FinTech Global FS Regulatory Round-up - w/e 21 April 2023

IAIS: Global Insurance Market Report - cyber edition

The International Association of Insurance Supervisors (IAIS) has published a special cyber edition of its Global Insurance Market Report. The report includes an analysis of the risks and trends associated with cyber insurance coverage, cyber resilience in the insurance sector and the impact these risks may have on financial stability. It finds that global cyber insurance premiums have continued to grow despite tighter terms and conditions and stricter risk selection. The report also observes that most insurers in the sample have implemented various cyber security measures, indicating a positive awareness and management of their own cyber risk. However, effectiveness is difficult to evaluate due to data gaps and jurisdictional differences. [21 Apr 2023]

BISIH/BoE: Project Meridian - orchestrating synchronised settlement

The Bank for International Settlements Innovation Hub (BISIH) has announced that, working with the Bank of England (BoE), it has concluded Project Meridian - the project which investigated synchronisation in real time gross settlement (RTGS) systems. Project Meridian saw funds in a real estate registry transferred from a buyer to a seller when a corresponding asset on another ledger moved at the same time in the opposite direction. This was achieved via a new entity, a synchronisation operator, which in the experiment used distributed ledger technology (DLT) to interlink the central bank's RTGS system with other financial market infrastructures and ledgers.

The BISIH explains that the Meridian prototype has demonstrated the orchestration of synchronised settlement in central bank money. The generic interface could offer a standard way for synchronisation operators to connect multiple types of asset ledger to an RTGS system and settle in central bank money. [19 Apr 2023]

#DLT

FATF VACG highlights need for worldwide implementation of FATF virtual assets and VASP standards

The Financial Action Task Force (FATF) Virtual Assets Contact Group (VACG) met in Tokyo to discuss global progress and challenges in regulating virtual assets. The VACG agreed on the urgent need for worldwide implementation of the FATF Standards to ensure the sector is effectively regulated and supervised. The discussions at the VACG will feed into the 2023 FATF targeted update on global implementation of the FATF Standards (including the ‘travel rule’) and responses to emerging risks like decentralised financing (DeFi) and peer-to-peer transactions. The FATF expects to finalise the report in June 2023.

In addition, the FATF Plenary has previously agreed on a roadmap to strengthen implementation of FATF Standards on virtual assets and virtual asset service providers (VASPs). As part of this work, in the first half of 2024, the FATF will report on steps FATF members and FSRB countries with materially important virtual asset activity have taken to regulate and supervise VASPs. [17 Apr 2023]

#VASPs

HMT: Cryptoassets financial promotions legislation to be in force by late 2023

In a letter to the chair of the Treasury Committee (TSC), the Economic Secretary to the Treasury has indicated that the legislation to expand the scope of the Financial Promotions Order (FPO) with respect to cryptoasset promotions is expected to be in force by late 2023. [18 Apr 2023]

FCA: Speech on innovation

The FCA has published a speech by Jessica Rusu, FCA Chief Data, Information and Intelligence Officer delivered at the Innovate Finance Global Summit. The FCA set out the following key highlights from the speech:

• the FCA's new Digital Sandbox will support innovative businesses and start-ups in developing new proofs of concept for products and services - this will be up and running from Summer 2023 and will be used for the Global Financial Innovation Network (GFIN) greenwashing TechSprint;
• the FCA is making it easier for firms to engage with its Innovation Services by providing a single point of entry; and
• the FCA is continuing its TechSprint programme with a look at Financial Services Register data (in May 2023), and a global TechSprint looking at greenwashing.

Ms Rusu particularly sought to respond to key questions on reducing the burden on firms, regulatory interoperability (that is, what the UK is doing to align with other domestic and global regulators), and how the FCA uses data (both that it collects and that which is publicly available). She commented that, 'as a tech leader, I am convinced more than ever before that the answers to these questions rest with innovation, AI and digitally enabled regulation'. Ms Rusu then moved on to set out in more detail the transformation which the FCA has undergone in how it engages with innovation. She also explained how the FCA had turned the TechSprint model inwards, running an internal social media TechSprint which deliver ten proof-of-concept models to assist with the identification of online sludge practices, financial promotions scams, greenwashing, and other harmful practices.  [17 Apr 2023]

#TechSprint

#AI

#BigData

JROC/FCA/PSR: Recommendations for the next phase of open banking in the UK 

The Joint Regulatory Oversight Committee (JROC), co-chaired by the FCA and the Payment Systems Regulator (PSR), has published its recommendations for the next phase of open banking in the UK. The recommendations are intended to enable open banking to develop further in a safe, scalable and economically sustainable way. The JROC’s recommendations contain a roadmap of priorities over the next two years across five key themes:

• levelling up availability and performance;
• mitigating the risks of financial crime;
• ensuring effective consumer protection if something goes wrong;
• improving information flows to third party providers (TPPs) and end users; and
• promoting additional services, using non-sweeping variable recurring payments (VRP) as a pilot.

The JROC has also set out its plan for the open banking future entity. A progress report will be published in Q4/2023. [17 Apr 2023]

BoE speech - Innovation in payments and money

The Bank of England (BoE) has published a speech by Sir Jon Cunliffe, Deputy Governor, Financial Stability, on innovation in payments and money delivered at the Innovate Finance Global Summit. In his speech, Sir Jon looks at four areas where the tokenisation of money is now being explored: stablecoins used for payments; the tokenisation of commercial bank deposits; the next stage of the BoE’s work on the Digital Pound; and the BoE's work to ensure resilience and uniformity in new forms of money.

