FinTech Global Regulatory Round-up – w/e 22 October 2021

FATF updates - consultation, survey results and plenary outcomes

The Financial Action Task Force (FATF) has released the outcomes from its plenary of 19-21 October 2021 noting that it finalised work in a number of important areas, including updating guidance for a risk-based approach to virtual assets and virtual asset service providers (VASPs) that will be published later this month.

The FATF has also published the results from its cross border payments survey, which assessed the implementation of the FATF Standards. The survey results highlight that lack of risk-based approach and inconsistent implementation of the anti-money laundering/countering the financing of terrorism (AML/CFT) requirements increases cost, reduces speed, limits access and reduces transparency.

In addition, the FATF has has published a consultation seeking feedback on amendments to Recommendation 24 and its Interpretive Note on the transparency and beneficial ownership of legal persons. The proposed amendments seek to ensure greater transparency about the beneficial ownership of legal persons. The FATF's particular areas of focus for the proposed amendments are: the multipronged approach to information collection; bearer shares and nominee arrangements; the risk-based approach; and access to information. Feedback is request by 3 December 2021.  [22 Oct 21]

#Crypto

#Payments

FSB: Report on cyber incident reporting

The Financial Stability Board (FSB) has published a report on the existing approaches and next steps for broader convergence of cyber incident reporting. The report notes that greater harmonisation of regulatory reporting of cyber incidents would promote financial stability by: building a common understanding, and the monitoring, of cyber incidents affecting financial institutions and the financial system; supporting effective supervision of cyber risks at financial institutions; and facilitating the coordination and sharing of information amongst authorities across sectors and jurisdictions.

The FSB has identified three ways that it will take work forward to achieve greater convergence in cyber incident reporting which include:

• developing best practices by identifying a minimum set of information related to cyber incidents that financial authorities may require to promote financial stability;
• identifying common types of information to be shared which would help authorities better understand impacts of a cyber incident across sectors and jurisdictions, and to understand any legal and operational impediments to sharing such information; and
• creating common terminologies for cyber incident reporting, including a common definition for ‘cyber incident’.

The FSB will develop a detailed plan for taking this work forward by the end of 2021. [19 Oct 2021]

#IncidentReporting

FCA podcast: Interview with the FCA's ESG Director Sacha Sadan

The FCA has released a new podcast in its 'Inside FCA' series. This episode features an interview with the FCA's Environmental, Social and Governance (ESG) Director Sacha Sadan about the climate change agenda, sustainable finance and the role of the regulator in helping to achieve a net zero economy. With the UN climate conference COP26 on the horizon, Mr Sadan talks about the importance of collaboration, including innovation activities such as the FinTech challenge where green technology solutions can pave the way towards meeting global climate change goals. He also outlines the FCA's role on sustainable disclosure requirements and product labelling to help ensure consumers are protected and able to make informed decisions when buying products.

A transcript is also available. [22 Oct 2021]

#FinTech

SI: The Payment and Electronic Money Institution Insolvency (England and Wales) Rules 2021

The Payment and Electronic Money Institution Insolvency (England and Wales) Rules 2021 (the Rules) have been laid before Parliament, along with an accompanying explanatory memorandum. The Rules set out the procedure for the Payment and Electronic Money Institution Special Administration process established in the in the Payment and Electronic Money Institution Insolvency Regulations 2021.

The Rules come into force on 12 November 2021. [22 Oct 2021]

#E-money 

FCA: Perimeter Report

The FCA has published its latest Perimeter Report. This annual report aims to clarify some of the perimeter’s complexities, explain what the FCA is doing in response, and highlight where the FCA sees gaps in legislation and the potential for harm. In relation to FinTech, the report considers the challenges with the regulatory perimeter and cryptoassets.

The report will form the basis of a formal discussion between Nikhil Rathi, Chief Executive at the FCA, and the Economic Secretary to the Treasury before the end of the year, the minutes of which will be published. [21 Oct 2021]

FCA launches InvestSmart campaign, publishes survey of young investors

The FCA has launched a new 5-year campaign, InvestSmart, which will target new and inexperienced investors. InvestSmart will exploit social media and online channels to encourage investors to consider their appetite for risk and to avoid the hype which is a common feature in the online environment. Alongside the campaign launch, the FCA has released the high level findings of a survey it commissioned into the behaviours of younger high-risk investors. Among the key takeaways from the survey that the FCA highlighted are:

• 76% of those aged under 40 who have invested in high-risk products such as cryptocurrency and forex say they are driven by competition with friends, family and acquaintances and their own past investments; and
• 58% say hype on social media and in the news lies behinds their investment decisions. [20 Oct 2021]

#SocialMedia

BoE: Minutes of the AI Public-Private Forum

The BoE has published the minutes of the Artificial Intelligence (AI) Public-Private Forum of 1 October 2021.The minutes set out AI discussion topics which include: governance structures; roles and responsibilities; transparency and communication; and standards, auditing and the regulatory framework.

