FinTech Global Regulatory Round-up – w/e 5 November 2021

BIS: Working paper on CBDCs

The BIS has published a working paper on central bank digital currencies (CBDCs). The paper considers the various policy perspectives on CBDCs. It also looks at the operational architectures for CBDCs, including the technologies and the implications for privacy. Finally, the paper examines the macroeconomic implications for the financial system, financial stability and monetary policy. [4 Nov 2021]

BIS and HKMA conclude first green finance project

The Bank for International Settlements (BIS) Innovation Hub and the Hong Kong Monetary Authority (HKMA) have published a statement on the conclusion of their first green finance project (Project Genesis). The project involved building prototype digital platforms to enable green bond issuance with higher transparency and greater access for retail investors. The prototypes are set out in the following:

• report on a prototype for green bond tokenisation by the Liberty Consortium; and
• report on a prototype for green bond tokenisation by Digital Asset and GFT.

The prototypes show that technologies, including distributed ledger technology (DLT), can be used to streamline the green bond issuance process, while making it easier to track projects' positive environmental impact.

The BIS and HKMA have also published a report setting out a vision for technology-driven green finance. [4 Nov 2021]

#GreenTech

#DLT

G20 Rome Leaders' Declaration 

Following the conclusion of the G20 summit held in Rome on 30-31 October 2021, the G20 leaders have adopted the Rome Declaration. The declaration refers to a broad range of issues, including sustainable finance, non-bank financial intermediation (NBFI), money market fund resilience, cross-border payments including global stablecoins, financial inclusion and anti-money laundering/countering the financing of terrorism (AML/CFT). [1 Nov 2021]

CMA: Update on open banking

The Competition and Markets Authority (CMA) has published an update on the governance of open banking. The update sets out the progress in strengthening corporate governance at the Open Banking Implementation Entity (OBIE) following an independent investigation and consideration on future governance. The update also includes high level principles for the future governance of open banking.

The CMA plans to publish a further update on this by the end of the year/early 2022. [5 Nov 2021]

FCA: Speech on the digital landscape and protecting consumers 

The FCA has published a speech by Jessica Rusu, Chief Data, Information and Intelligence Officer at the FCA, on the digital landscape and protecting consumers. In her speech, Ms Rusu spoke about:

• how threats for consumers have shifted;
• data and digital approaches for protecting consumers;
• the FCA's data strategy and the digital unified intelligence environment;
• leveraging advanced analytics and protecting consumers from artificial intelligence (AI) harm; and
• the FCA's role in enabling and supporting innovation. [2 Nov 2021]

#AI

ECB: Speech on CBDCs 

The European Central Bank (ECB) has published a speech by Fabio Panetta, member of the Executive Board, on CBDCs. In his speech, Mr Panetta spoke about:

• the importance of central bank money as a monetary anchor for payments;
• maintaining the monetary anchor in the digital age; and
• the conditions for a successful digital euro. [5 Nov 2021]

#DigitalEuro

HKMA announces two new initiatives under "Fintech 2025" strategy and provides updates on existing initiatives at Hong Kong Fintech Week 2021

The HKMA announced two new initiatives under its "Fintech 2025" strategy at the Hong Kong Fintech Week 2021:

• Green bond tokenisation – The HKMA and the Bank for International Settlements Innovation Hub (BISIH) Hong Kong Centre have concluded Project Genesis, which (among others) concept-tested the issuance of tokenised green bonds to retail investors in Hong Kong.  The HKMA will look into the feasibility of piloting the issuance of tokenised green bonds under the Government Green Bond Programme.
• AML Regtech Lab series – The HKMA has launched this series where five banks will work with data experts using synthetic data to explore the use of digital footprints and conduct more comprehensive network analysis.  The series is aimed at strengthening banks’ capabilities to protect customers from fraud and financial crime losses.  Further details can be found here and here.

There has been good progress on the initiatives previously implemented under the "Fintech 2025" strategy announced in June 2021 (see our previous update):

• Data – The HKMA has completed a proof-of-concept study on the technical feasibility of the Commercial Data Interchange.  The interchange entered its pilot launch stage on 3 November 2021 and is expected to officially launch by the end of 2022.
• Cross-boundary fintech cooperation – Around ten banks in Hong Kong have expressed interest in testing their cross-boundary fintech initiatives in Hong Kong and Mainland Greater Bay Area cities via the recently announced "network link-up" between the People's Bank of China's Fintech Innovation Regulatory Facility and the HKMA's Fintech Supervisory Sandbox (see our previous update).
• Talent development – A mentorship network will be introduced under the Industry Project Masters Network (IPMN) for master's degree students majoring in fintech.  The HKMA has also entered into memoranda of understanding with four local universities to foster collaboration in areas including fintech talent development.
• CBDC – The HKMA, together with the participating authorities and BISIH Hong Kong Centre, published on 3 November 2021 15 potential business use cases under the Multiple CBDC Bridge project.  In one of the use cases, testing of sample trade settlement transactions across 11 industries and four jurisdictions has commenced and is expected to enter pilot stage from 2022 onwards, with an aim to achieve a system that could support the full process of international trade settlement.
• Funding support – Up to HK$1 million of funding support will be provided under the Innovation and Technology Commission's Public Sector Trial Scheme via the Fintech Supervisory Sandbox 3.0, for eligible projects in areas such as Regtech and Cybersecurity. [3 Nov 2021]

#GreenBonds

#AML

#RegTech

#CBDCs

SFC is reviewing its virtual asset regulatory regime and plans to issue joint circular with HKMA, as indicated in SFC Deputy CEO's keynote address

The SFC has published a keynote address delivered by its Deputy CEO and Executive Director, Intermediaries, Ms Julia Leung, at Hong Kong FinTech Week 2021.

