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In this regular post, we round-up FinTech-related financial services regulatory developments for the week ending 26 January 2024.

ICYMI

 


Global

IAIS: Updated Roadmap 2023/24

The International Association of Insurance Supervisors (IAIS) has published its 2024 Roadmap. The roadmap outlines the IAIS’ work programme and is guided by the 2020- 2024 Strategic Plan.

Among the IAIS' key deliverables is supporting its members to respond to key strategic themes that affect the insurance sector on a range of topics, including digital innovation, financial inclusion, operational resilience and cyber risk, and protection gaps.  The 2024 roadmap is the last under the current five-year (2020-2024) IAIS Strategic Plan. The next Strategic Plan, covering 2025-2029, will be published later in 2024. [26 Jan 2024]

#DigitalInnovation #CyberRisk

FSB: Call for papers on AI in finance

The Financial Stability Board (FSB) has issued a call for papers on artificial intelligence (AI) in finance, to be discussed at the 2024 annual meeting of the Central Bank Research Association (CEBRA). Authors are invited to submit papers that analyse and provide insights on use cases of AI in finance from the perspective of potential benefits and risks. Of particular interest are papers that examine the extent to which, and modalities through which, the broader use of AI may have an effect on financial stability, including potential mitigants available to address associated risks.

The deadline for submissions is 10 March 2024. [25 Jan 2024]

#AI

FSB publishes work programme for 2024

The Financial Stability Board (FSB) has published its 2024 work programme which details the FSB’s planned work, sets out new initiatives and provides an indicative timeline of main publications for 2024.

Among the FSB's priority areas of work and new initiatives, including deliverables to the Brazilian G20 Presidency, are continuing to enhance cross-border payments and harnessing the benefits of digital innovation while containing its risks.  An indicative timeline of forthcoming FSB publications includes:

  • a consultation on consistency of bank and non-bank supervision of cross-border payments service provider in June;
  • a consultation on enhancing data frameworks related to cross-border payments in July;
  • a progress report on the use of legal entity identifier (LEI) in cross-border payments in September;
  • an annual report on implementation of the cross-border payments roadmap in October;
  • a crypto roadmap status report in October;
  • a report on the financial stability implications of tokenisation in October;
  • a report summarising the work on interest and liquidity risk and on deposit behaviour and the role of technology and social media;
  • a report on the financial stability implications of AI in November;
  • a final report on consistency of bank and non-bank supervision of cross-border payments service providers; and
  • final recommendations to enhance data frameworks related to cross-border payments.

The FSB will publish its comprehensive annual report on its work to promote global financial stability ahead of the G20 Leaders Summit in November 2024. [24 Jan 2024]

#Crypto #Payments #AI #SocialMedia #tokenisation

BIS Innovation Hub announces six new projects

The Bank for International Settlements (BIS) Innovation Hub has announced the first batch of six new projects in its 2024 work programme, including experimentations on cyber security, fighting financial crime, central bank digital currencies (CBDCs) and green finance.

The Innovation Hub completed 12 projects in 2023 with eight more that are ongoing. [23 Jan 2024]

#CBDC #CyberSecurity


UK

TSC: Letter in response to recommendations on the digital pound

The Treasury Select Committee (TSC) has published a letter from Bim Afolami, Economic Secretary to the Treasury, and Sarah Breeden, Deputy Governor for Financial Stability, Bank of England (BoE), to the TSC Chair. The letter responds to the TSC's report and recommendations on the digital pound. Noting the TSC's recommendation to proceed with care, the letter explains that no decision has yet been taken on whether to introduce a digital pound, and that the design phase will deepen understanding of how to design a digital pound that maximises opportunities whilst mitigating risks. Any decision will be taken 'later in the decade'.

