FinTech Global Regulatory Round-up – w/e 18 February 2022

FSB: Letter to G20 leaders 

The Financial Stability Board (FSB) has published a letter from the Chair, Klaas Knot, to G20 leaders ahead of their February 2022 summit. The letter highlights:

• the current challenges of promoting global financial resilience during the transition to a post-pandemic world;
• the need to address vulnerabilities associated with digital innovation and innovative forms of finance; and
• financial risks from climate change.

With particular regard to digitalisation, the letter notes: the importance of technology in the ongoing work being undertaken by the FSB in collaboration with other international standard setters to enhance cross border payments; the FSB's intention to continue to focus on crypto-assets and DeFi through 2022; and, including in the context of cyber, the FSB's continuing focus on outsourcing and third party risk management. [17 Feb 2022]

#Cryptoassets

#DeFi

#Outsourcing

FSB: Emerging risks from crypto-assets to global financial stability

The Financial Stability Board (FSB) has published an updated assessment of risks to financial stability from crypto-assets. The report examines developments and associated vulnerabilities relating to three segments of the crypto-asset markets: unbacked crypto-assets (such as Bitcoin); stablecoins; and decentralised finance (DeFi) and other platforms on which crypto-assets trade. The report notes that although the extent and nature of use of crypto-assets varies somewhat across jurisdictions, financial stability risks could rapidly escalate, underscoring the need for timely and pre-emptive evaluation of possible policy responses.

The report highlights a number of vulnerabilities associated with crypto-asset markets. These include: increasing linkages between crypto-asset markets and the regulated financial system; liquidity mismatch, credit and operational risks; the increased use of leverage in investment strategies; concentration risk of trading platforms; and the opacity and lack of regulatory oversight of the sector. The report also notes wider public policy concerns related to crypto-assets, such as low levels of investor and consumer understanding of crypto-assets, money laundering, cyber-crime and ransomware.

The FSB will continue to monitor developments and risks in crypto-asset markets. [16 Feb 2022]

BoE: AI Public-Private Forum Final Report

The Bank of England (BoE) has published the final report of the Artificial Intelligence Public-Private Forum (AIPPF). The BoE and FCA launched the AIPPF on 12 October 2020 with the aim of furthering dialogue on AI innovation between the public and private sectors.

The report summarises the key issues discussed by the AIPPF members. In particular, the challenges and risks associated with the use of AI in financial services, including examples of how to address and mitigate them. The report also highlights considerations for the regulatory framework and how it can support the adoption of AI.

With regard to next steps, the report concludes that clarity on regulatory expectation is a 'key component of fostering innovation', it also notes that 'it would also be useful to have more structured and regular engagement on best practice or industry guidelines with a formal consultation process'. [17 Feb 2022]

ASA: CAP advice on cryptoassets

The Advertising Standards Authority (ASA) has published advice produced by the Committee on Advertising Practice (CAP) Executive with regard to non-broadcast advertising of cryptoassets. The aim of the advice is to help advertisers understand the steps they should take to ensure that they do not mislead consumers and are not socially irresponsible in the way they promote cryptoassets. [15 Feb 2022]

BoE, FCA, PRA and PSR conclude 2021 review of payment systems MoU

The BoE, the FCA, the PRA and the Payment Systems Regulator (PSR) have announced the completion of their 2021 review of their Memorandum of Understanding (MoU) for payment systems in the UK. The Financial Services (Banking Reform Act) 2013 requires the authorities to review this MoU annually. Overall, the authorities have concluded that the MoU is working well, though they identified further opportunities to deepen cooperation and coordination, including around reforms to payments legislation and around information and data sharing. [14 Feb 2022]

ECB Opinions on proposals for a directive and regulations on AML/CFT

The Council of the EU has published opinions from the European Central Bank (ECB) on proposals for a directive and regulations on anti-money laundering and countering the financing of terrorism (AML/CFT).

One of the opinions addresses the proposal for a directive and a regulation on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (ML/TF). Notably, it covers the definition of crypto-assets.

