FinTech Global FS Regulatory Round-Up – w/e 2 February 2024

In this regular post, we round-up FinTech-related financial services regulatory developments for the week ending 2 February 2024.

ICYMI

• FSR Outlook 2024: Finding solid ground as the bedrock shifts
• Taming the machine - AI and the role of senior managers
• The future of securities tokenisation and crypto regulation - What you need to know
• Operational resilience - predicting the unpredictable
• International Data Privacy Day: Our predictions for 2024
• Australian Government announces mandatory regulation for high-risk AI

UK

FCA research note: Review of maximal extractable value and blockchain oracles

The FCA has published a note presenting emerging technology research, jointly carried out by the Emerging Technology Research Hub and Wholesale Cryptoasset Policy at the FCA, which explores unique behaviours and mechanisms that are present in blockchain ecosystems.

The FCA has produced this research note to support ongoing efforts to proactively assess where new technology may pose both unique risks and opportunities to consumers and markets. The findings of this research will help to inform the FCA thinking about a regulatory regime for the activities that HM Treasury (HMT) has confirmed it plans to bring within the FCA’s perimeter, as set out in HMT's Feedback Statement on the Future Financial Services Regulatory Regime for Cryptoassets.

This research note does not reflect policy views or a formal FCA position.  [2 Feb 2024]

#Crypto #Blockchain

BoE paper: Customer data access and fintech entry – early evidence from open banking

The Bank of England (BoE) has published a staff working paper which explores the causes and consequences of government policies to promote open banking (OB).

The paper first assembles a dataset of government policies to promote OB, covering the 168 largest countries. It then provide some early evidence on the effects of OB policies on fintech entry, consumers, and small and medium enterprises (SMEs). Finally, it provides and calibrates a quantitative modelling framework for customer data sharing, which measures the overall and distributional effects of OB.

Staff working papers describe research in progress by the author(s) and are published to elicit comments and further debate. Any views expressed are solely those of the author(s) and do not represent the views of the BoE.  [2 Feb 2024]

#OpenBanking #FinTech

Europe

ESMA: New Q&As on MiCAR

ESMA has published new questions and answers (Q&As) in relation the Markets in Crypto Assets Regulation (MiCAR) covering:

• New CASPs established before (and after) 30 December 2024;
• Passporting rights for entities benefiting from grandfathering;
• Prohibition of monetary and non-monetary benefits;
• Provision of crypto-asset services by credit institutions; and
• Notifications under Article 60.  [2 Feb 2024]

#MiCAR #CASP #Crypto #ARTs #EMTs

ESAs: Report on 2023 stocktaking of BigTech direct financial services provision in the EU

The European Supervisory Authorities (EBA, EIOPA and ESMA – the ESAs) have published a report which sets out the results of a stocktake of BigTech direct financial services provision in the EU.

The stocktake showed that BigTech subsidiary companies currently licensed to provide financial services pursuant to EU law mainly provide services in the payments, e-money and insurance sectors and, in limited cases, the banking sector. However, the ESAs have yet to observe their presence in the market for securities services.

To further strengthen the cross-sectoral mapping of BigTechs’ presence and relevance to the EU’s financial sector, the ESAs propose to set-up a data mapping tool within the European Forum for Innovation Facilitators (EFIF). This tool is intended to provide a framework that supervisors from the national competent authorities (NCAs) would be able to use to monitor on an ongoing and dynamic basis the BigTech companies’ direct and indirect relevance to the EU financial sector. [1 Feb 2024]

#BigTech 

ESMA: January 2024 TRV report

The European Securities and Markets Authority (ESMA) has published its January 2024 trends, risks and vulnerabilities (TRV) report. The report discusses the key risk drivers of, among other things, social media-driven investments.

It also provides a market update on various areas, including financial innovation, noting that cryptoasset valuations rebounded in 2023.

The report is accompanied by a statistical annex. [31 Jan 2024]

#TRV #Crypto

EBA: Chair discusses 2024 focus areas for digital finance

The European Banking Authority (EBA) has published a speech by its Chair, José Manuel Campa, on confidence and resilience as a foundation of well-functioning financial markets with respect to digital finance, delivered at Afore Consulting's Eighth Annual Fintech and Regulation Conference. Highlights of the speech included:

