FinTech Global Regulatory Round-up – w/e 6 August 2021

CPMI work programme for 2021-22

The Committee on Payments and Market Infrastructures (CPMI) has published the work programme for 2021-22. The programme outlines the strategic priorities for monitoring and analysis, policy, and standard-setting and implementation activities, under two overarching themes:

• shaping the future of payments: this theme includes enhancing cross-border payments and addressing policy issues arising from digital innovations in payments (such as central bank digital currencies (CBDCs) and stablecoins), while monitoring changing trends in payments; and
• evaluating and addressing risks in financial market infrastructures (FMIs): this theme includes working on issues related to central clearing and others that emerged or were accentuated over the course of the Covid-19 pandemic. [5 Aug 2021]

#Stablecoins

#Payments

BIS FSI Insights Paper: Emerging regulatory expectations on use of AI in the financial sector

The Bank for International Settlements (BIS) has published a Financial Stability Institute (FSI) Insights Paper on emerging regulatory expectations for artificial intelligence (AI), in particular with regards to the emphasis on human responsibilities in order to prevent discrimination and other non-ethical decisions. [3 Aug 2021]

BIS: Bulletin on regulating big techs in finance

The BIS has published a bulletin on regulating big techs in finance. The bulletin looks at:

• the growth of big tech firms in the financial services sector;
• policy concerns such as financial risks, consumer protection and operational resilience; and
• the current framework for regulating financial services. [2 Aug 2021]

#BigTech

LSB: Next steps for the CRM Code to counter APP scams

The Lending Standards Board (LSB) has published a press release setting out ongoing and future work on the contingent reimbursement model code (CRM code) for authorised push payment (APP) scams. The press release refers to the updated version of the CRM code published in April 2021 as well as the call for input, the results of which are still being analysed. However, the responses so far suggest: that the risk of APP scams is not evenly distributed amongst payment providers; that the Code does not take account of more diverse business models; and that APP scams are evolving to use different mediums such as cryptocurrencies.

The LSB aims to publish a full report from the call for input in Autumn 2021. [5 Aug 2021]

#Cryptocurrencies

FCA Regulatory Sandbox Application guide

The FCA has published a guide to assist firms with the process of making a regulatory sandbox application. From August 2021, the sandbox moves to an 'always open' basis, rather than time-limited windows. [2 Aug 2021]

ESMA: Report to EC on use of fintech by CSDs

The European Securities and Markets Authority (ESMA) has published a report to the European Commission (EC) on the use of fintech by central securities depositories (CSDs). The report contains suggestions in a number of areas where further clarification could help CSDs in the deployment of distributed ledger technology (DLT). The report and its suggestions will inform the EC’s review of the Central Securities Depositories Regulation (CSDR). [6 Aug 2021]

#CSDs

ESMA/SMSG: EC's RfA on digital finance and related issues

ESMA's Securities and Markets Stakeholder Group (SMSG) has published a response to the EC's request for advice (RfA) on digital finance and related issues. The SMSG notes the following in its response:

• it welcomes the recent legislative proposals for the regulation of the digital finance sphere, including the Digital Finance package of September 2020 and the Digital Markets Act (DMA) of December 2020;
• the need for the EC to consider and adapt its proposals to avoid shortcomings, e.g. regarding consumer and data protection and the reconfiguration of the supply-side value chain;
• regulators and supervisors' assessment should be guided by the need to preserve the standards of consumer protection and data protection; and
• introducing regulatory safeguards to prevent the excessive concentration of market power, in particular with respect to digital platforms, in order to maintain competitive markets and preserve financial stability. [3 Aug 2021]

#DigitalMarketsAct

ESMA/EIOPA: Call for advice on the EU Retail Investment Strategy

ESMA has published the call for advice which it has received from the EC regarding the forthcoming EU Retail Investment Strategy. The EC has asked ESMA to provide advice on a number of areas, including:

• addressing and enhancing investor engagement with disclosures;
• drawing out the benefits of digital disclosures; and
• assessing the risks and opportunities presented by new digital tools and channels.

The EC has requested that ESMA deliver the advice by 30 April 2022.

A parallel call for advice has been sent to the European Insurance and Occupational Pensions Authority (EIOPA) which requests advice on similar, but not identical aspects regarding the protection of retail investors investing in insurance-based investment products (IBIPs). [2 Aug 2021]

#EURetailInvestmentStrategy

Joint Committee of the ESAs: Call for advice on PRIIPs Regulation

The Joint Committee of the European Supervisory Authorities (ESAs) has published the call for advice received from the EC regarding the Packaged Retail Insurance and Investment Products (PRIIPs) Regulation. The EC has asked the Joint Committee to provide advice on a number of areas, including the extent to which the PRIIPs Regulation is adapted to digital media.