Ms Leung discussed the progress of the SFC's approach to fintech regulation in Hong Kong and views on the dramatic changes in the global regulatory landscape over the past few years.  Among other things:

• Technology has triggered the transformation of the financial industry which has allowed firms to introduce a wide variety of innovative products and services to enhance the customer experience and help achieve better investor outcomes.  The distribution of investment products is one area where the pandemic and work-from-home arrangements have accelerated the use of technology.
• Virtual assets first appeared on the regulatory radar in 2017, and the SFC introduced a regulatory regime for virtual assets in 2018, and a conceptual framework for centralised virtual asset platform operators to opt-in in 2019.  The regulatory requirements applied the principle of “same business, same risks, and same rules”.  Earlier this year, the SFC concluded that the local anti-money laundering law should be amended to mandate licensing of all centralised virtual asset trading platforms.
• Virtual assets are edging towards mainstream finance, and there have been an increase in types of virtual asset investment products as well as the ways in which such products are offered to investors.  For example, some licensed firms wish to provide cryptocurrency trading services to clients either by acting as an introducing agent or through an omnibus account arrangement opened at a virtual asset platform.
• The SFC is currently reviewing the virtual asset regulatory regime to see if it is still fit for purpose, and is working with the HKMA with a view to issuing a joint circular following the review.  The SFC expects that it would incorporate the “same business, same risks and same rules” principle in a proportionate manner.
• The SFC will maintain its practical approach of providing a well-defined regulatory environment that fosters innovation, market development and investor protection.  [3 Nov 2021]

SFST discusses three-pronged strategy to foster fintech development

In a blog post, the Secretary for Financial Services and the Treasury (SFST) discusses the government's three-pronged strategy to foster fintech development:

Opening up government data and introducing a shared platform

• The Chief Executive mentioned in her Policy Address this year that the HKMA would develop the Commercial Data Interchange (CDI), through which enterprises could authorise service providers such as payment systems, public bodies or utility companies to furnish banks with data.  Banks can then make more accurate predictions about the sales and operation of enterprises, thereby reducing the need for enterprises to provide collateral.
• The government is now considering the sharing of data in the Companies Register to the CDI, to make it more convenient for financial institutions to obtain reliable information on registered companies.  The government will explore the use of application programming interface to enable the interflow of data across systems, such that financial institutions, after being duly authorised by the enterprises concerned, can obtain information of registered companies in a safe and convenient way.

Establishing the Coordination Group on Implementation of Fintech Initiatives – “CGFin"

• To strike a better balance between market development and regulation, the SFST will establish and chair the Coordination Group on Implementation of Fintech Initiatives, “CGFin”. This group will holistically review and supervise the development of fintech in Hong Kong, covering the areas of Mainland and overseas cooperation, financial infrastructures, regulatory regimes, cybersecurity, promotion, talent development and other cross-sectoral fintech coordination.

Launching of fintech training programme for financial practitioners

• The government will commission Cyberport to launch a training programme for practitioners this year.  Apart from nominated staff from financial institutions regulated by HKMA, SFC, IA and the Mandatory Provident Fund Schemes Authority, eligible participants will be expanded to cover other relevant organisations. [3 Nov 2021]

MAS speech: Perspectives on RegTech

MAS has published the speech delivered by Mr Damien Pang, Executive Director (Data & Technology Architecture) and Deputy Chief FinTech Officer at the RegTech Summit APAC.  Drawing on experience that MAS has gained from administering its RegTech grant, Mr Pang shared four perspectives on how technology and innovation may be embraced to facilitate compliance and risk management – embracing limitations; supporting customisations; reining in complexities; and harnessing expertise. [4 Nov 2021]

PWG/FDIC/OCC: Report and Recommendations on Regulation of Stablecoins

The US President's Working Group on Financial Markets (PWG), together with the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), has published a report calling for the regulation of stablecoins. The report sets out the risks of payment stablecoins and recommends that Congress promptly enact legislation to ensure that payment stablecoins and payment stablecoin arrangements are subject to a federal framework.

The report states that legislation would help to address: risks to stablecoin users and guard against stablecoin runs; concerns about payment system risk; and concerns about systemic risk and concentration of economic power. It goes on to make recommendations as to the requirements for the legislation, including: stablecoin issuers should be insured depository institutions; custodial wallet providers should be subject to appropriate federal oversight; and stablecoin issuers should comply with activities restrictions that limit affiliation with commercial entities.

The PWG/FDIC/OCC will, in the meantime, continue to take action to address risks falling within their own remits. [1 Nov 2021]