FinTech Global FS Regulatory Round-Up – w/e 1 March 2024

In this regular post, we round-up FinTech-related financial services regulatory developments for the week ending 1 March 2024.

ICYMI

• The Fraud Files Podcast – Decoding the Economic Crime Act EP4: Focus on the financial sector – APP fraud
• Year of the Dragon: Round up of recent developments to the regulatory framework for virtual asset activities in Hong Kong and Singapore
• Digital assets: Law Commission consults on private international law issues and draft legislation recognising a third category of personal property rights (England and Wales)

Global

FSB Chair discusses responsible innovation in the cryptoasset ecosystem

The Financial Stability Board (FSB) has published a speech delivered by its Chair, Klaas Knot, at the Asia Securities Industry & Financial Markets Association  (ASIFMA) Annual Conference.

Focusing on the cryptoasset ecosystem, Mr Knot noted two interesting market developments which underscore the need for 'fitting regulation'. Firstly, the emergence of so-called ‘multifunction crypto-asset intermediaries’ (MCIs), which has shown that crypto may not be as decentralised as some claim it to be. Mr Knot noted that these entities combine economic functions in a manner that is not commonly seen in traditional finance; the FSB has found that most MCIs lack proper governance and may therefore amplify financial vulnerabilities.

Secondly, he noted revived interest – including from BigTechs and traditional financial institutions –  in the stablecoin market, following earlier crypto market turmoil. Mr Knot commented that such institutions could leverage large existing customer bases to rapidly issue a more widely used stablecoin. This could have potentially significant systemic implications, as such stablecoins require careful regulation and oversight.

In his concluding remarks, Mr Knot stated that the FSB is assessing the financial stability implications of tokenisation, although work is still in the early stages. [29 Feb 2024]

#Crypto #Stablecoins #Tokenisation

IMF and World Bank approach to cross-border payments TA

The International Monetary Fund (IMF) has published a report on cross-border payments technical assistance (TA). The report outlines a multi-year IMF-World Bank strategy to provide TA in order to meet the cross-border payments targets. The report covers:

• details of the important role that TA plays in achieving the G20 Cross-Border Payments Roadmap targets;
• a summary of stocktakes conducted by the IMF and World Bank of recent and ongoing TA supporting cross-border payments; and
• an explanation of the IMF’s and World Bank’s approaches to cross-border payments TA. [29 Feb 2024]

#Payments

FSB: Letter to G20 Finance Ministers and Central Bank Governors

The Financial Stability Board (FSB) has published a letter from its Chair, Klaas Knot to G20 finance ministers and central bank governors. The letter includes. among other things, the key issues the FSB is working on in 2024, including: lessons from the March 2023 banking turmoil; digitalisation and enhancing the efficiency of cross-border payments.[26 Feb 2024]

#Payments #Digitalisation

UK

FCA announces market abuse surveillance TechSprint 

The FCA has updated the TechSprints webpage, with an added section on the forthcoming Market Abuse Surveillance TechSprint. This is a three-month cohort-based TechSprint, designed to explore artificial intelligence (AI)-powered solutions to help detect evolving forms of market abuse. The FCA is particularly interested in seeing how AI can help accurately identify more complex types of market abuse that are currently difficult to detect, such as cross-market manipulation.

The TechSprint takes place from 25 March to 20 June 2024 and is virtual with the exception of the Showcase Demo Day which will be held in-person at the FCA Headquarters in London on 20 June 2024.

The application deadline for places is 18 March 2024. [28 Feb 2024]

#TechSprint #AI #MarketAbuse

PSR MD discusses APP scams

The Payment Systems Regulator (PSR) has published a speech delivered by Chris Hemsley, Managing Director (MD), at the Fraud Leaders' Summit. The main focus of the speech was tacking authorised push payment (APP) scams. Mr Hemsley noted that from 7 October 2024, individuals, smaller charities, and microbusinesses can expect that, in most circumstances, their payment service provider (PSP) will reimburse them for losses they incur through APP scams.  He commented that the PSR is equally apportioning the costs of reimbursing APP scams between sending and receiving PSPs. This is expected to give receiving firms a financial incentive to prevent scammers opening accounts with them in the first place and to close suspicious accounts much more quickly.

