FinTech Global FS Regulatory Round-up – w/e 27 October 2023

In this regular post, we round-up FinTech-related financial services regulatory developments for the week ending 27 October 2023.

ICYMI

• The Digital Euro Project: Recent developments – the European Commission and ECB perspectives
• UK Online Safety Act Becomes Law: What can organisations do now to prepare?
• Economic Crime and Corporate Transparency Act passed in UK Parliament
• Cryptoasset Regulation: UK government publishes policy papers on future regulation of cryptoassets and fiat-backed stablecoins

Global

Wolfsburg Group publishes updated payment transparency standards

The Wolfsburg Group has published an updated version of its Payment Transparency Standards, which the Group first introduced in 2017. The updated standards aim to:

• broaden coverage from financial institutions (FIs) to all types of payment service providers and use the ISO 20022 terms;
• expand the list of stakeholders to include payment market infrastructures and competent authorities;
• affirm that all payments should be treated equally regardless of the type of entity processing them, and that the entity initiating the payment flow should have the primary obligation to ensure transparency;
• address the fact that certain intermediaries in the payment flow, by nature of the limited information they see in the normal course of business, should not be held accountable for the transparency and compliance obligations of the entity initiating the flow; and
• provide illustrated examples of real-world payment chains highlighting their inherent transparency challenges. [24 Oct 2023]

#Payments

United Kingdom

FCA publishes cryptoasset registration information for applicants

The FCA has published a new webpage with information for applicants on cryptoasset registration. The page contains questions and answers (Q&As) on preparing for registration and the submission of applications. The Q&A's cover a wide range of topics, such as:

• requirements around firms' risk assessments;
• cryptoasset activities that are in scope of the of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017;
• financial projections required; and
• registration fees. [27 Oct 2023]

#Cryptoasset #AML #CFT

BoE Deputy Governor discusses three regulatory focus areas of digital currencies

The Bank of England (BoE) has published a speech by Jon Cunliffe, Deputy Governor, on financial stability, delivered at the Economics of Payments XII Conference at the Federal Reserve Board, in Washington DC. Mr Cunliffe outlines three regulatory responses which followed Facebook's 2019 announcement that it was launching a digital currency. These were:

• the G20 roadmap to improve cross-border payments, including further upgrades to central bank and private sector payment systems, implementing the data standards for cross-border ISO 20022 payment messages and develop harmonised standards for application programming interfaces (APIs), and facilitating interlinking of fast payment systems;
• the BoE's exploration of a central bank digital currency (the Digital Pound); and
• the regulation in the UK of systemic payment systems using stablecoins. [27 Oct 2023]

#DigitalCurrencies #CBDC #DigitalPound #Stablecoins

FCA publishes transcript of Annual Public Meeting

The FCA has published the transcript of its Annual Public Meeting (APM). Questions asked at the APM included, among others, the following topics:

• investment scams;
• the potential conflict of interest inherent in the FCA's role as both an industry regulator and promoter of the industry's competitiveness;
• the FCA's ability to keep pace with regulatory change;
• artificial intelligence (AI) regulation; and
• the FCA's guidance on financial promotions and finfluencers. [26 Oct 2023]

#Finfluencers #AI

FCA/PRA: Responses to AI DP

The FCA and PRA have issued Feedback Statement 2/23 (FS2/23) which summarises responses received to their jointly-issued Discussion Paper 5/22 AI and machine learning (DP5/22).

The key points made by respondents were:

