FinTech Global FS Regulatory Round-up – w/e 25 August 2023

In this weekly post, we round-up FinTech-related financial services regulatory developments for the week ending 25 August 2023.

ICYMI

• Building customer trust in a world powered by technology: The mission faced by legal leaders
• Competition in Digital Markets (Lexology GTDT Fourth Edition)
• US court refuses copyright registration for AI-generated art

UK

PSR Panel Annual Report 2022-23

The Payment Systems Regulator (PSR) Panel has published its Annual Report for 2022-23. The report outlines how the PSR Panel has engaged with the PSR, including, but not limited to:

• providing guidance on the PSR’s annual work program, which included consideration of new issues such as authorised push payment (APP) scams, as well as a focus on more innovative ways to communicate with the broader public;
• advising on data gathering, analysis, alternative data sources and the role of data in providing robust evidence basis for policy action;
• undertaking an annual risk review, with a key focus on the rapid pace of change in technological innovation and market developments as well as the increasingly uncertain economic and political environment;
• assessing the PSR’s card-acquiring market review remedies, emphasising the need for swift delivery, given the speed of market developments; and
• sharing practical advice with respect to clear stakeholder communication and signposting of information. [23 Aug 2023]

#Payments #Data

EU

ECB paper: Micropayments and their impact on the payment ecosystem

The European Central Bank (ECB) has published a paper on the impact of micropayments on the payment ecosystem. Informed by discussions with market stakeholders in the European payment market, the paper presents an analysis of micropayments in terms of the relevant challenges and opportunities, setting out elements for a forward-looking assessment of their potential future role in the digital economy. [23 Aug 2023]

#Payments #DigitalEconomy

EDPS opinions on FIDA and PSD3/PSR

The European Data Protection Supervisor (EDPS) has published two Opinions on: the proposal for a Regulation on a Financial Data Access Framework (FIDA) and one on the proposal for a Regulation and Directive on payment services in the EU’s internal market (PSD3/PSR). Both proposals aim to foster the sharing of data to broaden the offering of financial services and products, whilt providing individuals or organisations control over the processing of their financial data.

The Opinions set out by the EDPS include:

• (to meet the proposal that individuals and organisations would manage access to their financial data using dashboards), the need to provide individuals or organisations with complete, accurate and clear information on the provider of the financial service requesting access to their data, as well as information on the type of product, payment or service for which an individual’s personal data would be used and the types of data requested;
• that the proposals should be consistent with the General Data Protection Regulation (GDPR) and should specify that the granting of ‘permissions’ to access financial data does not equate to giving consent under the GDPR;
• all processing of personal data following a request to access an individual’s financial data must have an appropriate legal basis under the GDPR;
• given the highly sensitive personal data that may be shared in the context of FIDA, a recommendation to clearly circumscribe the types of personal data that can be processed, and to exclude data obtained through the profiling of an individual;
• welcoming the development of Guidelines to set boundaries for the processing of individuals’ personal data, with formal consultation with the European Data Protection Board before adoption; and
• regarding PDS3/PSR, recommendations on fraud prevention, such that the categories of personal data that payment service providers (PSPs) process in this context should be clearly defined and limited to what is strictly necessary and a recommendation that the Regulation specifies which type of payment service and which PSPs would be allowed to process special categories of personal data. [23 Aug 2023]

#OpenFinance #FIDA #GDPR #Payments #Data

Hong Kong

SFC, HKMA and Insurance Authority unveil new fintech promotion roadmap focusing on wealthtech, insurtech, greentech, AI and DLT

The Hong Kong Monetary Authority (HKMA) has published a new fintech promotion roadmap outlining the key initiatives it will undertake over the next 12 months to bolster fintech adoption in the financial services industry. The HKMA worked with the SFC and the Insurance Authority, as well as key stakeholders across different financial sectors, in formulating the roadmap (with the assistance of external consultants).  The HKMA plans to expand its scope of promotion beyond awareness-raising, and begin taking proactive steps to assist financial institutions to put fintech solutions into action.

The roadmap focuses on the fintech business areas of wealthtech, insurtech and greentech, as well as the technology types of artificial intelligence (AI) and distributed ledger technology (DLT). To implement the roadmap, the HKMA will launch a series of activities over the next 12 months, including:

• establishing a Fintech Knowledge Hub which includes a new cross-sectoral directory of fintech service providers and financial institutions to enhance accessibility of resources for various stakeholders in the fintech ecosystem;

• hosting more regular fintech showcase events and roundtables to establish more in-depth communication among financial institutions and fintech service providers;

• organising interactive seminars and training sessions on the specific fintech areas to encourage exchange of practical knowledge across different financial sectors; and

• publishing use case videos and research reports to provide insights into a wider range of practical considerations across the entire fintech adoption lifecycle.

