allow collaborative analytics between financial institutions (without breaching national and international data privacy and protection legal frameworks). [2 Jul 2021]

#Analytics

#AML/CTF

FATF report on opportunities and challenges of new technologies for AML/CFT

The FATF has published a report on opportunities and challenges of new technologies for AML and CTF. The report highlights the necessary conditions, policies and practices that need to be in place to successfully use these technologies to improve the efficiency and effectiveness of AML/CFT. The report also examines the obstacles that could stand in the way of successful implementation of new technology. [2 Jul 2021]

HMT: Roadmap on a new chapter for financial services

HMT has published a 'roadmap' entitled 'A new chapter for financial services' which sets out the progress being made and HM Government's (HMG) plans to ensure that the financial services sector remains competitive following the UK's exit from the EU. The policy paper sets out HMG's vision for the financial services sector, shaped by four key themes:

• an open and global financial hub;
• a sector at the forefront of technology and innovation;
• a world-leader in green finance; and
• a competitive marketplace promoting effective use of capital.

The roadmap was launched by Rishi Sunak, Chancellor of the Exchequer, in his Mansion House speech.

#Roadmap

#Innovation

UK and Singapore kickstart negotiations on digital trade agreement

The Department for International Trade (DIT) has announced the launch of negotiation on a new digital economy agreement (DEA) between the UK and Singapore. The agreement, if agreed, would be the first of its kind for a European country, and could remove barriers to digital trade. [28 Jun 2021]

#DigitalTradeAgreement 

EBA: Report on RegTech in the EU financial sector 

The European Banking Authority (EBA) has published a report on RegTech in the EU financial sector. The report assesses the overall benefits and challenges faced by financial institutions and RegTech providers in the use of RegTech. It also identifies potential risks arising from RegTech that supervisors will need to address and recommends actions to enhance knowledge and skills in competent authorities. [29 Jun 2021]

ASIC consults on crypto-asset based ETPs and other investment products

ASIC has released a consultation paper that seeks feedback on exchange-traded products (ETPs) and other investment products that provide retail investors with exposure to crypto-assets. The proposals set out in the consultation paper seek to establish best practice for market operators and product issuers when dealing with investments that are underpinned by crypto-assets.

Further, the proposals aim to align the novel features of crypto-assets with the existing obligations that market operators and product issuers hold under Australian financial services laws. Notably, the proposal looks to the obligations of Responsible Entities under Chapter 5C of the Corporations Act 2001 (Cth), focusing on custody, risk management, disclosure and design and distribution obligations.

Public consultation on this issue is being conducted in tandem with stakeholder discussions. Submissions are due by 27 July 2021.  [30 Jun 2021]

KMA publishes Regtech Adoption Index 2020

The HKMA has published its inaugural Regtech Adoption Index, which aims to create an objective measure of the current level of regtech adoption among banks in Hong Kong and the banks’ preparedness and intent to adopt regtech.

The HKMA collected data from 147 authorised institutions via an online survey and conducted 10 in-depth interviews with senior executives from banks and regtech solution providers.  The following are some of the key findings:

• Regtech adoption is at an early stage in the Hong Kong banking market with opportunities for further growth.  Most banks are using at least some form of regtech in their operations and are positive about the potential benefits of regtech.
• Many banks have started using regtech in the area of financial crime, but regtech is only employed in a low percentage of risk management and regulatory compliance activities.  It is expected that the breadth of regtech adoption will increase over the next 12 months, in particular in relation to conduct and customer protection, regulatory and tax reporting, and regulatory compliance obligations.
• Banks plan to significantly increase the headcount allocated to regtech over the next 12 months, but capital investments are likely to be gradual.
• The key benefits of regtech include improved customer experience and better quality and control combined with lower costs.
• The key barriers to regtech adoption include budget constraints, lack of awareness of the potential value of regtech solutions, challenges with integration with current technology systems and infrastructure, and low ecosystem participation.
• In terms of the regtech adoption index score, virtual banks are outperforming other banks, larger banks are ahead of smaller banks, and Hong Kong-headquartered banks are ahead of those headquartered outside of Hong Kong.

Three key actions that can be taken by banks today to set the foundation to becoming a leading regtech adopter are:

• developing a regtech strategy and assigning regtech leadership roles;
• fostering regtech expertise, such as having regtech-focused employees, providing them with structured training and hands-on experience, and increasing regtech awareness more broadly across the organisation;
• engaging with the regtech ecosystem, such as with peer banks and regtech experts.  [30 Jun 2021]

HKMA Chief Executive delivers speech on HKMA's four actions towards "Regtech 2025"

Mr Eddie Yue (Chief Executive of the HKMA) made opening remarks at the HKMA's "Unlocking the Power of Regtech" event on 30 June 2021.  As announced in its "Hong Kong Fintech 2025" strategy (see our previous update), the HKMA aims to encourage the application of innovative technology in the banking industry and regtech constitutes an integral and significant part of the promotion of Fintech.