  • In response to observations made by the TSC on benefits to UK competitiveness, the letter expresses the view that the process of developing the design for a digital pound will present enduring benefits for the UK’s digital economy, fostering knowledge-sharing and technical collaboration between the public and private sectors.
  • In response to the TSC's recommendations around privacy, the letter highlights that legislative and policy commitments, as set out in the BoE/HMT consultation response, address privacy-related concerns.
  • Noting the TSC's recommendations on monetary policy, the letter comments that a digital pound would be unremunerated at launch, reflecting the intention for it to be used as a means of payment, rather than a savings product.
  • With regard to the TSC's recommendation around cost transparency, the letter explains that such information is available in its Annual Report and procurement disclosures. [26 Jan 2024]

#DigitalPound #CBDC

FCA: White paper with WEF on quantum security

The FCA, in conjunction with the World Economic Forum (WEF), has published a white paper entitled Quantum Security for the Financial Sector: Informing Global Regulatory Approaches. Addressed to regulators and industry, the white paper sets out four guiding principles along with a roadmap to serve as a blueprint to reduce complexity and align stakeholders’ activities. These principles, to reuse and repurpose, establish non-negotiables, avoid fragmentation, and, increase transparency, are intended to guide transition to quantum technologies. [25 Jan 2024]

#Quantum

PSR MD discusses 2024 priorities

The Payment Systems Regulator (PSR) has published a speech by Chris Hemsley, Managing Director (MD), delivered at the Payments Regulation and Innovation Summit 2024. In his speech, Mr Hemsley sets out the PSR's priorities for 2024, including:

  • the prevention of authorised push payment (APP) scams through new requirements, which which will come into force on 7 October 2024;
  • enhancing open banking by scaling up the use of variable recurring payments (VRP) to give consumers more flexible ways of making payments;
  • upgrading the payments infrastructure – with the New Payments Architecture (NPA) awaiting the publication of the National Payments Vision, the programme is now paused and there will be a different timetable for the upgrades. [25 Jan 2024]

#APPFraud #OpenBanking #Payments

PSR: Review of 2023

The PSR has published a review of 2023. The review reflects on some of the important work and developments of 2023 – including tackling payment fraud, progressing open banking and the PSR's card fees market reviews, as well as its work to engage with stakeholders. The review also highlights the PSR's priorities for 2024. [25 Jan 2024]

#OpenBanking

BoE & HMT publish their response to consultation on the digital pound

The Bank of England (BoE) and HMT have published their response to the consultation on a digital pound that was launched in February 2023. With respect to concerns raised about the implications of a digital pound for access to cash, users’ privacy, and control of their money, the response notes the following:

  • if a digital pound were to be implemented, primary legislation would be introduced, which would guarantee users’ privacy and control;
  • the BoE and HM Government (HMG) would not have access to any personal data;
  • users would have freedom in how they spent their digital pounds; and
  • there would be a further public consultation on a digital pound prior to the introduction of primary legislation, giving both Parliament and the public further opportunities to have their say.

In addition, the response reiterates the commitment of both HMG and the BoE to protect access to cash, even if a digital pound were introduced.

In terms of next steps, the BoE and HMT have progressed to the design phase of work on a digital pound and expect to decide whether to proceed to the build phase around the middle of the decade. [25 Jan 2024]

#DigitalPound #CBDC

BoE Executive Director for Banking, Payments and Innovation discusses RTGS

The BoE has published a speech by Victoria Cleland, Executive Director for Banking, Payments and Innovation, delivered at the Payments Regulation and Innovation Summit 2024. The speech focuses on the BoE's plans to enhance the Real Time Gross Settlement (RTGS) service to drive innovation. Highlights of the speech include the following:

  • the RTGS infrastructure is currently being renewed to deliver more resilient, flexible and innovative sterling settlement;
  • the BoE is reviewing whether access to RTGS could be further improved and whether operating hours could be extended to near 24/7 operation; and
  • the BoE is developing further initiatives to foster wholesale settlement innovation. [25 Jan 2024]

#RTGS #Payments

FCA CEO discusses the future for consumer tech in financial services

The FCA has published a speech by its Chief Executive, Nikhil Rathi, at the Imperial College London Business School. Mr Rathi discussed a couple of scenarios in respect of the adoption of consumer-facing technology within financial services, and highlighted their potential benefits as well as disadvantages. He also spoke on competition, operational resilience, the FCA's regulatory approach as well as its investment in technology and the risks of financial exclusion. Mr Rathi concluded the speech by encouraging further discussion and debate around these issues. [24 Jan 2024]

