FinTech Global FS Regulatory Round-up - w/e 30 June 2023

Global

BIS FSI publishes summary of FSB proposals on cryptoasset regulation

The Financial Stability Institute (FSI) at the Bank for International Settlements (BIS) has published an executive summary of the FSB's proposed framework for the international regulation of cryptoasset activities.  The summary provides a useful, short overview of the topics. [29 Jun 2023]

#cryptoassets

FATF reports on Recommendation 15 implementation – VA and VASPs, DeFi, NFTs, P2P, stablecoins

The Financial Action Task Force (FATF) has published an update report on: country compliance with FATF’s Recommendation 15 and its Interpretative Note (R.15/INR.15) regarding virtual assets (VA) and virtual asset service providers (VASPs), including the Travel Rule; and on emerging risks and market developments, including with regard to decentralized finance (DeFi), peer-to-peer transactions (P2P), non-fungible tokens (NFTs), unhosted wallets, and stablecoins.  Among the findings are:

• that jurisdictions are continuing to struggle with fundamental requirements such as undertaking a risk assessment, enacting legislation to regulate VASPs, and conducting a supervisory inspection;
• that jurisdictions have made insufficient progress on implementing the Travel Rule;
• there has been collaboration among the private sector members to improve industry compliance with R.15/INR.15 including the Travel Rule; and
• while DeFi and unhosted wallets including P2P do not account for a large share of transactions, they are at risk of misuse, including by sanctioned actors.

To address the findings of the report, the FATF will:

• continue to conduct outreach and provide assistance to low-capacity jurisdictions;
• identify and publish the steps that FATF member jurisdictions and other jurisdictions with materially important VASP activities have taken towards implementing R.15/INR.15;
• facilitate sharing of finding, experiences, and challenges including relating to DeFi, unhosted wallets and P2P, and continue to monitor market trends for developments that may necessitate further FATF work; and
• conduct a further review on progress and remaining challenges for implementation by June 2024. [28 Jun 2023]

#cryptoassets #virtualassets #DeFi #P2P #NFTs

IMF Fintech Note: Institutional Arrangements for Fintech Regulation

The International Monetary Fund (IMF) has published Institutional Arrangements for Fintech Regulation: Supervisory Monitoring. The paper discusses the effective monitoring of new developments in fintech such that new risks are promptly and accurately identified and addressed. It identified four broad approaches to improve access to data, monitor new developments and help determine regulatory responses: (i) existing supervisory structures; (ii) innovation hubs; (iii) sandboxes; and (iv) TechSprints.

The paper held that, for most authorities, existing supervisory structures will allow them to effectively monitor new fintech developments and respond to challenges. [27 Jun 2023]

#FintechRegulation #Sandboxes #TechSprint

UK

FCA: Changes to Handbook - cryptoassets fin proms instrument

The FCA has published a Handbook Notice which sets out recent changes to the Handbook covering the following instruments, including  the Cryptoasset Financial Promotions Instrument 2023.  [30 Jun 2023]

#cryptoassets

HHJ Pelling KC provides an update on issues in cryptocurrency fraud claims

The Courts and Tribunals Judiciary service has published the speech delivered by His Honour Judge Mark Pelling KC in which he provided an update on issues in cryptocurrency fraud claims to the ThoughtLeaders4 Annual Crypto in Disputes Conference. During his talk, Judge Pelling noted the Law Commission's final report, 'Digital Assets' which was published on 29 June, commenting on the recommendations made and noting in particular, the novel proposal that HM Government (HMG) establish a panel of industry experts to provide non-binding guidance on developments in the digital asset space.  He also discussed the evolving characteristics of fraud claims relating to cryptocurrencies.  [30 Jun 2023]

#cryptocurrency

BoE speech: Enhancing cross-border payments

The Bank of England (BoE) Executive Director for Banking, Payments and Innovation Victoria Cleland addressed the Global Payments Summit in Cape Town on the topic of cross-border payments. Ms Cleland outlined the BoE's recent achievements in respect of enhancing cross-border payments, including change to the UK real-time gross settlement (RTGS) service. She also discussed the road ahead, with reference to international engagement via the Financial Stability Board (FSB), Committee on Payments and Market Infrastructures (CPMI), and others. [29 Jun 2023]