The other opinion focuses on the proposal for a regulation establishing the new Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA).  [18 Feb 2022]

EPC: Consultation on standardisation of QR-codes for mobile-initiated instant credit transfers

The European Payments Council (EPC) has published a  consultation on a new draft document on the Standardisation of Quick-Response (QR)-codes for mobile initiated (instant) credit transfers (MSCTs). The document standardises a payee and a payer-presented QR-code for all types of MSCTs, i.e. all payment contexts: person-to-person (P2P), consumer-to-business (C2B), business-to-business (B2B) and business to consumer (B2C) in respect of both instant credit transfers and payments.

Feedback is requested by 14 April 2022. [16 Feb 2022]

ECON: Draft report on the proposal for a regulation on information accompanying transfers of funds and certain crypto-assets

The European Parliament's (EP) Economic and Monetary Affairs Committee (ECON) has published a draft report on the proposed Regulation on information accompanying transfers of funds and certain cryptoassets. The draft report contains a draft EP legislative resolution, the text of which sets out suggested amendments to the proposed Regulation. [15 Feb 2022] 

ESMA: Report on Trends, Risks and Vulnerabilities

ESMA has published the first Trends, Risks and Vulnerabilities Report of 2022 (and accompanying annex). In the report, ESMA highlights that it continues to see high risks to institutional and retail investors. The report sets out specific findings on a number of topics, including financial innovation.  ESMA notes that the cryptoasset markets reached 'new records' in the second half of 2021, with a peak of EUR 2.6 trillion in November. The report also covers stablecoins and DeFi.  [15 Feb 2022] 

#DeFi

#Stablecoins

Statutory Review of the CDR

The Government has announced a statutory review on the operation of the Consumer Data Right (CDR). This review is initiated under section 56GH of the Competition and Consumer Act 2010 (Cth). It will explore the efficacy of the CDR statutory framework in respect of achieving core policy objectives: driving consumer value; increasing competition in designated sectors; and furthering innovation in data services.

The review will focus on the implementation of Open Banking and the introduction of rules regarding to the energy sector. It will also consider other CDR developments, including the Digital Economy Strategy.

A public consultation process will invite submissions on issues raised in the Terms of Reference. The review will be completed in July 2022.  [14 Feb 2022]

#Data

HKMA issues circular regarding launch of GBA fintech pilot trial facility

The HKMA has issued a circular to inform authorised institutions regarding the launch of the Greater Bay Area (GBA) fintech pilot trial facility.  The HKMA and the People's Bank of China (PBOC) are ready to accept applications from financial institutions and technology firms for pilot trials of cross-boundary fintech initiatives in the GBA.  The PBOC Shenzhen Central Sub-branch and Guangzhou Branch have also issued notices containing relevant contact information on the Mainland side.

In October 2021, the HKMA and the PBOC signed a memorandum of understanding agreeing to link up the PBOC’s Fintech Innovation Regulatory Facility with the HKMA’s Fintech Supervisory Sandbox, to provide a “one-stop platform” to allow financial institutions and technology firms to pilot test their cross-boundary fintech initiatives, concurrently in Hong Kong and the GBA, and to obtain early supervisory feedback and user opinion (see our previous update).

The PBOC and the HKMA have jointly developed a set of operational procedures for the trial facility. Financial institutions and technology firms in Hong Kong that are interested in accessing the facility should contact the HKMA.  They will be requested to complete a sandbox application form and provide information about:

• their company background;
• the fintech product or service to be tested; and
• the scope of testing.

The information provided will be shared with the PBOC and relevant Mainland authorities.  [18 Feb 2022] 

#Sandbox

HKMA publishes nineteenth issue of Complaints Watch

The HKMA has published the nineteenth issue of its Complaints Watch.  The Complaints Watch is a periodic newsletter highlighting the latest complaint trends, emerging topical issues and good practices that authorised institutions (AIs) may find helpful. The latest issue provides guidance on the protection of vulnerable customers in digital banking. While AI staff may not have any direct involvement in transactions conducted through digital banking channels by customers, AIs should appropriately monitor such transactions for early detection of irregularities.  Good practices include extending post-transaction verification to transactions done through digital banking channels by vulnerable customers to confirm customers’ understanding of investment risks and the key terms and conditions of digital banking, notifying customers of their online banking and investment transactions via SMS or email to help detect regularities, and resolving monetary disputes with complainants through the Financial Dispute Resolution Centre. [17 Feb 2022]