The SFC, the HKMA and the Insurance Authority have issued a joint circular regarding the roadmap. They encourage financial institutions to take an active part in the upcoming fintech promotion initiatives and fully leverage the opportunities for more dynamic exchange of knowledge, to inform the implementation of the institutions' fintech strategies as well as put fintech solutions into action.  [25 Aug 2023]

#WealthTech #InsurTech #GreenTech #AI #DLT

HKMA releases report 'Bond Tokenisation in Hong Kong'

The HKMA has released a report 'Bond Tokenisation in Hong Kong', which summarises learnings from the Government's inaugural tokenised green bond offering and outlines potential next steps to promote the wider use of tokenisation technology in Hong Kong's bond market. Bond tokenisation is one of the pilot projects announced in the Financial Services and Treasury Bureau's Policy Statement on Development of Virtual Assets in Hong Kong issued on 31 October 2022 (see our previous update).  In February 2023, the HKMA assisted the Government in the successful offering of HK$800 million of tokenised green bonds under the Government Green Bond Programme, marking the first tokenised green bond issuance by a government globally (see our previous update). The use of distributed ledger technology has been applied to primary issuance, settlement of secondary trading and coupon payment, and will be tested out in maturity redemption.  The HKMA and the Government will work with the industry to conduct further tokenised issuances.

The report:

• outlines details of the inaugural tokenised green bond, and suggests options available in tokenised bond transactions in Hong Kong, ranging from technology and platform design to deal structuring considerations;

• serves as a blueprint for potential similar issuances in Hong Kong;

• considers what could be done to further promote tokenisation in the bond market, including exploring further use cases, addressing issues of fragmentation across platforms and systems, and enhancing Hong Kong’s legal and regulatory framework.  [24 Aug 2023]

#Tokenisation #GreenBond #Platforms #VirtualAssets

Philippines

BSP: Commitment to digital system and global central banking standards 

Bangko Sentral ng Pilipinas (BSP) has reaffirmed its commitment to adopt global central banking standards and transition to a digital financial system while promoting price stability, financial stability, and an efficient payments and settlements system in the country. [24 Aug 2023]

#Digital #Payments

BSP retains ceilings on credit card transactions

BSP has announced its decision to maintain the current ceilings on credit card transactions in order to strike a balance between providing consumers with access to credit card financing at steady rates and ensuring long-term viability of banks/credit card issuers to enable them to continue to provide quality service to their clients. BSP will continue to pursue strategies to promote digitalisation in the financial industry. [22 Aug 2023]

#Digitalisation

India

RBI: Enhancing transaction limits for small value digital payments in offline mode

The Reserve Bank of India (RBI) has announced that the upper limit of an offline payment transaction is increased to ₹500. [24 Aug 2023]

#Payments

US

SEC charges former NJ corrections officer with crypto fraud scheme targeting law enforcement personnel

The Securities and Exchange Commission (SEC) has charged a former New Jersey State Correctional Police Officer with fraudulently raising funds through the unregistered offering of a crypto asset security he created but that collapsed in May 2022. The SEC also charged the defendant with misappropriating investor funds, much of which he sent to his personal crypto asset wallets and used to pay for a bathroom renovation.

According to the SEC’s complaint, from the token’s launch in November 2021 to its eventual collapse, the defendant raised at least $620,000 from approximately 220 investors. As the complaint alleges, the defendant claimed that the token would replace existing state pension systems and falsely told investors that the token was registered with the SEC; that he had arranged for the token to be purchased by automatic payroll deduction; and that investors were guaranteed to receive extraordinary returns. Ultimately, the defendant misappropriated and misused investor funds. According to the complaint, the defendant targeted law enforcement and first responders.  [23 Aug 2023]

#Crypto

SEC charges FinTech investment adviser for misrepresenting hypothetical performance of investments and other violations

The SEC has announced charges against a New York-based FinTech investment adviser for using hypothetical performance metrics in advertisements that were misleading. The SEC also charged the company with multiple compliance failures that led to misleading disclosures about custody of clients’ crypto assets, the use of improper “hedge clauses” in client agreements, the unauthorized use of client signatures and the failure to adopt policies concerning crypto asset trading by employees.

According to the SEC’s order, for a period ranging from August 2021 to October 2022, the company, which offers multiple complex strategies to retail investors through its mobile trading app, made misleading statements on its website regarding hypothetical performance, including by advertising “annualized” performance results as high as 2,700 percent for its crypto strategy. The order alleges that the company’s advertisements were misleading because they failed to include material information, for example, that the hypothetical performance projections assumed that the strategy’s performance in its first three weeks would continue for an entire year. The order also finds that the company violated the marketing rule by advertising hypothetical performance metrics without having adopted and implemented required policies and procedures or taking other steps required by the SEC’s marketing rule, which was amended in December 2020.  [21 Aug 2023]

#FinTech #Crypto