FinTech Global Regulatory Round-up – w/e 21 January 2022

BIS publishes new FSI Insights paper – Bigtech and fintech ownership of banks

The Bank for International Settlements (BIS) has released a new paper in the series of research reports prepared by (or in collaboration with) its Financial Stability Institute (FSI). The paper, Gatekeeping the gatekeepers: when big techs and fintechs own banks – benefits, risks and policy options, assesses the merits of extending a banking licence to tech firms and explores the regulatory landscape in seven jurisdictions – China, Hong Kong, South Korea, Singapore, the EU, UK and US. It then outlines a range of policy options which are mapped to the risk profile of tech firms seeking a banking licence, with the aim of supporting the gatekeeping role played by prudential authorities. [20 Jan 2021]

#FinTech

BIS: Speech on digital currencies

The Bank for International Settlements (BIS) has published a speech by Agustín Carstens, General Manager, on digital currencies. In his speech, Mr Carstens spoke about:

• the institutional foundations of money;
• big tech stablecoins; and
• decentralisation. [19 Jan 2021]

#Stablecoins

IOSCO: Good practices in supervisory colleges

The International Organisation of Securities Commissions (IOSCO) has published a new report on global supervisory colleges. The report, Lessons Learned from the Use of Global Supervisory Colleges, provides a framework for securities regulators seeking to create new global supervisory colleges for sectors of financial markets where they are not currently used, which could strengthen cooperation between regulatory authorities and further assist regulators in addressing the adverse effects of market fragmentation.

Some 14 good practices are described in the report; they address topics such as membership, governance, confidentiality arrangements, exchange of information, and purpose. With regard to expanding the use of supervisory colleges, the report notes that some IOSCO members have suggested there may be merit in making use of colleges for market intermediaries, financial benchmarks administrators, cryptoasset platforms, and asset management. [18 Jan 2021]

IOSCO: Consultation report on retail distribution and digitalisation

The International Organization of Securities Commissions (IOSCO) has published a consultation report on retail distribution and digitalisation. The report analyses developments in online marketing and distribution of financial services and products to retail investors in IOSCO member jurisdictions, and provides a variety of proposed measures that members should consider when determining their policy approach to retail online offerings and marketing.

Feedback is requested by 17 March 2022. [17 Jan 2021]

FCA: 2022 final report - strategic review of retail banking business models

The FCA has published its 2022 final report on competition in retail banking markets. The 2022 report builds on the FCA's 2018 final report and 2018 progress report. It explores trends in the retail banking industry in light of significant changes such as Covid-19, increased digitalisation, and ring-fencing, and considers what this has meant for competition and overall profitability. The FCA's key findings include:

• large banks are in a strong position, but face increasing competition, in particular for personal current accounts (PCAs);
• low levels of consumer engagement have historically contributed to high barriers to entry and expansion, but digital challengers have rapidly gained share in the PCA and business current account (BCA) markets;
• competition in the mortgage market has intensified, which has caused yields to come down;
• yields on consumer credit have also fallen, particularly on unarranged overdrafts;
• large banks did proportionately more micro-business lending under the government schemes than most other banks; and
• increased competition and innovation have improved outcomes for some consumers and small businesses but others, particularly consumers with heavy branch usage or lower balances, may have had worse outcomes.

The FCA invites feedback from stakeholders on the contents of the 2022 report by 31 March 2022. [20 Jan 2021]

#RetailBanking

FCA: CP on strengthening our financial promotion rules for high risk investments, including cryptoassets

The FCA has published Consultation Paper 22/2 (CP22/2) on strengthening the financial promotion rules for high risk investments, including cryptoassets. In CP22/2, the FCA sets out proposals to significantly strengthen its rules on how high-risk financial products are marketed to address concerns about the ease and speed with which people can make high-risk investments. The proposals include changes to:

• the classification of high-risk investments;
• the customer journey into high-risk investments;
• strengthen the role of firms approving and communicating financial promotions; and
• include qualifying cryptoassets within the scope of the FCA's financial promotion rules.