• In respect of supervisory work on the Digital Operational Resilience Act (DORA) and the Markets in Crypto-assets Regulation (MiCAR), the EBA is actively engaging with the other European Supervisory Authorities (ESAs) and NCAs to prepare for its oversight role for critical third-party providers under DORA, and to ensure proper supervision of issuers of asset reference tokens (ARTs) and e-money tokens (EMTs) under MiCAR.
• Ongoing EBA monitoring has identified that banks are increasingly leveraging distributed ledger technology (DLT) in their business processes and are exploring the possibility to issue tokenised deposits as a settlement instrument. In view of these trends, in 2024 the EBA will be carrying out a stocktake of potential models for deposit tokenisation.
• With respect to artificial intelligence (AI) and machine learning, the EBA will assess the areas where additional guidance, clarity or harmonisation may be needed and report in early 2025.
• With respect to technology-facilitated value chain evolutions, in 2024 the EBA will be focusing on the growing use of 'white-labelling' in distribution of banking products. [30 Jan 2024]

#DORA #MiCAR #Crypto #DLT #AI #MachineLearning

ESMA: CPs – reverse solicitation exemption and classification of cryptoassets under MiCAR

The European Securities and Markets Authority (ESMA) has issued two consultation papers (CPs)  on the draft guidelines under the Markets in Cryptoassets Regulation (MiCAR).

The CP on reverse solicitation proposes guidance relating to the conditions of application of the reverse solicitation exemption and the supervision practices that national competent authorities (NCAs) may take to prevent its circumvention.

The CP on classification of cryptoassets as financial instruments proposes guidelines aimed at providing NCAs and market participants with structured but flexible conditions and criteria to determine whether a cryptoasset can be classified as a financial instrument. The guidelines aim to  bridge MiCAR and the Markets in Financial Instruments Directive II (MiFID II) to ensure consistency across the EU.

Responses are requested by 29 April 2024. ESMA will consider the feedback it receives to the consultation in Q2 2024 and expects to publish a final report in Q4 2024. [29 Jan 2024]

#MiCAR #Crypto

Australia

APRA announces 2024 regulatory priorities

The Australian Prudential Regulation Authority (APRA) has published its supervision and policy priorities for the first six months of 2024. APRA’s letter outlines its regulatory agenda across banking, superannuation and insurance. Among the  major cross-industry issues is a focus on cyber security, 'reflecting the growing reliance on digital technologies by entities and the community'. [31 Jan 2024]

#Cyber

Hong Kong

HKMA deputy chief executive delivers presentation on Hong Kong banking sector 2023 year-end review and priorities for 2024 

The HKMA’s Deputy Chief Executive, Mr Arthur Yuen, has delivered a presentation on the HKMA’s 2023 year-end review and priorities for 2024 for the Hong Kong banking sector.

Looking ahead, in 2024, the HKMA’s priorities include, among other things:

• Operational and cyber resilience – monitoring the industry’s progress in achieving operational resilience and banks’ implementation of secure tertiary data backup, and overseeing another round of assessments under the Cyber Resilience Assessment Framework 2.0;
• Anti-money laundering and financial crime risk – including targeting high risk areas (including thematic review of high-end money laundering and guidance on risk-based politically exposed persons), strengthening the eco-system for information sharing, and providing guidance on artificial intelligence (AI) in transaction monitoring;
• Anti-fraud – pre-emptive and agile responses to digital frauds (including collaborating with banks and the Police), and innovating via network analytics to strengthen real-time fraud monitoring;
• Fintech – including rolling out initiatives under the New Fintech Promotion Roadmap and strengthening advanced analytics capabilities, among others; and
• Campaigns to raise public awareness of scams and phishing risk.  [31 Jan 2024] 

#Cyber #Fraud #AI

HKMA delegation visits Thailand to strengthen bilateral financial collaboration 

The HKMA has announced the conclusion of its three-day visit to Thailand to strengthen bilateral co-operation between the Hong Kong and Thailand financial sectors.

The visit was part of the HKMA’s effort to broaden and deepen overseas network.  The HKMA visited Saudi Arabia and the United Arab Emirates last year, and plan to continue its engagement with the Middle East and also visit other Association of Southeast Asian Nations (ASEAN) countries in 2024.

