FinTech Global Regulatory Round-up – w/e 22 April 2022

BIS: Speech on CBDCs

The Bank for International Settlements (BIS) has published an op-ed on central bank digital currencies (CBDCs) by Mr Agustín Carstens, General Manager of the BIS, and H.M. Queen Máxima of the Netherlands, the United Nations Secretary-General's Special Advocate for Inclusive Finance for Development. The speech considers the benefits and risks of CBDCs, including how CBDCs may contribute to financial inclusion and how to mitigate data protection and cyber risks. [20 Apr 2022]

#DataProtection

#CyberRisk

Public Bill Committee seeks views on Online Safety Bill

The House of Commons Public Bill Committee is seeking views on the Online Safety Bill. The first sitting of the Committee is expected to be on 24 May 2022, with the Committee scheduled to report by 30 June 2022, although it may conclude its considerations earlier. The Committee will not accept written evidence once it has concluded its considerations, so interested parties are advised to make submissions as soon as possible. [20 Apr 2022]

CMA: Retail banking market investigation - updated webpage

The Competition and Markets Authority (CMA) has updated its webpage on the retail banking market investigation to add a letter from the Open Banking Implementation Entity (OBIE) to the CMA, in which it gives an update on the roadmap progress report, and a letter from the CMA to the OBIE in response. [19 Apr 2022]

#OBIE 

ESAs: Joint Committee Annual Report 2021 

The European Supervisory Authorities (ESAs) have published the Joint Committee Annual Report 2021, which provides a detailed account of the joint work completed over the past year. A significant part of the work in 2021 focused on developing the regulatory and supervisory framework for sustainability-related disclosures. The other main areas of cross-sectoral focus included: joint risk assessment; enhancement of consumer protection; and development of the regulatory and supervisory frameworks for sustainable finance and securitisation. In addition, monitoring and contributing to the digital finance developments, supporting FinTech scale up through innovation hubs and sandboxes as well as cyber security completed the work programme. [19 Apr 2022]

#Innovation

#CyberSecurity

APRA sets out initial risk management expectations and policy roadmap for crypto-assets

The Australian Prudential Regulation Authority (APRA) has released a letter setting out initial risk management expectations for all regulated entities that engage in activities associated with crypto-assets. APRA also issued a policy roadmap until 2025.

According to the letter, APRA expects that all regulated entities will:

• conduct appropriate due diligence and a comprehensive risk assessment before engaging in activities associated with crypto-assets, and ensure that they understand, and have actions in place to mitigate, any risks that they may be taking on in doing so;
• consider the principles and requirements of Australia’s prudential standards when relying on a third party in conducting activities involving crypto-assets; and
• apply robust risk management controls, with clear accountabilities and relevant reporting to the Board on the key risks associated with new ventures.

APRA says it is developing a long-term prudential framework for crypto-assets and related activities in consultation with other regulators internationally.

Under its policy roadmap, APRA intends to:

• in relation to crypto-activities: consult on requirements for the prudential treatment of crypto-asset exposures by Australian entities for authorised deposit-taking institutions (ADIs) after the Basel Committee completes current consultation. In Australia, this consultation is expected to be performed in 2023, and APRA will consider the need for initial prudential guidance in the interim;
• in relation to operational risk: progress new and revised requirements for operational risk management, covering control effectiveness, business continuity, and service provider management. The draft prudential standard is to be released for consultation in mid-2022; and
• in relation to stablecoins: consider possible approaches to the prudential regulation of payment stablecoins. This work will be subject to the development of a broader legislative and regulatory framework, and APRA plans to consult on prudential requirements for large stored value facilities in 2023. [21 Apr 2022] 

#OperationalRisk

#Stablecoins

AUSTRAC releases two new financial crime guides

The Australian Transaction Reports and Analysis Centre (AUSTRAC) has released two new financial crime guides to help businesses stop ransomware attack payments and the criminal abuse of digital currencies. The guide to Detecting and stopping ransomware payments provides information and key indicators to help businesses identify and report if a payment could be related to ransomware attacks. The guide to Preventing the criminal abuse of digital currencies provides indicators to help businesses, including digital currency exchange providers, recognise and report criminal activity through digital currencies. [21 Apr 2022]

#DigitalCurrencies

HKMA to launch fresh review of Code of Banking Practice amidst rapid growth of digital banking transactions 

The Chief Executive of the HKMA, Mr Eddie Yue, has published an inSight article regarding the HKMA's observations around the opportunities and challenges brought by the rapid growth of digital banking transactions.