Feedback is requested by 23 March 2022. The FCA intends to publish final rules in summer 2022.

The FCA has also published the following research notes on improving outcomes for consumers considering investing in high-risk investments:

• Going beyond ‘capital at risk’: Behaviourally informed risk warnings for high-risk investment products;
• Pausing, reading, and reflecting: decision points in high-risk investment consumer journeys; and
• To certify or not to certify: decision points in the self-certification process. [19 Jan 2021]

#FinancialPromotions

HMT: Responses to consultation on the regulation of cryptoassets

HM Treasury (HMT) has published the responses to its consultation on cryptoassets promotions and confirms its intention to legislate to bring certain cryptoassets into the scope of the financial promotion regime. Responses to the consultation agreed that misleading advertising and a lack of suitable information means there are consumer risks present in the cryptoassets market, and there was broad agreement on the case for intervention. Legislation to amend the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO) will be brought forward when parliamentary time allows. HMT intends to put in place a transitional period of around six months from both the finalisation and publication of the proposed changes to the FPO and the complementary FCA rules.

The FCA is expected to consult on the proposed financial promotions rules that will apply to cryptoassets shortly. The HMT consultation response notes that the FCA's proposals for the regime for high risk investments may be applied to cryptoassets and suggests that the proposals set out in the FCA's discussion paper (DP21/1) published in April 2021 may provide a high-level indication of the FCA's potential approach to rules for cryptoassets financial promotions. [18 Jan 2021]

EBA: DP on selected payment fraud data under PSD2

The European Banking Authority (EBA) has published a discussion paper (DP) setting out its preliminary observations on selected payment fraud data under the Payment Services Directive 2 (PSD2), as reported by the industry. The DP presents the main findings related to three payment instruments: credit transfers, card-based payments and cash withdrawals and also outlines other patterns that appear to be inconclusive and that would benefit from comments and views from market stakeholders. The responses to the DP will support the EBA, the European Central Bank (ECB) and national authorities in interpreting the fraud data that will be reported in future years.

Feedback is requested by 19 April 2022. [17 Jan 2021]

#PSD2

MAS and ABS announce measures to bolster the security of digital banking

The Monetary Authority of Singapore (MAS) and the Association of Banks in Singapore (ABS) are introducing a set of additional measures to bolster the security of digital banking, in view of the recent spate of SMS-phishing scams targeting bank customers.

Banks in Singapore, in consultation with the MAS, will work to put in place more stringent measures within the next two weeks, including the following:

• removal of clickable links in emails or SMS sent to retail customers;
• threshold for funds transfer transaction notifications to customers to be set by default at $100 or lower;
• delay of at least 12 hours before activation of a new soft token on a mobile device;
• notification to existing mobile number or email registered with the bank whenever there is a request to change a customer’s mobile number or email address;
• additional safeguards, such as a cooling-off period before implementation of requests for key account changes such as in a customer’s key contact details;
• dedicated and well-resourced customer assistance teams to deal with feedback on potential fraud cases on a priority basis; and
• more frequent scam education alerts. [19 Jan 2022]

MAS issues guidelines to discourage cryptocurrency trading by the general public

MAS has issued guidelines giving effect to MAS’ expectations that Digital Payment Token (DPT or more commonly known as cryptocurrency) service providers should not promote their DPT services to the general public in Singapore.

The new guidelines clarify MAS’ expectations that DPT service providers should not engage in marketing or advertising of DPT services:

• in public areas in Singapore such as through advertisements on public transport, public transport venues, public websites, social media platforms, broadcast and print media, or provision of physical ATMs; or
• through the engagement of third parties, such as social media influencers, to promote DPT services to the general public in Singapore.

Further, DPT service providers can only market or advertise on their own corporate websites, mobile applications or official social media accounts. [17 Jan 2022]

#DigitalPaymentToken