#payments #RTGS

FOS reports on fraud and scam complaints, warns of uptick in 'hybrid' scams

In a press release, the FOS has reported that it received 21,918 complaints concerned frauds and scams in 2022/23, which is up by almost a fifth against the 18,450 complaints received in 2021/22.  Of those, 10,985 concerned authorised push payment (APP) scams – a 17% increase from 2021/22. There was also an increase in complex scam complaints – over a third of APP scam complaints concerned investment scams, the majority including an element of cryptocurrency.  There is also an increase in 'hybrid' scams, which the FOS explains involve romance scams, purchase scams, and 'safe account' scams (where victims are scammed into moving money to cryptocurrency accounts for safe keeping). The FOS highlights that the measures banks have in place need to respond to these changes in tactics.

With regard to uphold rates, the FOS comments that the rate for fraud remains higher than the average or all financial products and services (35%) – with the rate for all frauds including APP scams being 45%, and the rate for APP scams alone being 54%. [28 Jun 2023]

#APPScams #crypto

Law Commission makes recommendations regarding the law relating to digital assets

The Law Commission of England and Wales has published a report setting out recommendations for reform and development of the law relating to digital assets. The Commission explains that the common law of England and Wales is well placed to provide a coherent and globally relevant regime for existing and new types of digital asset. Its recommendations include:

• Legislating to confirm the existence of a distinct third category of personal property under the law which can better recognise, accommodate and protect the unique features of digital assets. The report does not set out clear boundaries for this third category, arguing instead that common law is the best vehicle to determine which objects can fit within it. This will allow for a nuanced approach to recognising that things such as crypto-tokens, export quotas or different types of carbon emissions allowance can be objects of personal property rights.
• Creation of a panel of industry-specific technical experts, legal practitioners, academics and judges to provide non-binding advice to courts on complex legal issues relating to digital assets.
• Creation of a bespoke legal framework that better facilitates the entering into, operation and enforcement of collateral arrangements relating to crypto-tokens and crypto-assets.
• Statutory law reform to clarify whether certain digital assets fall within the scope of the Financial Collateral Arrangements (No 2) Regulations 2003. [28 Jun 2023]

#cryptocurrency #digitalassets

FCA: JROC launches VRP and future entity working groups

The FCA has announced that the Joint Regulatory Oversight Committee (JROC) has set up dedicated workstreams to action the six key themes and priorities outlined in its recommendations for the next phase of open banking in the UK. This includes launching two new working groups on variable recurring payments (VRP) and future open banking entity.

The VRP working group will develop a blueprint for the phased roll-out of non-sweeping VRP by the end of September 2023, while the future entity working group will consider the design of the future open banking entity, including its role, structure, and funding.

The working groups will report to the JROC by the end of September 2023 and the JROC will publish its views in an update towards the end of 2023. [27 Jun 2023]

#OpenBanking #OpenFinance

JROC publishes commercial pricing principles for open banking

The Joint Regulatory Oversight Committee (JROC) has published a joint paper setting out five high-level principles for banks and registered third parties to follow when agreeing a premium Application Programming Interface (API) commercial model.

The JROC sets out that fees and charges for premium APIs should:

• broadly reflect relevant long-run costs of providing premium API;
• incentivise investment and innovation in premium APIs;
• incentivise take-up of open banking by consumers and businesses and use of network effects;
• treat third-party providers fairly; and
• be transparent.

The paper notes that these principles should be read collectively rather than individually, and that they should be used as a guide to making progress, piloting commercial models and testing new premium APIs. [26 Jun 2023]

#OpenBanking

Europe

EP and Council reach provisional political agreement on eID, amending the eIDAS Regulation

The European Parliament (EP) and the Council have reached provisional political agreement on the core elements of a new framework for a European digital identity (eID).