• A regulatory definition of AI would not be useful. Many respondents pointed to the use of alternative, principles-based or risk-based approaches to the definition of AI with a focus on specific characteristics of AI or risks posed or amplified by AI.
• As with other evolving technologies, AI capabilities change rapidly. Regulators could respond by designing and maintaining ‘live’ regulatory guidance, in other words regulators could periodically update guidance and examples of best practice.
• The regulatory landscape is complex and fragmented with respect to AI. More coordination and alignment between regulators, domestic and international, would therefore be helpful.
• Most respondents said that data regulation, in particular, is fragmented, and that more regulatory alignment would be useful in addressing data risks, especially those related to fairness, bias, and management of protected characteristics.
• A key focus of regulation and supervision should be on consumer outcomes, especially with respect to ensuring fairness and other ethical dimensions.
• Increasing use of third-party models and data is a concern and an area where more regulatory guidance would be helpful. Respondents also noted the relevance of DP3/22 Operational resilience: Critical third parties to the UK financial sector.
• AI systems can be complex and involve many areas across the firm. Therefore, a joined-up approach across business units and functions could be helpful to mitigate AI risks. In particular, closer collaboration between data management and model risk management teams would be beneficial.
• While the PRA's model risk management principles as set out in Supervisory Statement 1/23 Model risk management principles for banks (SS1/23) are sufficient to cover AI model risk, there are areas which could be strengthened or clarified.
• Existing firm governance structures (and regulatory frameworks such as the Senior Managers and Certification Regime (SMCR)) are sufficient to address AI risks. [26 Oct 2023]

#AI #OperationalResilience

HMT: Policy paper on Regulatory Perimeter Meeting with the FCA

HM Treasury (HMT) has published a record of the joint HMT and FCA Regulatory Perimeter Meeting, which took place in July 2023. Among the topics discussed were cryptoassets and high-risk (eg sports-related) non-financial betting products.

The Economic Secretary to the Treasury agreed to consider the issues raised as part of HMT’s ongoing work. [26 Oct 2023]

#Cryptoassets

FCA warns about common issues with cryptoasset promotions

The FCA has issued a statement setting out three common issues the regulator has identified in relation to cryptoasset financial promotions, following the introduction of the new regime on 8 October 2023. These comprise:

• promotions making claims about the ‘safety’, ‘security’ or ease of using cryptoasset services without highlighting the risk involved;
• risk warnings not being visible enough due to small fonts, hard-to-read colouring or non-prominent positioning; and
• firms failing to provide customers with adequate information on the risks associated with specific products being promoted.

The FCA reiterated that it continues to identify and act against firms that are illegally promoting cryptoassets to UK consumers. In this regard, the FCA has so far issued 221 alerts since the regime went live. [25 Oct 2023]

#Cryptoasset

PSR: Guidance for PSPs on publishing APP fraud data

The Payment Systems Regulator (PSR) has published guidance for directed payment service providers (PSPs) that must publish authorised push payment (APP) fraud data under Specific Direction 18. The guidance explains the content that must be included, the format that must be used, and the timescales that must be followed. [24 Oct 2023]

#APPFraud

HMT: Joint statement on EU-UK Financial Regulatory Forum

HM Treasury (HMT) and the European Commission (EC) have issued a joint statement on the first EU-UK Financial Regulatory Forum, which took place in London on 19 October 2023. Participants at the forum included the FCA, the Bank of England (BoE), the European Supervisory Authorities (EBA, ESMA and EIOPA – ESAs) and the European Central Bank (ECB).

Among the topics discussed were developments in cryptoassets, stablecoins, and retail central bank digital currencies (CBDC).

The forum was established following the signing of the UK-EU Memorandum of Understanding on Financial Services Cooperation on 27 June 2023. The next meeting is expected to take place in Spring 2024 in Brussels. The UK and the EU agreed to follow up on topics discussed by the next meeting. [24 Oct 2023]

#Cryptoasset #Stablecoin #CBDC

Europe

EIOPA: October 2023 newsletter

The European Insurance and Occupational Pensions Authority (EIOPA) has published its October 2023 newsletter. The newsletter highlights:

• the impact of inflation on the insurance sector;
• the European Parliament's (EP's) Committee on Economic and Monetary Affairs (ECON) hearing; and
• EIOPA's digital strategy. [26 Oct 2023]

#Digitalisation

EC consults on proposal for adapting ADR to digital markets

The European Commission (EC) has published the proposal on alternative dispute resolution, including discontinuing the EU online dispute resolution (ODR) platform, which it has adopted for stakeholder comment. Feedback on the proposal is currently requested by 19 December 2023; the response date may be extended subject to the preparation of translations of the proposal into all EU languages. [24 Oct 2023]

#DigitalMarkets

Council adopts directive on financial services contracts concluded at a distance

The Council of the European Union has announced that it has adopted a directive which repeals the 2002 Distance Marketing (Financial Services) Directive (DMD(FS)) and introduces new provisions for financial services contracts concluded at a distance as an additional chapter of the Consumer Rights Directive.