#VulnerableCustomers

MAS: Ministerial Statement - Bolstering the Security of Digital Banking

MAS has published the Ministerial Statement made by Mr Lawrence Wong, Minister for Finance and Deputy Chairman: Bolstering the Security of Digital Banking.  Mr Wong's address responded to 39 Parliamentary Questions that have been posed to MAS, the Ministry of Communications and Information (MCI), and the Ministry of Home Affairs (MHA) regarding recent phishing scams.  The questions covered a wide range of issues – from whether the banks can do more to mitigate the risks of such scams to how the telco infrastructure, enforcement actions, and consumer education can be enhanced to help address the problem.

Mr Wong addressed the recent spate of phishing, before moving on to outline MAS' expectations of banks to ensure digital banking channels are secure.  He explained that MAS had accelerated the process of strengthening controls to prevent scams across all retail banks, highlighting the additional measures announced with the Association of Banks in Singapore (ABS) in January as an initial step. Further measures are to be implemented, and Mr Wong sets out a number which are under consideration – from improving fraud surveillance capabilities to expanding the use of biometric technology to accelerating the shift towards the use of mobile banking apps for customer authentication, transaction authorisation, and delivering of bank notifications.  [15 Feb 2022]

MAS publishes replies to Parliamentary Questions – Credit card fees; NFTs; SPACs; licence application processing times; FSDF take-up

MAS has published replies to Parliamentary Questions on the following topics:

• whether MAS will regulate the imposition of credit card fees;
• whether MAS has any plans to regulate activities in relation to non-fungible tokens (NFTs);
• the steps that have been taken to educate retail investors about and protect them from the risks of investing in Special Purpose Acquisition Companies (SPACs) and whether the Government will consider restrictions on retail investors’ access to the initial public offering (IPOs) of such companies;
• the processing times for applications for licences for Registered Fund Management Company (RFMC), Licensed Fund Management Company (LFMC) and Venture Capital Fund Management (VCFM); and
• take-up of schemes under the Financial Sector Development Fund (FSDF).  [15 – 18 Feb 2022]

MAS explanatory brief: FSM Bill 2022

MAS has published an explanatory brief to accompany the first reading of the Financial Services and Markets Bill 2022 (FSM Bill) in Parliament.  The brief covers the following key aspects of the FSM Bill:

• harmonising and expanding powers to issue prohibition orders (POs);
• enhancing regulation of virtual asset service providers (VASPs) for money laundering and terrorist financing (ML/TF) risks;
• harmonising powers to impose requirements on technology risk management;  and
• providing statutory protection from liability for mediators, adjudicators, and employees of an operator of an approved dispute resolution scheme.  [14 Feb 2022]

#TechnologyRiskManagement

SECT consults on digital asset advertising rules

The SECT has launched a consultation on proposed rules covering the advertising of digital assets, including risk warnings. Feedback is requested by 15 March 2022.  [14 Feb 2022]

RBI: Deputy Governor's speech on cryptocurrencies

The Bank for International Settlements (BIS) has published a speech by the Deputy Governor of the Reserve Bank of India (RBI), Mr T Rabi Sankar, on cryptocurrencies and what they mean for the financial system. Speaking at the Indian Banks Association 17th Annual Banking Technology Conference and Awards, Mr T Rabi Sankar considered:

• the nature and role of cryptocurrencies; and
• whether cryptocurrencies should be permitted and regulated in India. [17 Feb 2022]

BSP launches National Financial Inclusion Strategy

The BSP has announced the launch of the National Strategy for Financial Inclusion (NSFI) 2022-2028, a blueprint for broad-based growth and financial resilience. NSFI priority initiatives include: promoting inclusive digital finance; strengthening financial education and consumer protection; and enhancing risk protection, social safety nets, and the agriculture and the micro, small, and medium enterprises (MSME) financing ecosystem.  [15 Feb 2022]