#OpenData #Quantum #BigTech #AI #Payments


Europe

EIOPA: Consumer Trends Report 2023

The European Insurance and Occupational Pensions Authority (EIOPA) has published its Consumer Trends Report 2023. The report examines the financial well-being of consumers amid the ongoing cost-of-living crisis and explores whether all consumers, regardless of their characteristics, are treated fairly.  Among other matters, the report identifies a surge in the sale of insurance via digital channels.

#DigitalChannels

ESMA: Planned consultations for 2024

The European Securities and Markets Authority (ESMA) has published a document providing an overview of planned consultations on proposed technical standards and guidelines during 2024. These includes consultations in relation to the Markets in Cryptoassets Regulation (MICAR) in Q1, Q2, and Q3, and the Digital Operational Resilience Act (DORA) in Q3. A list of ongoing and past consultations is available on ESMA’s website. [22 Jan 2024]

#MiCAR #DORA

OJ: Commission Delegated Regulations – ECSPR & EMIR

The following Commission Delegated Regulations have been published in the Official Journal of the EU (OJ):

  • Commission Delegated Regulation (EU) 2024/358 supplementing the European Crowdfunding Service Providers Regulation (ECSPR) with regard to regulatory technical standards (RTS) specifying requirements on credit scoring of crowdfunding projects, pricing of crowdfunding offers, and risk management policies and procedures; and
  • Commission Delegated Regulation (EU) 2024/363 amending the RTS laid down in Delegated Regulation (EU) 2015/2205 under the European Market Infrastructure Regulation (EMIR) as regards the transition to the Tokyo Overnight Average Rate (TONA) and the Secured Overnight Financing Rate (SOFR) benchmarks referenced in certain over the counter (OTC) derivative contracts.

The Regulations will enter into force on the twentieth day following that of their publication in the OJ. [22 Jan 2024]

#Crowdfunding


Hong Kong

SFC warns public of suspicious crypto-related products

The SFC has issued a warning statement regarding suspicious investment products named 'Floki Staking Program' and 'TokenFi Staking Program' involving cryptocurrency staking services which claim to offer high annualised return targets of 30% to over 100%.

Such products display characteristics of collective investment schemes but have not been authorised by the SFC for offering to the Hong Kong public.  The administrator of the two products has been unable to demonstrate to the SFC’s satisfaction how the high annualised return targets could be achieved.

The SFC included the two products and their related information on the Suspicious Investment Products Alert List on 26 January 2024.

The SFC wishes to warn investors of 'staking' arrangements relating to virtual assets, which could amount to unauthorised collective investment schemes and may be highly risky (see our previous update regarding the SFC's statement of 13 December 2022 about investment risks associated with certain virtual asset arrangements, including staking services).  It also warns investors to be cautious about investment products that claim to offer 'too-good-to-be-true' returns.

The SFC has issued a number of warning statements in recent months relating to suspicious virtual asset related products and services (such as a statement on 18 January 2024 regarding suspected virtual asset related fraud – see our previous update).  [26 Jan 2024]

#Crypto

HKMA launches public consultation on proposal for sharing of customer information among AIs for preventing and detecting financial crime

The HKMA has issued a consultation paper on its proposal to allow authorised institutions (AIs) to share information on customer accounts for the purposes of preventing and detecting financial crime.  Feedback on the proposals is required to be submitted by 29 March 2024.

The HKMA has noted a sharp global increase in financial crime, especially digital fraud, in recent years. Large-scale digital fraud could undermine public confidence in the use of new digital financial services, and information sharing has been internationally recognised as an effective tool for addressing financial crime.  While Hong Kong has achieved positive outcomes through public-private information sharing partnerships, there is a need for faster sharing of information to further support the advanced use of technology and analytics to detect and disrupt fraud and mule account networks and intercept illicit funds more effectively.