• The delegation, led by Mr Eddie Yue (Chief Executive of the HKMA) held a bilateral meeting with the Bank of Thailand (BOT), with discussions focused on the use of local currencies in cross-border trade, financial digitalisation and fintech, and green and sustainable finance. The HKMA and BOT also agreed to explore future initiatives aimed at fostering collaboration between the two regulators and deepening financial connections between the two economies.
• Representatives from the HKMA and the BOT participated in the Thailand Business Forum. Panel discussions were held on the benefits and business opportunities arising from Hong Kong-Thailand financial collaboration, including how Hong Kong could support Thai corporates in local currency payment, fundraising and hedging, as well as investment opportunities for Thai investors in Hong Kong and the Mainland.
• The HKMA delegation also met with local business and financial industry leaders to discuss the latest developments in Hong Kong and explore new opportunities between the two economies.  [30 Jan 2024]

#Payments

HKMA publishes presentation materials for upcoming briefing to LegCo Panel on Financial Affairs on 5 February 2024

The HKMA has published presentation materials for its briefing to the Legislative Council (LegCo) Panel on Financial Affairs, which took place on 5 February 2024. The materials included, among other things, information on the following areas:

Banking Stability 

• Anti-money laundering (AML) and counter-financing of terrorism (CFT) – such as launching a public consultation on proposals for bank-to-bank information sharing, and work on a paper entitled 'The Digitalisation of AML/CFT Supervision: Where Now and What Next' (slide 56)

Financial Infrastructure

• Fintech –  Continuing work on initiatives relating to (among others) central bank digital currencies (wholesale and retail) and the Commercial Data Interchange (slide 70)

Hong Kong as an International Financial Centre

• Crypto-assets and stablecoins – Consulting on a regulatory regime for stablecoin issuers, and working on a sandbox arrangement for communicating supervisory expectations and guidance on compliance to entities interested in issuing stablecoins in Hong Kong (slide 82).  [29 Jan 2024]

 #CBDC #Crypto #Stablecoins #RegTech

India 

RBI: Leveraging technology to streamline the internal compliance monitoring function

The RBI has published a letter addressed to the Chairs, Managing Directors and CEOs of banks and other firms regarding the use of technology in internal compliance monitoring. The letter sets out RBI's observations following its assessment in select Supervised Entities (SEs). Noting that automation of the compliance monitoring process in SEs remains a work in progress with various aspects being carried out with significant manual intervention, the letter emphasises the importance of implementing comprehensive, integrated, enterprise-wide and workflow-based solutions and tools to enhance effectiveness.

Regulated entities are expected to carry out a review of their existing internal compliance tracking and monitoring processes, and to make any changes or implement new systems by end June 2024.  [31 Jan 2024]

#RegTech

RBI: Status of RBI-DPI for September 2023

The Reserve Bank of India (RBI) has announced the latest results of its RBI-Digital Payments Index (RBI-DPI), which has been in operation since 2021 and captures the extent of digitisation of payments across the country. The index for September 2023 stands at 418.77 and has increased across all parameters, driven by growth in payment enablers, payment performance and consumer centricity across the country over the period. [31 Jan 2023] 

 #Payments

RBI: Deputy Governor discusses emerging technologies

The RBI has published the keynote address by its Deputy Governor, Michael Debabrata Patra, delivered at the SAARCFINANCE seminar on Emerging Digital Technologies in Central Banking and Finance. In his speech, the Deputy Governor discussed the state of play of technologies such as application programming interfaces (APIs), artificial intelligence (AI) and machine learning (ML), among others. He noted how new technologies help to extract insights from data, which inform  policy formulation and helps to reduce compliance costs.   Emerging technologies are also helping to design new products and services, not least central bank digital currencies (CBDCs).

The speech also discussed emerging technologies in the context of the global and Indian experience, and the challenges that technology presents, including for cybersecurity. [29 Jan 2024]

#APIs #AI #MachineLearning #CBDC #cyber

Philippines 

BSP: Digital payments expo

Bangko Sentral ng Pilipinas (BSP) has published a summary of its 2023 Cashless Expo, held on 17-19 November 2023.  The event brought micro, small, and medium enterprise exhibitors and buyers together in an effort to promote digital payments, such as through QR Ph, the Philippine standard for QR technology.  [30 Jan 2024]

#Payments #QR

USA  

SEC charges founder of $1.7bn crypto pyramid scheme and top promoter with fraud 

The Securities and Exchange Commission (SEC) has charged two individuals for their involvement in a $1.7 billion cryptocurrency pyramid scheme. The criminal complaint, filed with the U.S. District Court for the District of Maryland, alleges that the two individuals promised investors cryptoasset mining returns and associations with Fortune 500 companies from June of 2020 to early 2022, but that there were no sources of revenue for the operation beyond initial investor contributions. It is further alleged that the scheme collapsed and came to light when investors were no longer able to make withdrawals from their accounts. The complaint charges the individuals with violations of anti-fraud and registration provisions of federal securities laws and seeks injunctive relief, civil penalties, and disgorgement of profits. [29 Jan 2024]

#Crypto