The HKMA conducted its first survey on the use of banking services by bank customers via digital and non-digital channels in the second half of 2021.  The survey revealed that:

• There is a high penetration rate of digital payment services;
• Digital channels have become a key account opening channel;
• Applications for personal credit facilities via digital channels have become more popular;
• The proportion of investment and insurance products sold via digital channels has grown multiple times; and
• Changes have been introduced to the services provided by traditional ATMs.

The HKMA recognises that banking consumer protection and the development of fintech must keep pace with market advancement. In December 2021, the Hong Kong Association of Banks and the DTC Association published the revised Code of Banking Practice, with the HKMA's endorsement, to ensure bank consumer protection would not be compromised with the increasingly advanced and convenient service channels provided by banks (see our previous update).  At the same time, banking services should also be inclusive (ie, take into account the needs of different clientele) and adhere to the principle of treating customers fairly.

Looking ahead, the HKMA has launched a fresh round of review of the Code of Banking Practice with the industry, with reference to the global implementation of the High-Level Principles on Financial Consumer Protection (published by G20 and the Organisation for Economic Co-operation and Development) in the realm of digital banking services.  The review aims at enhancing consumer protection in respect of digital banking services, covering areas such as information disclosure, customers’ finance management, and dispute handling.

The HKMA also aims to develop protection measures for some new service models, such as “buy now, pay later”. [19 Apr 2022]

#Payments

Secretary for Financial Services and the Treasury publishes blog post on government's initial thoughts regarding regulation of crowd-funding 

The Secretary for Financial Services and the Treasury, Mr Christopher Hui, has published a blog post to set out the government's initial thoughts on regulating crowd-funding in Hong Kong.

Whilst specific crowd-funding activities may be subject to various laws and regulations, Hong Kong currently has no dedicated legislation for regulating crowd-funding.  There are four major types of crowd-funding activities, namely, equity crowd-funding, peer-to-peer lending, donation-based crowd-funding and reward/pre-sale-based crowd-funding.  Mr Hui considers that the government should place particular focus on preventing and combating unlawful crowd-funding activities that endanger national security.

The following are some of the risks of crowd-funding:

• Platform risks: Crowd-funding platforms may suddenly cease operation, and fundraisers and contributors may not be able to recover their funds.  Further, the funds raised may not eventually be used for the committed purposes, and the personal data provided by the contributors may be subject to abuse.
• Information asymmetry risks: Contributors to equity crowd-funding and reward/pre-sale-based crowd-funding have to rely on the information disclosed by fundraisers, which may be inaccurate.
• Risks of violating the law: The funds raised may be used for unlawful activities such as those that endanger national security or support terrorist activities, or crowd-funding may be used for money laundering.

The initial questions posed by the government for formulating an appropriate regulatory regime for crowd-funding are:

• Whether all crowd-funding platforms in Hong Kong should obtain a licence or registration, and whether these platforms should be required to exercise due diligence on crowd-funding projects.
• Whether fundraisers should be required to obtain registration or authorisation prior to conducting crowd-funding activities, and be required to make clear, accurate and fair disclosure to contributors.
• How a reporting system should be implemented to identify and report suspicious transactions.

The government intends to conduct a public consultation this year and will make reference to the crowd-funding regimes in other common law jurisdictions. [14 Apr 2022]

SGX speech to the IMAS Digital Summit 2022

The Singapore Exchange (SGX) has published the keynote delivered by Loh Boon Chye, CEO of SGX Group at the IMAS Digital Summit 2022.  The SGX Group CEO identified four topics which recurred throughout recent discussions with global investors: crypto; cloud; carbon; and China.  Mr Loh then proceeded to address each topic.

With regard to crypto, he noted that while SGX has not offered crypto futures like exchanges other jurisdictions, it has been monitoring this space closely to inform development of the right products that meet customer needs. Mr Loh also noted the potential for tokenisation to open up markets, increase liquidity, and improve settlement processes.

On carbon and climate, Mr Loh highlighted several initiatives, including the SGX's partnership with MAS to develop an ESG portal which will facilitate investor access to comparable ESG data. [20 Apr 2022]

#Crypto

#Tokens

SEBI: Operational guidelines for security and covenant monitoring - DLT

The Securities and Exchange Board of India (SEBI) has issued a press released highlighting its operational guidelines for security and covenant monitoring using distributed ledger technology (DLT).  The release sets out the various dates for issuers to record details in the DLT system. [18 Apr 2022]