The EC had proposed a framework for an eID via a European digital identity wallet in June 2021. The proposed new framework amends the 2014 regulation on electronic identification and trust services for electronic transactions in the internal market (eIDAS regulation). The proposal requires Member States to issue a digital wallet under a notified eID scheme, built on common technical standards, following compulsory certification.

Technical work will continue to complete the legal text in accordance with the political agreement. The revised regulation will then need to be formally adopted by the Parliament and the Council before it can be published in the EU’s Official Journal (OJ) and enter into force 20 days later.

The EC has issued a press release welcoming the agreement, and published a set of questions and answers (Q&A) about the eID wallet.  [30 Jun 2023]

#DigitalID #e-ID

ECB contact group meeting marks start of exploratory work on using DLT in wholesale settlement

The European Central Bank (ECB) has issued a press release following the first meeting of the new technologies for wholesale settlements contact group (NTW-CG) which took place on 21 June. The ECB explained that the meeting marked the start of the Eurosystem’s exploratory work on how wholesale financial transactions recorded on distributed ledger technology (DLT) platforms could be settled in central bank money.

The presentations and outcome of the meeting have been made available on a dedicated page the ECB website. [29 Jun 2023]

#DLT

ECB Supervisory Board member address Finance AML Europe 2023

The ECB has published the address delivered by Elizabeth McCaul, Member of the Supervisory Board of the ECB to the Leaders in Finance Anti-Money Laundering (AML) Europe 2023 event. Ms McCaul spoke about:

• the importance of finalising the legislative discussions on the EU's new AML package and establishing an AML authority;
• how the ECB looks at sanctions compliance from a prudential supervision perspective; and
• the use of artificial intelligence (AI) for AML and countering the financial of terrorism (CFT). [29 Jun 2023]

#AI #machinelearning

EP: ECON votes to update SEPA, ensuring accessibility of instant payments in euro

In a press release, the European Parliament (EP) has announced that its Economic and Monetary Affairs Committee (ECON) has voted on new rules to update the Single European Payment Area (SEPA) legislation to ensure instant credit transfers are accessible to consumers and businesses across the EU. The ECON negotiators are now ready to start talks with the Council, which has already adopted its position. [29 Jun 2023]

#SEPA

EC puts forward new financial data access and payments package, facilitating open banking

The European Commission (EC) has presented proposals to modernise European payments legislation, including facilitating open banking. Two sets of measures are proposed:

• Revising the Payment Services Directive (PSD2) and introducing a new Payment Services Regulation (PSR). This package includes measures which:
  • Combat and mitigate payment fraud, by enabling payment service providers to share fraud-related information between themselves, increasing consumers' awareness, strengthening customer authentication rules, extending refund rights of consumers who fall victim to fraud and making a system for checking alignment of payees' IBAN numbers with their account names mandatory for all credit transfers.
  • Improve consumer rights, in cases for example where their funds are temporarily blocked, improve transparency on their account statements and provide more transparent information on ATM charges.
  • Further levelling the playing field between banks and non-banks, in particular by allowing non-bank payment service providers access to all EU payment systems, with appropriate safeguards, and securing those providers' rights to a bank account.
  • Improve the functioning of open banking, by removing remaining obstacles to providing open banking services and improving customers' control over their payment data, enabling new innovative services to enter the market.
  • Improve the availability of cash in shops and via ATMs, by allowing retailers to provide cash services to customers without requiring a purchase and clarifying the rules for independent ATM operators.
  • Strengthen harmonisation and enforcement, by enacting most payment rules in a directly applicable regulation and reinforcing provisions on implementation and penalties.
• A legislative proposal for a framework for Financial Data Access which will establish clear rights and obligations to manage customer data sharing in the financial sector beyond payment accounts, namely:
  • Possibility but no obligation for customers to share their data with data users in secure machine-readable format to receive new, cheaper and better data-driven financial and information products and services.
  • Subject to customers' permission, an obligation for customer data holders (eg financial institutions) to make this data available to data users by putting in place the required technical infrastructure.
  • Full control by customers over who accesses their data and for what purpose, facilitated by a requirement for dedicated permission dashboards and strengthened protection of customers' personal data in line with the General Data Protection Regulation (GDPR).
  • Standardisation of customer data and the required technical interfaces as part of financial data sharing schemes, of which both data holders and data users must become members.
  • Clear liability regimes for data breaches and dispute resolution mechanisms as part of financial data sharing schemes so that liability risks do not act as a disincentive for data holders to make data available.
  • Additional incentives for data holders to put in place high-quality interfaces for data users through reasonable compensation from data users in line with the general principles of business-to-business (B2B) data sharing laid down in the Data Act proposal (and smaller firms will only have to pay compensation at cost).

