FinTech Global Regulatory Round-up – w/e 9 July 2021

BIS: Report on CBDCs for cross-border payments

The Bank for International Settlements (BIS) has published a report on central bank digital currencies (CBDCs) for cross-border payments. The report considers how CBDCs could facilitate enhanced cross-border payments, and how practical efforts are taking these considerations forward. The report also highlights the need for multilateral collaboration on the macrofinancial consequences as well as the importance of interoperability between CBDCs. [9 Jul 2021] 

#CBDCs 

FATF: Report on review of revised standards on virtual assets and VASPs

The FATF has published a report on the review of its revised standards on virtual assets and virtual asset service providers (VASPs). The report considers how jurisdictions and the private sector have implemented the revised standards since the FATF’s first 12-month review. It also looks at changes in the typologies, risks and the market structure of the virtual assets sector. [5 & 6 Jul 2021]

#VASPs

FSI: Insight on fintech and payments

The Financial Stability Institute (FSI) of the Bank for International Settlements (BIS) has published an Insight entitled 'Fintech and payments: regulating digital payment services and e-money' and an accompanying executive summary. The Insight explores how non-bank payment service providers (NBPSPs) are regulated and provides a cross-country overview of the regulatory requirements for digital payment and e-money services offered by NBPSPs. [5 & 6 Jul 2021] 

#E-money

HMT: Joint Statement on India-UK Financial Markets Dialogue

HM Treasury (HMT) has published a joint statement on the first India-UK Financial Markets Dialogue. The Dialogue was established at the 10th Economic and Financial Dialogue (EFD) in October 2020 to deepen bilateral ties in the financial sector. The Dialogue began with a government discussion, which focused on four themes: Gujarat International Finance Tec (GIFT) City, India’s flagship international financial centre; banking and payments; insurance; and capital markets. Both sides agreed on areas for further collaboration, including sustainable finance and FinTech, with the aim of supporting increased UK industry presence in GIFT. [9 Jul 2021]

#FinTech

#GIFTcity

FCA: Insight on QITs in financial services

The FCA has published its latest Insight entitled 'A Quantum Leap for Financial Services'. The Insight discusses quantum information technologies (QITs), which refers to the fields of quantum computing and quantum communications that are developing computer technology based on principles of quantum mechanics and quantum information science. The Insight sets out QITs potential to revolutionise how financial firms and markets operate and to create unprecedented challenges to firms and policymakers. [7 Jul 2021]

#QITs

SFC and Canadian securities regulators enter into fintech cooperation agreement

The SFC has announced that it has entered into an agreement with eight members of the Canadian Securities Administrators (CSA) to establish a fintech cooperation network.

Under the Innovation Functions Cooperation Agreement, signed in June 2021, the SFC and the CSA members will collaborate on information sharing and referrals between their innovation functions (ie, dedicated functions established by the authorities to support innovation in financial services in their respective markets).

The CSA is an umbrella organisation of Canada's provincial and territorial securities regulators.  The CSA members who are signatories of the cooperation agreement are the Ontario Securities Commission, Autorité des marchés financiers (Québec), the British Columbia Securities Commission, the Alberta Securities Commission, the Financial and Consumer Affairs Authorities of Saskatchewan, the Manitoba Securities Commission, the Financial and Consumer Services Commission (New Brunswick), and the Nova Scotia Securities Commission.  [8 Jul 2021]

#Cooperation

HKEX to launch new platform to modernise IPO settlement process in fourth quarter of 2022 at the earliest following positive feedback 

The HKEX has announced that it will proceed with the introduction of the Fast Interface for New Issuance (FINI), a new platform to comprehensively streamline and digitalise Hong Kong's IPO settlement process. It expects FINI to be rolled out in the fourth quarter of 2022 at the earliest, to allow ample time for market readiness ahead of the launch.

The conclusions to the HKEX's concept paper on the introduction of FINI show overwhelming support for new platform (see our previous update on the concept paper).  The vast majority of the respondents agreed that FINI would benefit Hong Kong's IPO market by reducing market risk, increasing efficiency, modernising participants' interactions and laying a competitive digital foundation for Hong Kong's primary market infrastructure.

In light of the respondents' feedback on the concept paper, the HKEX will proceed with the development of FINI for handling all Hong Kong IPOs, with the initial adoption of a T+2 settlement cycle.  A T+3 or longer IPO settlement period will be possible upon advance request by issuers.  Hong Kong currently has a T+5 settlement cycle.

FINI will also address the issue of excessive liquidity lock-up in heavily oversubscribed IPOs, by allowing clearing participants to opt in for a compressed prefunding requirement in certain circumstances, which can release significant sums of liquid funds that would otherwise be locked up during the IPO subscription period.

