In this regular update, we round-up FinTech-related financial services regulatory developments for the week ending 18 November 2022.
ICYMI
Recent updates from Herbert Smith Freehills include:
- The UK government’s approach to regulating AI – a lighter touch: article published in Privacy and Data Protection Journal
- Stay of NFT consumer claim in favour of New York arbitration refused under AA 1996, s 9(4) (Soleymani v Nifty Gateway)
- Key changes in data privacy and cyber security laws across Southeast Asia in 2022
- Code is not law - Arbitration's critical role in resolving crypto disputes
- Australian Competition and Consumer Commission recommends far-reaching regulatory reforms sharing how digital businesses operate and engage with consumers
- UK Competition and Markets Authority publishes guidance on social media endorsements
Global
FSB: Final report on developing the implementation approach for the cross-border payments targetsThe Financial Stability Board (FSB) has published a final report on developing the implementation approach for the cross-border payments targets. The report provides an update on the FSB’s development of the framework for monitoring progress toward the G20 cross-border payments targets, a process which the FSB explains has been complicated by the multiplicity of data sources. The report sets out a high-level overview of the main data sources; a more detailed discussion of each key performance indicator (KPI) and, when able, the data underlying its calculation, including material gaps; the approach to operationalising the monitoring exercise; and next steps. Given the lack of pre-existing indicators and the need for further discussions and collaboration with potential data providers to develop reliable estimates, this final report is not able to provide a full set of estimates of current performance. This will take several more months to further develop and will be published once available. [17 Nov 2022] |
#Payments |
ISDA: Speech at Japan Derivatives Forum – crypto, DRR, ESGThe International Swaps and Derivatives Association (ISDA) has published a speech by Scott O’Malia, Chief Executive, at the Japan Derivatives Forum. In his speech, Mr O’Malia spoke about the three key priorities for ISDA: the growth of crypto derivatives; the digital regulatory reporting (DRR) initiative; and the continuing focus on ESG issues. On crypto specifically, Mr O'Malia noted that ISDA was 'well advanced' on producing standard terms for cash-settled forwards and options referencing Bitcoin and Ether. [15 Nov 2022] |
#Crypto #DRR |
UK
BoE: Market wide simulation exercise - SIMEX 22The Bank of England (BoE), in partnership with the FCA, HM Treasury (HMT) and 50 regulated firms, has undertaken a two-day UK market wide simulation exercise, referred to as SIMEX 22. The exercise set out to test the UK financial sector’s resilience to major operational disruption. The exercise was developed by the Cross Market Operational Resilience Group (CMORG) which will consider the findings and ensure that collective capabilities are developed to mitigate any risks that are identified. [18 Nov 2022] |
#OpRes |
FCA CEO addresses UK Finance Annual Dinner on the Consumer Duty, AI, financial inclusion and innovationThe FCA has published the speech delivered by CEO Nikhil Rathi at the UK Finance Annual Dinner. Under the title 'Rolling Regulation Forwards', Mr Rathi covered the new Consumer Duty, how the FCA will regulate for the future and innovation, and financial inclusion. On the Consumer Duty, the FCA CEO acknowledged that it will not guarantee a good outcome, but it does require firms to consider what a good outcome looks like and 'take decisions in good faith'. While implementation will require 'some heavy lifting upfront', the FCA expects that it will mean fewer reactive rules in the future. Having assessed that firms appear to be on track with implementation, the FCA sees no need to move the implementation deadlines it has set. However, firms are asked to be open with the regulator about their implementation path. From focusing on implementation of the Consumer Duty, Mr Rathi moved on to consider the role of artificial intelligence (AI) in the future of financial services, and how the Consumer Duty alongside the Senior Managers and Certification Regime (SMCR) will facilitate an appropriate regulatory response to use of the technology. Mr Rathi continued on to discuss financial inclusion in his speech. Noting some speculation that the Consumer Duty might make firms more risk averse, he said that the FCA would be monitoring firms to ensure this does not happen and underscored the FCA's focus on vulnerable customers under the Consumer Duty. With regard to access, Mr Rathi particularly commented that the FCA wants to see 'banking hubs and alternative forms of provision accelerated and also for people and small businesses to be supported in moving to digital, where branches close in community'. Concluding his remarks, the FCA CEO highlighted the regulator's leadership on financial innovation, from hosting crypto sprints to piloting the use of synthetic datasets to identify fraud typologies and respond earlier and more proactively. He also said that in its capacity as chair of the Global Financial Innovation Network (GFIN), the FCA will launch a new global sprint focusing on ESG shortly. [17 Nov 2022] |
#AI
#Innovation #ConsumerDuty |