The European Commission (EC) is now accepting comments on the proposed legislative texts:

• payment services, revision of EU rules – new Regulation and new Directive; and
• open finance framework, enabling data sharing and third party access in the financial sector – a new Regulation.

Feedback is requested by 25 August 2023.  [28 Jun 2023]

#OpenBanking #OpenFinance #Data

EC sets out Single Currency Package – supporting the use of cash and providing a framework for a digital euro

The EC has put forward a new Single Currency Package which comprises two mutually supportive sets of measures to ensure that people have both payment options – cash and digital – when they want to pay with central bank money.  The package comprises:

• A legislative proposal on the legal tender of euro cash to safeguard the role of cash, ensure it is widely accepted as a means of payment and remains easily accessible for people and businesses across the euro area. Member States will need to ensure widespread acceptance of cash payments, as well as sufficient and effective access to cash. They will need to monitor and report on the situation and take measures to address any problems identified. The EC would be able to step in to specify measures if necessary.
• A legislative proposal establishing the legal framework for a possible digital euro as a complement to euro banknotes and coins. The EC explains that if the proposal to establish the legal framework for the digital euro is adopted by the European Parliament (EP) and Council, it will ultimately be for the European Central Bank (ECB) to decide if and when to issue the digital euro.  The framework is set out in contemplation that:
  • the digital euro would be available alongside existing national and international private means of payment, such as cards or applications;
  • it would work like a digital wallet;
  • people and businesses could pay with the digital euro anytime and anywhere in the euro area;
  • it would be available for payments both online and offline, with a high degree of privacy and data protection for users both offline and online;
  • banks and other payment service providers across the EU would distribute the digital euro;
  • basic digital euro services would be provided free of charge to individuals;
  • to foster financial inclusion, individuals who do not have a bank account would be able to open and hold an account with a post office or another public entity, such as a local authority;
  • it would also be easy to use, including for persons with disabilities; and
  • merchants across the euro area would be required to accept the digital euro, except very small merchants who choose not to accept digital payments.

The European Commission (EC) is now accepting comments on the proposed legislative texts:

• clarifying the legal tender status of euro banknotes and coins – a new Regulation; and
• a digital euro – a new Regulation.

Feedback is requested by 25 August 2023.  [28 Jun 2023]

#DigitalEuro

EC/ECB: Why Europe needs a digital euro

The ECB has published to its blog a new piece co-authored by Fabio Panetta, Member of the Executive Board of the ECB, and Valdis Dombrovskis, Executive Vice-President of the EC which sets out, at a high level, key arguments in favour of introducing a digital euro – from consumer convenience through to maintaining the global position of the euro, monetary sovereignty and financial stability.  The article has also been published in several European newspaper. [28 Jun 2023]

#DigitalEuro

Hong Kong

FINI: Information provided on market practice sessions, market rehearsals and rule updates for launch in October 2023, and second MOU addendum signed

The HKEX has announced that its new IPO settlement platform, Fast Interface for New Issuance (FINI), will be launched in October 2023.  FINI is intended to modernise and digitalise the IPO settlement process and drive efficiency by shortening the time between the pricing of an IPO and the trading of shares from five business days (T+5) to two business days (T+2).

FINI will operate on a cloud-based platform, enabling different stakeholders such as IPO sponsors, underwriters, legal advisers, banks, clearing participants, share registrars and regulators to collaborate and perform their respective roles in an IPO digitally.  The platform will also incorporate a new public offer pre-funding model to help alleviate the scale of funds that are locked up in over-subscribed IPOs.