This consultation seeks views and suggestions on the need to facilitate sharing among Ais of information on customers, accounts, and transactions by allowing AIs to alert each other to potential fraud and money laundering / terrorist financing concerns.

  • The information to be shared would depend on the circumstances of individual cases, which could include (among others) bank account numbers, personal data of a customer, and details of transactions including counterparties.
  • Sharing will be via secure channels including dedicated electronic platforms such as FINEST.  There will be appropriate measures to ensure that these channels are subject to strict cyber security and other relevant requirements, including restricting access to dedicated staff at AIs.  Only AIs that are technically and operationally ready and can demonstrate that they have implemented appropriate systems and controls will be permitted to access the electronic platforms.
  • Sharing of information among AIs is proposed to be voluntary and separate from the obligation to file suspicious transactions reports to the Joint Financial Intelligence Unit.
  • AIs will be given legal protection or a 'safe harbour', such that provided that they comply with all applicable requirements, disclosure of information under the proposed mechanism would not be treated as a breach of legal, contractual or other restrictions on disclosure of information.   AIs disclosing information would also not be liable for any claimed loss arising out of such disclosure.  The 'safe harbour' should only apply where information is shared among AIs for the purpose of detecting or preventing financial crime.

Mr Eddie Yue, the Chief Executive of the HKMA, has published an inSight article to explain the proposals.

Depending on the responses to the consultation, the HKMA aims to issue its consultation conclusions with a view to preparing the necessary legislative amendments in the second half of 2024.  [23 Jan 2024]

#DigitalFraud


Malaysia

BNM and CyberSecurity Malaysia sign MoU on cybersecurity for financial sector

Bank Negara Malaysia (BNM) and CyberSecurity Malaysia have signed a memorandum of understanding (MoU) to jointly develop robust cybersecurity strategies for Malaysia’s financial sector.  [26 Jan 2024]

#Cybersecurity


Thailand

BoT and SET sign MoU on business promotion and digital payments

The Bank of Thailand (BoT) and the Stock Exchange of Thailand (SET) have signed a memorandum of understanding (MoU) to promote and support the digital business sector in Thailand, both in terms of trade and payments. Accordingly, SET will jointly implement policies and promote the efficiency of trade and payment management of listed companies and entrepreneurs preparing to be listed through the central financial and payment infrastructure for the business sector, also known as 'PromptBiz'.  [24 Jan 2024]

#DigitalBusiness


US

CFTC staff releases request for comment on the use of AI in CFTC-regulated markets

The Commodity Futures Trading Commission (CFTC) Divisions of Market Oversight, Clearing and Risk, Market Participants, and Data and the Office of Technology Innovation have issued a request for comment (RFC) to better inform them on the current and potential uses and risks of artificial intelligence (AI) in the derivatives markets the CFTC regulates.

The request seeks comment on the definition of AI and its applications, including its use in trading, risk management, compliance, cybersecurity, recordkeeping, data processing and analytics, and customer interactions. It also seeks comment on the risks of AI, including risks related to market manipulation and fraud, governance, explainability, data quality, concentration, bias, privacy and confidentiality and customer protection. Staff will consider the responses to this request in analyzing possible future actions by the CFTC, such as new or amended guidance, interpretations, policy statements, or regulations.

Comments will be accepted until April 24, 2024.  [25 Jan 2024]

#AI # Cybersecurity

CFTC issues customer advisory on AI scams

The CFTC's Office of Customer Education and Outreach has issued a customer advisory warning the public about AI scams. The advisory, AI Won’t Turn Trading Bots into Money Machines, explains how the scams use the potential of AI technology to defraud investors with false claims that entice them to hand over their money or other assets to fraudsters who misappropriate the funds.  [25 Jan 2024]

#AI

 

 

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Cat Dankos

Regulatory Consultant, London

Cat Dankos

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Cat Dankos photo

Cat Dankos

Regulatory Consultant, London

Cat Dankos
Cat Dankos