Autumn Statement - Financial services and technologyHM Treasury has published the Chancellor's speech presenting the Autumn Statement made in the House of Commons on Thursday 17 November, and related policy documents. On economic stability, the Chancellor confirmed that the Government would not seek to change the monetary policy remit of the Bank of England (BoE). On innovation, the Chancellor stated that by the end of 2023, the Government will decide and announce changes to EU regulations in five growth industries: digital technology, life sciences, green industries, financial services and advanced manufacturing. The Autumn Statement adds that the Government will also task the Chief Scientific Adviser and National Technology Officer, Sir Patrick Vallance, to bring together the best minds to advise how the UK can better regulate emerging technologies, enabling their rapid and safe introduction. The Chancellor also stated that the Government will legislate to give the Digital Markets Unit, which was established by the Competition and Markets Authority (CMA), new powers 'to challenge monopolies and increase competitive pressure to innovate'; the Autumn Statement indicates that the Digital Markets, Competition and Consumer Bill will be brought forward in the third Parliamentary session to provide these new powers. The full Autumn Statement collection is available here. [17 Nov 2022] |
#Competition
#RegulatoryApproach |
Law Commission: Call for evidence on DAOsThe Law Commission has launched a call for evidence seeking information about how decentralised autonomous organisations (DAOs) can be characterised, and how the law of England and Wales might accommodate them now and in the future. In the call for evidence, the Law Commission sets out its current understanding of the landscape and asks for further information on a variety of issues, including:
Responses are requested by 25 January 2023; these will inform the Law Commission's scoping report. [16 Nov 2022] |
#DAOs
#Tokens #OpenSource |
CLLS: Responses and comments on digital assets, digital securities and economic crimeThe City of London Law Society (CLLS) has published the following:
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#DigitalAssets
#DigitalSecurities |
FCA: Future of Open Banking and the Joint Regulatory Oversight Committee - updated webpageThe FCA has updated its webpage on the future of Open Banking and the Joint Regulatory Oversight Committee to include the details from the committee meetings on 6 and 27 October 2022. At these meetings, the committee discussed the interim report on open banking priorities and its findings. The report provided a broad base of evidence and opinions from across the open banking ecosystem on the three key priorities identified by the committee:
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#OpenBanking
#Payments #Data |
FCA: Annual Public Meeting 2022 - responses to unanswered questionsThe FCA has published the responses to the unanswered questions from its Annual Public Meeting 2022. The responses relate, among other things, to the Financial Services and Markets Bill; Consumer Duty; and cryptoassets. [15 Nov 2022] |
#Cryptoassets |
FCA: Information for FTX customersThe FCA has issued a press release providing information for FTX Crypto Exchange customers. The FCA notes that UK customers of FTX may be concerned by news that it has filed for bankruptcy in the US and has been put into provisional liquidation in the Bahamas. The press release states that further details of what this means for FTX customers should be available in the coming days. The FCA advises that in the UK, regulation of cryptoassets is limited to registering of UK-based crypto-asset exchanges for anti-money laundering (AML) purposes; as such, FTX was not authorised, regulated or registered by the FCA. [14 Nov 2022] |
#CryptoExchange |
HoL Fraud Act 2006 and Digital Fraud Committee: Report on fighting fraudThe House of Lords (HoL) Fraud Act 2006 and Digital Fraud Committee has published its report Fighting Fraud: Breaking the Chain. The report explains that fraud makes up 41% of all crime against individuals in England and Wales. Digital technology has led to new opportunities for fraudsters, and Covid-19 accelerated this trend. The Committee makes a number of recommendations, including:
HMG's response to the report is due by 12 January 2022. [14 Nov 2022] |
#OnlineSafetyBill
#Fraud |
EU
EC: Digital Services Act enters into forceThe European Commission (EC) has issued a press release to mark the entry into force of the Digital Services Act (DSA). The DSA requires online platforms to report the number of active end users on their websites within three months. The EC is also inviting all online platforms to notify to it the published numbers. Based on these user numbers, the EC will make an assessment as to whether a platform should be designated a very large online platform or search engine. Following such a designation, the entity in question will have four months to comply with the obligations under the DSA, including carrying out and providing the EC with an annual risk assessment exercise. EU Member States will need to empower their Digital Services Coordinators by 17 February 2024, the general date of entry in application of the DSA, when the DSA is fully applicable for all entities in its scope. [16 Nov 2022] |
#DigitalServicesAct #DSA |
Singapore
