FinTech Global Regulatory Round-up – w/e 24 September 2021

OECD: Business and Finance Outlook 2021 - AI

The Organisation for Economic Co-operation and Development (OECD) has published its Business and Finance Outlook 2021 (and an accompanying executive summary) which looks at artificial intelligence (AI). The outlook highlights that investment in AI finance is on the rise and that governments, financial regulators, and firms should step up their efforts to address the challenges of developing and deploying trustworthy AI in the financial sector. [24 Sep 2021]

BCBS calls for improved cyber resilience, reviews climate-related financial risks and discusses impact of digitalisation

The Bank for International Settlements (BIS) has published a newsletter by the Basel Committee on Banking Supervision (BCBS) calling for increased efforts to improve banks' resilience to cyber threats. This follows the BCBS's meetings of 15 and 20 September, during which it assessed risks and vulnerabilities to the global banking system and discussed supervisory and policy initiatives.

Additionally, the BCBS also discussed climate-related financial risks and the impact of the ongoing digitalisation and disintermediation of finance on the banking system, with an initial focus on retail banks. The BCBS also reviewed the competitive landscape for the provision of retail banking, including non-bank financial and technological institutions, particularly the main supervisory challenges and risks and will continue to assess these issues. [21 Sep 2021]

#Digitalisation

EC: Updated consultation response deadlines - AML package, including in relation to crypto-assets

The EC has updated the consultation response deadline for the following consultations under its anti-money laundering (AML) initiative to 19 November 2021:

• revision of EU rules on Anti-Money Laundering (recast) – new national mechanisms;
• revision of EU rules on Anti-Money Laundering (recast of a former instrument) – expanding traceability requirements for crypto-assets;
• EU Anti-money laundering supervisor; and
• revision of EU rules on Anti-Money Laundering (new instrument) – new rules for the private sector. [24 Sep 2021]

#AML

ECB: Speech on digital innovation in the banking sector

The ECB has published a speech by the Chair of the Supervisory Board, Andrea Enria, on digital innovation in the banking sector. In his speech, Mr Enria spoke about:

• digitalisation and digital banks;
• the issues of operational resilience and cyber risk, and their prevalence as a result of Covid-19; and
• the challenges for supervisors and emerging SupTech. [22 Sep 2021]

#OpRes

EBA: Growth of digital platforms in the EU’s banking and payments sector

The European Banking Authority (EBA) has published a report on the platformisation of the EU banking and payments sector. In the report, the EBA identifies a rapid growth in the use of digital platforms to ‘bridge’ customers and financial institutions, a trend it expects to accelerate in line with the wider trend toward the digitisation of the EU financial sector. The EBA believes platformisation presents a range of potential opportunities for both EU customers and financial institutions. However, new forms of financial, operational, and reputational interdependencies are emerging and the EBA has identified steps to strengthen supervisory capacity to monitor market developments. The findings set out in the report will inform the EBA’s contribution to the joint European Supervisory Authorities (ESAs) response to the European Commission’s (EC) February 2021 Call for Advice on digital finance, which will be published in Q1 2022. [21 Sep 2021]

#DigitalPlatforms

ASIC warns of social media led ‘pump and dump’ campaigns

ASIC has warned that social media led ‘pump an dump’ campaigns in listed stocks may amount to market manipulation under the Corporations Act 2001 (Cth).

‘Pump and dump’ campaigns occur when there are blatantly obvious attempts to inflate share prices by using posts on social media to target a specific stock by designating a specific time to buy and a target price to sell.

ASIC has emphasised the importance of market participants to be aware of groups of clients trading in the same stock, in the same direction and at the same time. ASIC also expects market participants to submit suspicious activity reports where they see this type of activity.

ASIC Commissioner Cathie Armour said, ‘ASIC has been working closely with market operators to identify and disrupt pump and dump campaigns, and we will continue to target actions that threaten the integrity of markets and to take enforcement action where appropriate. We expect anyone involved in these campaigns to recognise the potential impact on market integrity and to be aware ASIC monitors all trading on the ASX equity market on a real time basis.’

Ms Armour continued, ‘Market participants, as gatekeepers, should take active steps to identify and stop potential market misconduct. They should consider the circumstances of all orders that enter a market through their systems, and be aware of indicators of manipulative trading.’ [23 Sep 2021]

#PumpAndDump

ASIC publishes Market Integrity Update (Issue 130)

ASIC has published Issue 130 of its Market Integrity Update addressing:

• its priorities for supervising market intermediaries in 2021-22, which include focusing on reducing risk of harm to consumers, supporting enhanced cyber and operational resilience, maintaining high industry standards, and enhancing ASIC’s market surveillance and data analytics;
• its consultation on amendments to the ASIC Market Integrity Rules (Securities Markets) 2017 (the Rules) that are intended to avoid the emergence of payment for order flow arrangements in Australia;
• its reminder to trading participants who operate automated order processing (AOP) systems of their obligation to have an appropriately qualified person undertake an annual review of relevant documentation, for compliance with Part 5.6 of the Rules, followed by providing annual notification to ASIC under Rule 5.6.8B by 15 November 2021; and
• its reminder to market participants of their obligations to provide accurate and complete regulatory data under Part 7 of the Rules. [22 Sep 2021]

#OpRes

MAS response on SMS OTPs

MAS has published its response to two letter regarding SMS one-time passwords (SMS OTPs) diverted to perform fraudulent card payments. In the letter, MAS advises that it has, 'commenced a review with the financial industry to establish a framework to provide greater clarity on the responsibilities and liabilities of financial institutions and consumers in the case of fraudulent payment transactions'. The response was published in 'The Straits Times' on 17 September. [22 Sep 2021]

SECT advises listed companies to exercise caution with regard to investing in digital assets

The Securities and Exchange Commission, Thailand (SECT) has released a circular to all listed companies advising those that invest or plan to invest in digital assets to exercise care.

SECT reiterates that listed companies should take action and consider various factors relevant to digital asset investment. For example, risk assessment and potential impacts, measures and mechanism for risk management, readiness of work systems and personnel, analysis and selection of digital assets to invest, and investment tracking tools, etc. Listed companies should also consider disclosure of information related to digital asset investment via the Electronic Information Transmission System of the Stock Exchange of Thailand (SET), their own company websites and the annual registration statement / annual report (Form 56-1 One Report).

SECT suggests that digital asset transactions be executed through licensed digital asset business operators that are supervised by regulators to ensure that such investment is protected by law. In this regard, digital asset business operators in Thailand are required to obtain a license under the Emergency Decree on Digital Asset Businesses B.E. 2561 (2018) and to be regulated by the SEC Office to ensure that investors receive proper protection by virtue of the Emergency Decree. [20 Sep 2021]

SEC Charges Crowdfunding Portal, Issuer, and Related Individuals for Fraudulent Offerings

The SEC has charged three individuals and one issuer with conducting a fraudulent scheme to sell nearly $2 million of unregistered securities through two crowdfunding offerings. The SEC also charged the registered funding portal and its CEO, who placed the offerings on the portal’s platform. According to the SEC's complaint, the defendants, alongside associates, conducted fraudulent and unregistered crowdfunding offerings through two cannabis and hemp companies. The complaint alleges that the defendants raised $1.8 million through the fraudulent scheme. The SEC's complaint charges defendants with violating the antifraud and registration provisions of the Securities Act of 1933 and Securities Exchange Act of 1934, and seeks disgorgement plus pre-judgment interest, penalties, permanent injunctions, and officer and director bars. [20 Sep 21]