Following the recent completion of external user testing (see our previous update), the HKEX has arranged for market practice sessions and market rehearsals to take place in July and August 2023 respectively, which will involve simulating end-to-end IPO settlement operations under FINI.  Details are set out in a circular issued by the Hong Kong Securities Clearing Company Limited (HKSCC).  IPO market participants are strongly encouraged to participate to ensure that their staff and systems can support FINI from the first day of its live operations.  In addition, two webinar briefings will be held in July 2023 for all FINI users.  Details are available in the above circular and the deadline for registration is 3 July 2023.

The HKEX has also published updates to relevant Listing Rules, HKSCC Rules and HKSCC Operational Procedures, which will take effect on the commencement date of FINI.  They are available on the "Launch of FINI Platform" webpage, together with an information paper.

In addition, the SFC and The Stock Exchange of Hong Kong Limited (SEHK) have signed a second addendum to the Memorandum of Understanding Governing Listing Matters (MOU).  This second addendum will facilitate the HKEX's plan to introduce FINI in the second half of 2023.  Among other things, it sets out provisions that signify the acceptance and consent of the SFC and the SEHK to the electronic receipt of information and documents, and to the use of electronic signatures on information and documents provided by issuers and their advisers and agents via FINI.  [28 Jun 2023]

#Markets #FINI

Green Technology and Finance Development Committee established and holds first meeting

Under the chairmanship of the Financial Secretary, Mr Paul Chan, the Green Technology and Finance Development Committee has been established and held its first meeting.

The committee has been set up following the Financial Secretary's commitment in the 2023-24 budget to assist with promoting the development of Hong Kong into an international green technology and finance centre.  The committee is comprised of representatives from relevant policy bureaux, departments and financial regulators.  There are also 13 non-official members from relevant industries, whose term will run from 23 June 2023 to 22 June 2025.

At the first meeting, the committee learnt about the Government's goals and strategies for achieving carbon neutrality and the work by relevant policy bureaux and financial regulators in driving the development of green technology and finance.  Members also discussed and shared views on further promoting development in these areas.

Looking forward, Mr Chan envisions Hong Kong strengthening co-operation with its sister cities in the Greater Bay Area, in addition to attracting funds, technology and talent from within the region and around the world, and channelling funds to support green transformation in the region, with a focus on accelerating the development of the 'dual engine' of green technology and green finance.  [23 Jun 2023]

#GreenTech

Singapore

MAS publishes speech by Deputy PM at Point Zero forum

MAS has published a speech by Heng Swee Keat, Deputy Prime Minister and Coordinating Minister for Economic Policies, at the Point Zero Forum. Issues discussed include fostering safe and responsible use of AI; commitment to sustainability and the green transition; and building and renewing trust for cross-border digital finance.

Mr Keat concluded his speech by reiterating the importance of strengthening collaboration to chart the way ahead for fintech.  [26 Jun 2023]

#AI #MachineLearning #GreenTech

MAS proposes framework for Digital Asset Networks

MAS has published a report proposing a framework for designing open, interoperable networks for digital assets. The report was jointly developed with subject matter experts at the Bank for International Settlements’ (BIS) Committee on Payments and Market Infrastructure (CPMI), with contributions from participating financial institutions.

The report is part of MAS’ effort to ensure that emerging digital asset networks are underpinned by international standards which promote safe and efficient financial market infrastructure.  [26 Jun 2023]

#Cryptocurrencies #DigitalAssets

MAS releases toolkit for use of AI in Financial Sector

MAS has announced the release of an open-source toolkit for the responsible use of AI in the financial industry. The Veritas Toolkit 2.0, developed by an MAS-led consortium of 31 industry players, aims to help financial institutions (FIs) carry out the assessment methodologies for the Fairness, Ethics, Accountability and Transparency (FEAT) principles. The FEAT principles provide guidance to firms offering financial products and services on the responsible use of AI and data analytics.