The minutes also note plans for the publication of a final report on conclusion of the forum. [18 Oct 2021]

EC 2022 Work Programme

The EC has published its 2022 Work Programme. The work programme sets out 42 new policy initiatives, including a new European cyber resilience act, an EU instant payment initiative; an initiative on facilitating small and medium-sized enterprises' (SMEs') access to capital; and an initiative under the Capital Markets Union (CMU) on harmonising certain aspects of insolvency law. Additionally, there are 26 proposals for regulatory simplification, 76 policies which the EC has prioritised for urgent action, and six proposals for withdrawal. [19 Oct 2021]

APRA Annual Report 2020/21

APRA has published its Annual Report for the 2020/21 financial year. APRA acknowledged the challenges of the pandemic required a reshaping of its priorities and activities, including the deferral of many of its planned regulatory and supervision activities.

Despite these challenges, APRA’s supervision activities continued throughout this period. In relation to FinTech, APRA highlights the need for all sectors of the financial system to reinforce their information security and strengthen their readiness for cyber-attack. [21 Oct 2021]

Senate Committee releases report on cryptocurrency, digital assets, de-banking and other issues

The Australian Senate - Select Committee on Australia as a Technology and Financial Centre has released its Final Report on the following issues:

• how Australia should regulate cryptocurrency and digital assets in a manner which will promote innovation and attract investment while providing appropriate safeguards for investors and consumers (Chapters 2 and 3);
• de-banking particularly in the remittance, payments and digital assets sectors (Chapter 4); and
• other issues including options to replace the Offshore Banking Unit (Chapter 5).

In relation to cryptocurrency and digital assets, the Committee recommended that the Australian Government:

• establish a market licensing regime for digital currency exchanges, including capital adequacy, auditing and responsible person tests under the Treasury portfolio;
• establish a custody or depository regime for digital assets with minimum standards under the Treasury portfolio;
• conduct a token mapping exercise to determine the best way to characterise the various types of digital asset tokens in Australia;
• establish a new decentralised autonomous organisation company structure;
• amend relevant legislation so that businesses undertaking digital asset 'mining' and related activities in Australia receive a company tax discount of 10 per cent if they source their own renewable energy for these activities;
• amend the Anti-Money Laundering and Counter-Terrorism Financing regulations to ensure they are fit for purpose, do not undermine innovation and give consideration to the driver of the Financial Action Task Force 'travel rule';
• amend the Capital Gains Tax (CGT) regime so that digital asset transactions only create a CGT event when they genuinely result in a clearly definable capital gain or loss;
• lead a policy review of the viability of a retail Central Bank Digital Currency (CBDC) in Australia.

In relation to de-banking, the Committee made the following recommendations:

• that the Australian Government enact a scheme to address the due diligence requirements of banks by June 2022;
• that the Australian Government develop a clear process for businesses that have been de-banked which is anchored around the Australian Financial Complaints Authority (AFCA) which services licensed entities; and
• that common access requirements for the New Payments Platform should be developed by the Reserve Bank of Australia, in order to reduce the reliance of payments businesses on the major banks for the provision of banking services.

In relation to the Offshore Banking Unit issue, the Committee recommended that the Global Markets Incentive suggested by submitters should be implemented to replace the Offshore Banking Unit regime by the end of 2022.  [18 Oct 2021]

#CBDCs

#DigitalAssets

#Tokens

HKMA and PBoC sign MOU to link up HKMA Fintech Supervisory Sandbox with PBoC Fintech Innovation Regulatory Facility 

The HKMA and the People’s Bank of China (PBoC) have jointly announced that they have signed the “Memorandum of Understanding on Fintech Innovation Supervisory Cooperation in the Guangdong-Hong Kong-Macao Greater Bay Area” (MOU).  This is part of the development of the Greater Bay Area (GBA), a strategic element of the National 14th Five-Year Plan.

Under the MOU, the two authorities have agreed to link up the PBoC’s Fintech Innovation Regulatory Facility with the HKMA’s Fintech Supervisory Sandbox in the form of a network. The network link-up aims to provide a one-stop platform to allow eligible financial institutions and technology firms to conduct pilot trials of cross-boundary fintech initiatives, concurrently in Hong Kong and the Mainland GBA cities. The arrangement will enable the financial institutions and tech firms to obtain early supervisory feedback and user opinion, expediting the launch of fintech products and reducing development costs. [21 Oct 2021]

#FinTech

#Innovation

CFTC Charges Individual and His Firm in Ongoing $3.9 Million Forex and Cryptocurrency Fraud and Misappropriation Scheme

The Commodity Futures Trading Commission (CFTC) has announced that it has filed a civil enforcement action against a Texas resident and his company, charging them with fraudulent solicitations and misappropriation of over $3.9 million. On 13 October 2021, a district judge signed an ex parte statutory restraining order freezing assets controlled by the defendants, preserving records, and appointing a Temporary Receiver. A hearing on the CFTC’s Motion for Preliminary Injunction is scheduled for 27 October 2021. In its continuing litigation, the CFTC seeks restitution to defrauded investors, disgorgement of ill-gotten gains, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act (CEA), as charged. [20 Oct 21]