The technical advice of the Joint Committee will serve as input to the EC’s work to develop the EU Retail Investment Strategy. The EC has requested that the Joint Committee deliver the advice by 30 April 2022. [2 Aug 2021]

#PRIIPs

MAS speech: The future of AML with AI and ML

MAS has published the keynote speech delivered by Ms Loo Siew Yee, Assistant Managing Director (Policy, Payments & Financial Crime) at the Wealth Management Institute (WMI) Industry Forum on the Future of Anti-Money Laundering (AML) with Artificial Intelligence (AI) and Machine Learning (ML). Ms Loo Siew Yee noted that MAS is keen to see financial institutions adopt data analytics in a manner that is commensurate with their risk profiles; she then proceeded to elaborate on three key data analytics elements:

• At the customer level – to know customers better, proactively detect and assess changes in customers’ risk profile in a dynamic fashion;
• At the network level – to identify and disrupt illicit fund flows between customers in a network, so taking a more holistic rather than a silo view of the customer’s behaviours and activities; and
• At the system level – to amplify the effectiveness of data analytics through close collaboration between the public and private sectors, as well as within the industry. [5 Aug 2021] 

#MachineLearning

#AML

MAS announces Singapore FinTech Festival 2021: Web 3.0

MAS has announced that the Singapore FinTech Festival (SFF) will take place from 8 to 12 November 2021, as a hybrid digital and physical event. Additionally, a company limited by guarantee will be incorporated to spearhead future growth of the SFF and lead a series of new initiatives to provide year-round engagement with the global FinTech community.

The theme for SFF 2021 is 'Web 3.0'. The conference will focus in particular on three key structural drivers that could re-shape financial services in the coming decade:

• re-configuration of financial products and services delivery through embedded finance, decentralised finance and digital currencies;
• integration of environment, social and governance (ESG) into the core design of financial services; and
• pervasive adoption of foundational digital infrastructure (Digital Identity, Trusted Data Exchange, Interoperable Payment Systems and Consent Systems).

The SFF 2021 will also organise deep-dive sessions that will brainstorm how Web 3.0 technologies can be harnessed for a more efficient financial intermediation, advance key objectives such as green finance and financial inclusion, and examine implications for financial regulation and supervision. [4 Aug 2021]

#DigitalIdentity

MAS and BIS Innovation Hub proposals: Global real-time retail payments network connectivity

MAS and the Bank for International Settlements Innovation Hub (BIS Innovation Hub) have published a proposed blueprint, Project Nexus, for enhancing global payments network connectivity via multilateral linkages of countries’ national retail payment systems.

The Nexus blueprint comprises two main elements:

• Nexus Gateways, to be developed and implemented by the operators of participating countries’ national payment systems, will serve to coordinate compliance, foreign exchange conversion, message translation and the sequencing of payments among all participants. These gateways will be predicated on a common set of technical standards, functionalities and operational guidelines set out within the proposal.
• An overarching Nexus Scheme that sets out the governance framework and rulebook for participating retail payment systems, banks and payment service providers to coordinate and effect cross-border payments through the network. [28 Jul 2021]

#Innovation

RBI framework for outsourcing of payment and settlement-related activities by PSOs

The RBI has released a framework for the outsourcing of payment and settlement-related activities by Payment System Operators (PSOs). PSOs must ensure that all of their outsourcing arrangements, including existing arrangements, are in compliance with the framework by 31 March 2022. [3 Aug 2021]

SECP: New office for FinTech innovation

The SECP has announced the launch of PhiliFintech Innovation Office (PIO), under its Corporate Governance and Finance Department (CGFD). The PIO will focus on the regulation of the use of financial technology in the Philippines. It will both facilitate the processing of registration for new FinTech companies, working with appropriate SECP departments, and serve as the first point of contact for existing FinTech companies. [30 Jul 2021]

SEC Charges Issuer for Conducting Fraudulent and Unregistered Digital Asset Security

The Securities and Exchange Commission (SEC) has announced settled charges against a company and two of its California-based founders for allegedly defrauding more than a thousand investors in an unregistered offering of digital asset securities that raised more than $9 million and against the founders for allegedly engaging in a second fraudulent offering of convertible notes.

The SEC's complaint alleges that, from December 2017 through to January 2019, the defendant sold tokens, which were allegedly to be used to record transactions in a financial application (app) that the defendant was developing and promoting to those without access to traditional banking services. According to the SEC's complaint, the defendants made materially false and misleading statements to investors throughout their offering of the company’s tokens about having patent pending technology that had been incorporated into their app and having a proprietary algorithm to assign credit scores to users of their app. The complaint further alleges that the defendants then made materially false and misleading statements about the company’s financial performance in the convertible notes offering. The SEC also alleges that the defendant did not register its offers and sales of the company’s tokens with the SEC. [4 Aug 2021]

DoJ Announces that a US Promoter of Foreign Cryptocurrency Companies Pleads Guilty for Role in Multimillion-Dollar Securities Fraud Scheme

The Department of Justice (DoJ) has announced that a California man pleaded guilty in the Eastern District of New York for his participation in a coordinated cryptocurrency and securities fraud scheme through purported digital currency platforms and foreign-based financial accounts.

As part of his guilty plea, the defendant admitted that he conspired with others to defraud investor victims by inducing them to invest in their companies, based on materially false and misleading representations. One company purported to be an online investment platform that provided cryptocurrency mining, trading and digital asset trading services. The other company was purportedly an “ecosystem” that would allow users to trade tokens, provide digital wallet staking and trade digital and fiat currencies “on a secure, comprehensive platform.” Both companies, however, were fraudulent. [3 Aug 2021] 

#DigitalAssetTrading

#TradeTokens