Comments by MAS on FTX.comIn response to media queries on FTX.com, MAS stated that FTX.com does not operate in Singapore. FTX.com is neither licensed nor exempted from licensing in Singapore. It is not possible, however, to prevent Singapore users from directly accessing overseas service providers. FTX.com was therefore able to onboard Singapore users. MAS has consistently reminded the public of the risks of dealing with unlicensed entities. [14 Nov 2022] |
#CryptoExchange |
MAS and UNCDF sign MoU to develop integrated financial ecosystems for LDCsMAS and the United Nations Capital Development Fund (UNCDF) have signed a Memorandum of Understanding (MoU) to jointly develop integrated and digital financial ecosystems for micro, small and medium enterprises (MSMEs) from least developed countries. The partnership will help MSMEs enhance their digitalisation capabilities and facilitate greater access to finance through open digital infrastructures. As a start, MAS and UNCDF will collaborate on developing the Pacific Islands Integrated Financial Ecosystem, to enable MSMEs and businesses in the Pacific Islands and Singapore to be more digitally connected. [14 Nov 2022] |
#Digital |
Central Banks of Indonesia, Malaysia, Philippines, Singapore and Thailand sign MoU
Bank Indonesia (BI), Bank Negara Malaysia (BNM), Bangko Sentral ng Pilipinas (BSP), MAS, and Bank of Thailand (BoT) have signed an MoU to strengthen and enhance cooperation in Regional Payment Connectivity to support faster, cheaper, more transparent, and more inclusive cross-border payments. The proposed cooperation will include a number of modalities, including QR code and fast payment. [14 Nov 2022] |
#Payments
#QRcodes |
Thailand
BOT: Launch of Cross-border QR Payment Linkage between Viet Nam and ThailandThe President of the Socialist Republic of Viet Nam, along with Mr. Arkhom Termpittayapaisith, the Minister of Finance of Thailand, witnessed the official launch of the cross-border QR payment linkage between Viet Nam and Thailand. To illustrate the practical use case of this linkage, Mr. Nguyen Kim Anh, Deputy Governor of the State Bank of Viet Nam and Mr. Ronadol Numnonda, his counterpart from the Bank of Thailand (BOT), participated in live demonstrations of cross-border QR payments between Viet Nam and Thailand, using mobile banking applications of their respective countries. [17 Nov 2022] |
#Payments |
US
OCC: Acting Comptroller emphasizes caution with cryptoThe Office of the Comptroller of the Currency (OCC) has published the remarks of Acting Comptroller of the Currency, Michael J. Hsu, at the Financial Literacy and Education Commission’s Public Meeting. In his remarks, Mr Hsu discussed the continued risks of crypto to consumers and emphasized the OCC’s careful and cautious approach to crypto that has helped mitigate the risk of contagion to the banking system. [17 Nov 2022] |
#Crypto |
Treasury report calls for enhanced oversight of the consumer financial activities of non-bank firms, including fintechsThe US Department of the Treasury, in consultation with the White House Competition Council, has released a report entitled Assessing Impacts of New Entrant Non-bank Firms on Competition in Consumer Finance Markets. The report finds that, while concentration among federally insured banks is growing, new entrant non-bank firms, in particular fintech firms, are adding significantly to the number of firms and business models competing in core consumer finance markets and appear to be contributing to competitive pressure. While these fintech firms are enabling new capabilities, they are also creating new risks to consumer protection and market integrity, such as risks related to data privacy and regulatory arbitrage. To protect consumers in these rapidly changing markets and enable sustainable competition, among other recommendations, the report calls for enhanced oversight of the consumer financial activities of non-bank firms. [16 Nov 2022] |
#FinTech |
NYIC to explore feasibility of theoretical payments system designed to facilitate and settle digital asset transactionsThe Federal Reserve Bank of New York (NYFed) has announced that its New York Innovation Center (NYIC) will participate in a proof-of-concept project to explore the feasibility of an interoperable network of central bank wholesale digital money and commercial bank digital money operating on a shared multi-entity distributed ledger. This US proof-of-concept project is experimenting with the concept of a regulated liability network. It will test the technical feasibility, legal viability, and business applicability of distributed ledger technology to settle the liabilities of regulated financial institutions through the transfer of central bank liabilities. [15 Nov 2022] |
#DigitalAssets
#DLT |
NYIC and MAS collaborate to explore potential enhancements to cross-border payments using wholesale CBDCsThe NYIC and the Monetary Authority of Singapore (MAS) have announced Project Cedar Phase II x Ubin+, a joint experiment to investigate how wholesale central bank digital currencies (wCBDCs) could improve the efficiency of cross-border wholesale payments involving multiple currencies. Project Cedar Phase II x Ubin+ will enhance designs for atomic settlement of cross-border cross-currency transactions, leveraging wCBDCs as a settlement asset. The effort, which entails establishing connectivity across multiple heterogeneous simulated currency ledgers, aims to significantly reduce settlement risk, a key pain point in cross-border cross-currency transactions. [10 Nov 2022] |
#CBDCs |
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