The HKEX has also published a circular on the introduction of FINI, which includes a schedule of briefing session webinars to be held in July 2021 to enable CCASS participants and designated banks to better understand the FINI model.  An information pack (which contains frequently asked questions) as well as other information and materials on FINI are available on HKEX's dedicated FINI webpage.

Separate announcements and (where necessary) consultations with respect to the listing rules and other operational procedures will be published at a later stage.  [6 Jul 2021]

#IPOsettlement

MAS and Banque de France announce first use of automated market making in successful m-CBDC experiment

The Monetary Authority of Singapore (MAS) and the Banque de France (BdF) have announced the successful completion of a wholesale cross-border payment and settlement experiment using central bank digital currency (CBDC). The experiment simulated cross-border transactions involving multiple CBDCs (m-CBDC) on a common network between Singapore and France. MAS notes this is the first m-CBDC experiment to apply automated market making and liquidity management capabilities to reap cross-border payment and settlement efficiencies.

Cross border payments currently rely on correspondent bank arrangements that are subject to limited transparency on foreign exchange rates, restricted operating hours of payment infrastructures and currency settlement delays due to time-zone differences. To address these challenges, the experiment used a common m-CBDC network, aimed at facilitating cross border payments on a 24 x 7 real time basis.

The experiment simulated cross-border and cross-currency transactions for Singapore Dollar (SGD) CBDC and €uro (EUR) CBDC, and was conducted using a permissioned, privacy-enabled blockchain based on Quorum technology. The MAS notes that four key outcomes were achieved:

• Demonstration of interoperability across different types of cloud infrastructure. Blockchain nodes were set up across private and public cloud infrastructures in both countries;
• Design of a common m-CBDC network that enabled the two central banks to have visibility on cross border payments, while retaining independent control over the issuance and distribution of their own CBDC;
• Setup of an experimental m-CBDC network that incorporated automated liquidity pool and market-making service for EUR/ SGD currency pairs. The use of smart contracts automatically managed the EUR/ SGD currency exchange rate in line with real-time market transactions and demands; and
• Simulation of an experimental m-CBDC network that showed that the number of correspondent banking parties involved in the payment chain for cross-border transactions can be reduced, with consequent reduction in the number of contractual arrangements, the KYC (Know Your Customer) burden and associated costs.

Although the experiment was limited to two central banks, MAS notes that the design of the m-CBDC network would enable it to be scaled up to support the participation of multiple centrals banks and commercial banks located in different jurisdictions, with great potential to simplify integration and significantly improve cost efficiencies. [8 Jul 2021]

#MultipleCBDCs

#m-CBDC

SEBI Standard Operating Procedure for handling of technical glitches by market infrastructure institutions and payment of 'Financial Disincentives'

SEBI highlights the systemic importance of MIIs and their increasing dependence on technology, as the operations and functioning of MIIs are fully automated (right from order entry to order matching to trade confirmation leading up to clearing and settlement of trades). SEBI notes instances of technical glitches occurring at MIIs, leading to business disruption/ unavailability of services.

Accordingly SEBI has issued a Standard Operating Procedure for the handling of technical glitches by Market Infrastructure Institutions (MII) and the payment of 'Financial Disincentives'.

The Standard Operating Procedure specifies pre-defined thresholds for downtime of systems of MIIs, and to ensure that, for any downtime or unavailability of services beyond such pre-defined time, sets out a pre-defined penalty structure of 'Financial Disincentives' to be paid by the MII, and  the Managing Director (the executive head in-charge of all day-to-day operations) and Chief Technology Officer (the executive head in-charge of technology) of the MII. This aim is to encourage MIIs to constantly monitor the performance and efficiency of their systems and upgrade/ enhance their systems in order to avoid any possibility of technical glitches or disruption and to restart their operations expeditiously in the event of glitches. [5 Jul 2021]

SEC Obtains Settlement in Fraudulent and Unregistered ICO Case

The Securities and Exchange Commission (SEC) has announced that it obtained partial consent judgments against three individuals and an entity previously charged with defrauding investors in a fraudulent and unregistered initial coin offering (ICO) that raised more than $1.8 million from thousands of investors. According to the SEC's complaint, filed in April 2020, from at least January to March 2018, the company sold tokens, claiming that investor funds received for those tokens would be pooled to trade various digital assets by a "trading bot." Instead of using investor money to trade with the trading bot, however, the company allegedly diverted the funds raised to other projects and to the founders' personal digital asset and bank accounts. The company also allegedly took actions to give the false appearance that the trading bot was operational and profitable and misrepresented the volume and dollar amount of the tokens sold both during and after the ICO. The complaint also alleged that during the SEC's investigation, the company produced falsified evidence and testimony. [2 Jul 2021]

#TradingBot