The consortium also published a white paper detailing the key lessons learnt by seven FIs which piloted the integration of Veritas methodology with their internal governance framework.  [26 Jun 2023]

#AI #MachineLearning

Indonesia

OJK rolls out new regulation on AML, CTF and counter-proliferation financing (CPF) in the financial services sector

On 14 June 2023, the Financial Services Authority (Otoritas Jasa Keuangan or 'OJK') issued OJK Regulation No. 8 of 2023 on the Implementation of AML, CTF and CPF Program in the Financial Services Sector ('OJK Regulation 8/2023'), revoking OJK Regulation No. 12/POJK.01/2017 on the same subject (as amended, 'OJK Regulation 12/2017') (both in Indonesian language). Set out below are the key changes introduced by OJK Regulation 8/2023.

• Reporting financial institutions ('reporters') are now itemised. OJK Regulation 12/2017 previously categorised reporters into 3 broad categories (ie. banking, capital markets and non-bank financial institutions). Now, OJK Regulation 8/2023 lists out all 18 types of reporters. See the end of this write-up for the full list.
• Reporters are required to prepare annual individual risk assessment (IRA) on AML, CTF and CPF risks.
• Reporters can block a customer's account without prior notice in the event that such customer's (or its beneficial owner's) information matches a blocked person's. This is in order to mitigate sanction evasion.
• Reporters must engage third-party professionals that implements AML, CTF and CPF and registered in the Indonesian Financial Transaction Reports and Analysis Centre (INTRAC).
• failure to comply with the various obligations set out under OJK Regulation 8/2023 are subject to sanctions such as written reprimands, administrative fines, a downgrade of financial soundness assessment, limitation and/or suspension of certain activities, as well as the prohibition to become a key person of a financial institution.
• OJK Regulation 8/2023 no longer imposes dismissal of financial institutions management and/or the inclusion of key persons of financial institutions in OJK’s blacklist.

A full list of reporters can be seen below. Notable additions are trustees and IT-based crowdfunding platform operators.

OJK 8/2023 enters into full force and effect as of 14 June 2023. Existing reporters must adjust their AML, CTF and CPF program to comply with OJK Regulation 8/2023 within 6 months thereafter.  [30 Jun 2023]

#AML #Crowdfunding

Malaysia

SCM launches Islamic fintech initiative

The Securities Commission, Malaysia (SCM) has announced the launch of FIKRA ACE, a fintech initiative that aims to enhance the Islamic capital market (ICM) ecosystem by facilitating the development of Islamic fintech through a structured approach. The initiative will identify companies with fintech solutions to nurture, grow, and connect with the ICM ecosystem in various segments. The initiative also aims to support the Islamic fintech space by building capacity and a talent pipeline for the industry.

Companies with innovative fintech solutions are invited to submit applications by 4 August 2023.  [27 Jun 2023]

#FinTech

USA

CFTC Division of Enforcement creates two new task forces for cybersecurity & emerging tech, and environmental fraud

The Commodity Futures Trading Commission’s (CFTC's) Division of Enforcement has announced it has established two new task forces. The Cybersecurity and Emerging Technologies Task Force will address cybersecurity issues and other concerns related to emerging technologies (including artificial intelligence). The Environmental Fraud Task Force will combat environmental fraud and misconduct in derivatives and relevant spot markets. The task forces are comprised of attorneys and investigators across different offices within the Enforcement Division, who will prosecute cases, serve as subject matter experts, and coordinate efforts with the CFTC’s other divisions and offices.  [29 Jun 2023]

#cyber #emergingtech #AI

CFTC announces that Federal Court orders Ohio man to pay over $50 million for fraudulent digital asset trading scheme

The CFTC has announced that on June 13, Judge Naomi Reice Buchwald of the US District Court for the Southern District of New York issued a default judgment granting a permanent injunction against an Ohio resident. The order bans the defendant from trading in any CFTC-regulated markets and registering with the CFTC. It also requires him to pay $27 million in restitution to defrauded victims and a $27 million civil monetary penalty in connection with a fraudulent digital asset trading scheme. [28 Jun 2023]

#cryptocurrencies #digital assets