Mr Yue set out four actions for the HKMA that are essential for transforming bank attitudes and practices towards "Regtech 2025":

• Understanding the regtech landscape evolution in Hong Kong: The HKMA's white paper on regtech published in November 2020 (see our previous update) provided a good starting point, supplemented by the Regtech Adoption Index which was launched recently (see item above).
• Raising regtech awareness among banks, particularly their awareness of the benefits, applications and solutions associated with regtech: The HKMA has published Regtech Watch newsletters since November 2019 to highlight the benefits of regtech through providing high-level sample use cases, which has recently been replaced by the newly launched Regtech Adoption Practice Guides (see our previous update).  The HKMA also plans to create a centralised regtech knowledge hub as a platform for sharing regtech information and content.
• Encouraging new and fit-for-purpose regtech solutions: The HKMA launched the Global Regtech Challenge in March 2021 (see our previous update) to resolve real-life pain points (the results were announced on 30 June 2021).  In addition, the Financial Services and the Treasury Bureau launched the Fintech Proof-of-Concept Subsidy Scheme in January 2021 to provide financial incentives to banks to adopt regtech solutions.  The HKMA is also developing various platforms such as the Commercial Data Exchange and iAM Smart.
• Expanding the regtech ecosystem, particularly the nurturing of talents: The HKMA is working on a regtech skills framework (to be translated into an Enhanced Competency Framework module) to incorporate regtech skillsets into a package that banks can adopt in ensuring that their staff are well equipped.  [30 Jun 2021]

HKMA Deputy Chief Executive delivers speech on benefits of regtech and four key takeaways in overcoming challenges associated with regtech adoption

Mr Arthur Yuen (Deputy Chief Executive of the HKMA) made closing remarks at the HKMA's "Unlocking the Power of Regtech" event on 30 June 2021.

Mr Yuen reiterated that the HKMA is prioritising the promotion of regtech adoption because it will bring significant benefits to the industry. In particular, regtech enables banks to:

• achieve higher quality risk management and compliance outcomes at lower costs and with less manpower;
• improve customer experience and satisfaction, for example by leveraging on alternative datasets to improve the loan application process and by enhancing the evaluation of product suitability;
• maintain operational resilience, which in turn benefits regulators by enabling them to manage the overall risks in the financial system.

Mr Yuen provided four key takeaways for banks to overcome the challenges associated with regtech adoption:

• Buy-in: Buy-in from a range of stakeholders is crucial, including from the leadership as well as middle management and operational staff at financial institutions;
• Data: Good quality data enables the use of regtech to build effective models and generate decision-making insights;
• Proper risk management: When navigating technologies and determining how to put regtech into use, it is essential that banks adopt a robust risk assessment framework to evaluate and manage the associated risks;
• Collaboration: Collaboration among different parts of the ecosystem is important, including with regtech solution providers and professional services providers such as technology firms and advisory firms, who will help bridge the gaps that banks may have in technical capability, people and skills.

The HKMA expects the demand for regtech solutions to continue to grow and it will provide more guidance to the industry via the Regtech Adoption Practice Guides, the regtech skills framework, and the regtech knowledge hub.  [30 Jun 2021]

Singapore and UK announce new Financial Partnership, MoU on cyber security cooperation

MAS has issued a press release regarding the UK and Singapore launching a new Financial Partnership at the sixth UK-Singapore Financial Dialogue that was held on 30 June. Under the Partnership, the UK and Singapore will explore opportunities for greater financial cooperation, including enhanced information sharing, closer cooperation in international fora, as well as regulatory deference, to drive new and broader opportunities for financial services trade and cooperation.

The two countries also announced an Memorandum of Understanding (MoU) to enhance bilateral cyber security cooperation, including the sharing of cyber-related information and supervisory best practices.

The Financial Dialogue discussed and agreed on the following areas of joint interest: regulatory cooperation; green finance and carbon markets; and FinTech and stablecoins.

The next Financial Dialogue is expected to take place in 2022. [30 Jun 2021]

#Stablecoins

MAS keynote – Data and technology for climate action

MAS has published the remarks of Managing Director Mr Ravi Menon at the COP26 Investor Action on Climate Webinar. Mr Menon spoke on issues relating to data, highlighting the role of data as a critical foundation for the green economy architecture the world needs to build. He identified a series of challenges relating to data acquisition, data provenance, data for monitoring commitments, and data for reporting, and noted that technology could be a 'game changer'. [29 Jun 2021]

#Innovation 

#GreenEconomy

Global CBDC Challenge announced

MAS has announced the launch of a global challenge for retail Central Bank Digital Currency (CBDC) solutions (Global CBDC Challenge). Launched in partnership with the International Monetary Fund (IMF), World Bank, Asian Development Bank, United Nations (UN) Capital Development Fund, UN High Commission for Refugees, UN Development Programme, and the Organisation for Economic Co-operation and Development (OECD), the Global CBDC Challenge seeks innovative retail CBDC solutions to enhance payment efficiencies and promote financial inclusion.

FinTech companies, financial institutions and solution providers around the world are invited to submit innovative solutions that can address 12 problem statements centred on three key areas: (i) CBDC Instrument; (ii) CBDC Distribution; and (iii) CBDC infrastructure.

Interested parties are encouraged to submit their applications for the Global CBDC Challenge here  by 23 July 2021. Finalists will pitch their solutions to a global audience on Demo Day to be held at the Singapore FinTech Festival which will take place from 8 – 12 November 2021.  [28 Jun 2021]

BNM receives 29 applications for digital banking licenses

The Bank Negara Malaysia (BNM) has announced that it has received 29 applications for a digital bank licence under the Financial Services Act 2013 and the Islamic Financial Services Act 2013, following a 6-month application period, which ended on 30 June 2021. Up to five licences may be issued and notification of successful applications will be made in the first quarter of 2022.  [2 Jul 2021]

SECT consultation – Digital capital markets and capital market supervision

The SECT has published for consultation proposed amendments to facilitate digital capital market and increase the efficiency of capital market supervision. Feedback is requested by 23 August 2021. [25 Jun 2021]

RBI: Guidelines for managing risk in outsourcing

The Reserve Bank of India (RBI) has issued guidelines for managing risk in outsourcing of financial services by co-operative banks. The RBI advises co-operative banks to conduct a self-assessment of their existing outsourcing arrangements and bring these into line with the guidelines within a period of six months from the date of issue the circular. [28 Jun 2021]