The final text of the directive:

• clarifies the scope of application and the safety net-feature for financial services;
• seeks to improves the rules on information disclosure and modernises pre-contractual information obligations;
• establishes the right of consumers to request human intervention on sites that display automatic information tools like robo-advice or chatbots;
• facilitates the right of withdrawal from contracts concluded at a distance through an easy-to-find 'withdrawal function' in the provider's interface; and
• introduces additional protection for consumers from dark patterns (a user interface designed to trick users into doing unplanned things, like buying products they were not looking for).

The directive will enter into force on the twentieth day following its publication in the European Journal of the EU (OJ). [24 Oct 2023]

#ChatBots #DarkPatterns

EIOPA Chair speech at hearing of the ECON Committee

The European Insurance and Occupational Pensions Authority (EIOPA) has published the speech by its Chair, Petra Hielkema, at the annual hearing with the Economic and Monetary Affairs (ECON) Committee of the European Parliament (EP).

In her introductory statement, Ms Hielkema focused on the importance of closing the insurance protection gaps, in particular for cyber and pensions savings. She also underlined a growing need to adapt supervision to the new digital, cross-border landscape and presented EIOPA’s key achievements from the past year. [23 Oct 2023]

#CyberInsurance #Digitalisation

Australia

ASIC highlights enforcement action over the past year

Acting Australian Securities and Investment Commission (ASIC) Chair, Sarah Court, highlighted the regulator’s recent enforcement action in her opening statement at the Supplementary Budget Estimates 2023/2024. This included action for alleged greenwashing, issuing interim stop orders in relation to financial product design and distribution, action for alleged breach of directors duties, testing cyber resilience practices, and focusing on scam prevention. [26 Oct 2023]  

#CyberResilience

Upcoming Treasury consultation

Dr Steven Kennedy, Secretary to the Treasury, gave an opening statement to the Economics Legislation Committee, which, among other matters, reported on a number of consultation papers in the coming months. These included: draft legislation to regulate Buy Now Pay Later (BNPL) services; the regulation of digital and crypto assets; the introduction of financial market infrastructure (FMI) crisis resolution and supervisory powers; a Sustainable Finance Strategy; and the first tranche of reforms in response to the Quality of Advice Review. Treasury is also progressing work on scams, competition issues arising from scams, and implementing the recommendations of the Review of the Reserve Bank of Australia (RBA) following the Review’s report on 20 April 2023.  [25 Oct 2023]

#DigitalAssets #Cryptoassets

Hong Kong

Hong Kong Chief Executive discusses plans to accelerate development of GBA and to enhance Hong Kong’s status as international financial centre in 2023 policy address

The Chief Executive of Hong Kong, Mr John Lee, has delivered his 2023 Policy Address. Among other initiatives, he laid out the government’s plan to accelerate development of the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) and to enhance Hong Kong’s position as an international financial centre:

• The Task Force on Enhancing Stock Market Liquidity has provided its recommendations, which will be implemented by the government.  These include (among other things) reducing stamp duty on stock transfer, reviewing stock trading spread, reducing market data fees, reforming GEM (with a view to implementing the changes in the first quarter of 2024), promoting the listing of overseas issuers, facilitating share repurchase by issuers, and improving transaction mechanisms.  The SFC is / will be working with the HKEX on a number of such initiatives.
• The government will continue to progress with the inclusion of RMB counters under the Southbound trading of Stock Connect to facilitate the trading of Hong Kong stocks in RMB.  It will take forward the introduction of offshore Mainland government bond futures and enrich the variety of RMB investment products, with a view to strengthening Hong Kong’s position as an offshore RMB centre.
• The government will take advantage of the financial reform and innovation measures in the Qianhai Co‑operation Zone to expand the businesses of Hong Kong financial institutions in Qianhai.  These include facilitating Hong Kong’s limited partnership funds to be qualified under the Qianhai Qualified Foreign Limited Partnerships to participate in private equity investment in the Mainland, and co‑establishing the Shenzhen‑Hong Kong Financial Co‑operation Committee with the Shenzhen authorities in the first half of 2024.  The committee offer suggestions on bolstering mutual access to the financial markets, co‑operation on fintech and green finance, and exchange of financial talents.  The Insurance Authority also supports the initiatives for accelerating the development of the GBA.
• To expand Hong Kong’s fund distribution network, enhance market efficiency and lower transaction costs, the government will establish a new integrated fund platform with 2024.
• The government will launch a dedicated proof‑of‑concept subsidy scheme for green fintech in the first half of 2024.  The new scheme will promote the development of technological solutions and provide early‑stage funding support for pre‑commercialised green fintech, conducive to expanding the green fintech ecosystem and developing Hong Kong into a green fintech hub.
• To further develop and support SMEs and address their financing needs, the government will provide more flexible repayment options under the SME Financing Guarantee Scheme. SMEs may choose to repay only 10%, 20% or 50% of the original principal amount payable each month during the specified period, allowing them more time to gradually switch to normal repayment.  The HKMA has stated that HKMC Insurance Limited will follow up with lending institutions on the implementation of these repayment options within November 2023.  [25 Oct 2023]

#GreenFintech

Singapore

MAS and IMDA consult on shared responsibility framework for phishing scams

The Monetary Authority of Singapore (MAS) and the Infocomm Media Development Authority (IMDA) have published a joint consultation on a proposed shared responsibility framework (SRF) for phishing scams.

The SRF assigns financial institutions (FIs) and telecommunication companies relevant duties to mitigate phishing scams, and requires payouts to affected scam victims where these duties are breached. The SRF will not cover malware-enabled scams.

Responses to the consultation are requested by 20 December 2023.  [25 Oct 2023]

#Phishing

MAS consults on enhancements to e-payments guideline

MAS has published a consultation on proposed enhancements to the E-Payments User Protection Guidelines. The changes aim to enhance standards of anti-scam controls across the financial sector and place a greater emphasis on consumer vigilance and responsibility.

Responses to the consultation are requested by 20 December 2023.  [25 Oct 2023]

#Payments

Malaysia

BNM: Speech by Assistant Governor at Next Generation Payments conference

Bank Negara Malaysia (BNM) has published the keynote address by its Assistant Governor, Dr Norhana Endut, at the APSCA Next Generation Payments Conference held in Kuala Lumpur. Dr Endut shared some insights and lessons from Malaysia’s journey in developing the domestic electronic payments landscape.

She also discussed three key indicators of successful innovation stand out: (i) customer centricity; (ii) close collaboration; and (iii) continuous learning.  [24 Oct 2023]

#Payments

Philippines

BSP and CDA sign MoA on cooperative oversight

The Bangko Sentral ng Pilipinas (BSP) has announced that it has signed a memorandum of agreement (MoA) with the Cooperative Development Authority (CDA) on the collaborative oversight and supervision of cooperatives that are electronic-money issuers and operators of payment systems, including those that deploy ATMs.  [23 Oct 2023]

#eMoney #Payments

United States

Assistant Secretary for Financial Institutions comments on AI

In remarks delivered at the Amazon Web Services (AWS) Gov2Gov Summit on Responsible AI Innovation for the Public Sector, Assistant Secretary for Financial Institutions Graham Steele commented that the Treasury was actively monitoring the implications of AI on the financial sector. He noted that "the adoption of AI raises certain risks, which fall into three broad categories: (1) risks arising from the design of AI; (2) risks arising from how humans use or deploy AI; and (3) operational and cyber risks of AI."  The Assistant Secretary then considered AI in the context of consumer finance and the insurance sector, before moving on to discuss the actions which policymakers, including financial services regulators, are taking to address the challenges and potential presented by AI.

#AI #CyberRisks