With regard to stablecoins, Sir Jon referred to provisions in the Financial Services and Markets Bill which is currently progressing through Parliament. He explained that the BIll, once enacted, will give the BoE powers to regulate operators of systemic payment systems and systemic service providers using 'digital settlement assets', including stablecoins that are used for payments on a systemic scale within the UK. Similarly, the Bill will give the FCA powers to regulate for conduct and market integrity purposes, the issuance and custody of fiat-referenced stablecoins. Sir Jon confirmed that the BoE and FCA intend to consult later in 2023 on the approach to stablecoins He outlined some key elements of the regulatory framework, including the intention to follow the CPMI-IOSCO guidance on stablecoin arrangements which confirms application of the Principles for Financial Market Infrastructures, and issues which remain to be resolved such as whether there should be limits on stablecoins used for payments. [17 Apr 2023]

#Payments

EP: Votes on MiCA and transfer of funds regulation

The European Parliament (EP) has announced that MEPs have voted in favour of the markets in cryptoassets legislation (MiCA) and the recast regulation on information accompanying transfer of funds and certain cryptoassets.The texts will need to be formally endorsed by Council, before publication in the EU Official Journal of the European Union (OJ). They will enter into force 20 days later and will apply as set out in the legislative texts. [20 Apr 2023]

#Crypto

#MiCA

BNM to co-host virtual AML/CFT Hackathon 2023 to help crack down on financial crime

Bank Negara Malaysia (BNM) has announced that it will co-host the Anti-money Laundering and Countering the Financing of Terrorism (AML/CFT) Hackathon 2023 from 1 to 28 June 2023 in partnership with the Financial Intelligence Consultative Group (FICG). The hackathon aims to support the development of digital solutions to combat financial crime.  Held virtually, the Hackathon will feature workshops and mentoring sessions run by experts in cybersecurity and AML/CFT. Participants will work in teams to prototype innovative digital solutions to specific problem statements. [20 Apr 2023]

#AML/CFT

SCM announces new e-payment platform

The Securities Commission Malaysia (SCM) has announced a new electronic payment hub, known as e-Path. e-Path is part of the SCM’s digital transformation initiatives and enables an easier online payment process for various regulatory and registration fees related to most submissions made to the SCM. e-Path, which will officially launch on 1 May 2023, is intended to enhance the overall user experience through faster and more efficient processing of payments, integration with a range of payment methods, including credit and debit cards, online banking, and access to real-time tracking of payment status. [18 Apr 2023]

Fed speech - Innovation and the future of finance

The Federal Reserve System (Fed) has published a speech on innovation and the future of finance delivered by Governor Christopher J. Waller at the Cryptocurrency and the Future of Global Finance event in Sarasota, Florida. Governor Waller discussed various innovations, including tokenization, smart contracts, and artificial intelligence (AI). He highlighted that innovation can bring benefits to banks and financial institutions, but that risks remain. [20 Apr 2023]

#tokenization

#SmartContracts

Treasury: Meeting of the FBIIC, Joint session of the FBIIC and FSSCC, G7 Cyber Expert Group

In a press release, the Treasury reports that US Deputy Secretary of the Treasury Wally Adeyemo chaired a meeting with members of the Financial and Banking Information Infrastructure Committee (FBIIC) to discuss the group’s collective and individual cybersecurity efforts. The FBIIC includes the leadership of federal financial regulatory agencies and the associations of state regulatory agencies

The Deputy Secretary recognized the agencies’ work to monitor and harden their cyber defenses at a time of increased threats and emphasized the importance of information sharing to support detection of suspicious or malicious activity so that financial entities can better protect themselves. The participants received an update on the efforts of the FBIIC Cloud Working Group and other joint efforts to make progress on incident response plans.

Earlier in the week, Assistant Secretary for Financial Institutions Graham Steele delivered opening remarks at the semi-annual Joint session of the FBIIC and FSSCC (Financial Services Sector Coordinating Council), where he discussed Treasury’s efforts to address cyber threats.

Additionally, the G7 Cyber Expert Group (CEG)—which U.S. Department of the Treasury’s Office of Cybersecurity and Critical Infrastructure (OCCIP) co-chairs alongside the Bank of England—held its quarterly meeting to develop the multi-year plan for the CEG’s activities.  The CEG is focused on a number of issues and workstreams designed to collectively improve the operational resilience of the global financial sector.  [20 Apr 2023]

Fed speech - Considerations for a CBDC

The Fed has published a speech on central bank digital currencies (CBDCs) by Governor Michelle W. Bowman at the Georgetown University McDonough School of Business Psaros Center for Financial Markets and Policy in Washington, DC. Governor Bowman spoke about considerations for policy makers when deciding whether to introduce a CBDC. In particular, she looked at: the different types of problem that a CBDC could solve: some specific design features of a CBDC; and potential unintended consequences. Concluding her remarks, Governor Bowman observed that from her perspective, a wholesale CBDC used in payments and settlement of certain financial market transactions held some promise, however she struggled to see the justification for 'a direct access CBDC for uses beyond interbank and wholesale transactions'.  [18 Apr 2023]

SEC charges crypto asset trading platform and its former CEO for operating an unregistered exchange, broker, and clearing agency

The Securities and Exchange Commission (SEC) has charged a crypto asset trading platform and its co-founder and former CEO for operating an unregistered national securities exchange, broker, and clearing agency. The SEC also charged the platform’s foreign affiliate for failing to register as a national securities exchange in connection with its operation of a single shared order book along with the platform.

Since at least 2014, the company has held itself out as a platform that facilitated buying and selling of crypto assets that the SEC’s complaint alleges were offered and sold as securities. From 2017 through to 2022, the platform earned at least $1.3 billion in revenues from, among other things, transaction fees from investors, including US investors, while servicing them as a broker, exchange, and clearing agency without registering any of these activities with the Commission. [17 Apr 2023]