Mr Hemsley also emphasised the importance of firms prioritising the delivery of systems to implement the new requirements.

In his concluding remarks, he noted that the PSR will continue its work on data transparency to identify which firms are succeeding and which firms need to improve in preventing APP scams from occurring. [28 Feb 2024]

#APPScam #Payments

PSR Head of Policy discusses driving innovation in payment services

The PSR has published a speech delivered by its Head of Policy, Kate Fitzgerald, at RegTech Live 2024. The speech focused on innovation to improve the payments ecosystem, to drive better value and control for users, and to ensure that users are protected with a system that they can trust. The key topics discussed were: open banking and the expansion of Variable Recurring Payments (VRPs); and authorised push payment (APP) scams and a mandated reimbursement right for individuals, small charities, and microbusinesses who fall victim to such scams. [27 Feb 2024]

#OpenBanking #Payments  #APPScam

Commons: Written response to question on requirement for social media platforms to compensate fraud victims

For HMT, Bim Afolami,  Economic Secretary to the Treasury, has provided a written response to a question posed by Peter Aldous, MP for Waveney, on what assessment the Chancellor has made of the potential merits of requiring social media platforms to contribute to the costs of reimbursing victims of fraud and (b) impact of such a requirement on tackling fraud.

The response explains that, signatories to the Online Fraud Charter, including some of the largest global tech companies, have committed to a number of actions to reduce fraud on their platforms including: blocking and reporting fraudulent activity; taking down fraudulent posts; and engaging with law enforcement.

Mr Afolami further notes that, more broadly, under the Online Safety Act, social media platforms will be required to establish systems and processes to remove both user generated fraudulent content and fraudulent advertising. If platforms do not comply, they may face fines of up to £18 million or 10% of their annual turnover, whichever is higher. [27 Feb 2024]

#SocialMedia #Fraud #OnlineFraudCharter

ABI publishes new guide on responsible use of AI

The Association of British Insurers (ABI) has published a new guide to help firms use AI responsibly. Developed collaboratively by the ABI’s AI Working Group, which includes experts across actuarial, data science, data protection, legal, regulation and compliance, the guide includes some of the key questions firms should ask themselves to assist in the responsible use of AI.

The guide also features a set of good practice examples relating to algorithms, an outline of existing regulations that align with the UK’s five principles of AI regulation, and a set of examples of how AI is used in insurance and long-term savings. [27 Feb 2024]

#AI

Europe

ESMA Chair discusses sustainable and digital finance

The European Securities and Markets Authority (ESMA) has published a speech delivered by its Chair, Verena Ross, on sustainable and digital finance, at the EU-Asia Financial Services Dialogue. From a digital finance perspective, Ms Ross discussed ESMA's work to regulate cryptoassets through the Markets In Cryptoassets Regulation (MICAR) and the need for regulators to understand the significant risks posed by artificial intelligence (AI). [29 Feb 2024]

#MICAR #Crypto #AI

ECB: Use of AI in enhancing the work of supervisors

The European Central Bank (ECB) has published a blog regarding the potential of artificial intelligence (AI) to make the work of supervisors more efficient. Highlights of the blog include:

• using AI to enhance the ECB's internal supervisory capabilities and gain greater insights into the risks facing supervised banks as they, in turn, also deploy AI;
• an overview of the ECB's current AI applications enable it to query supervisory data and employ chatbot functionalities for supervisory regulations and methodologies;
• an overview of the ECB's investment in technology to build the infrastructure to scale up AI applications; and
• a summary of the ECB's AI use cases, including instantaneously retrieving answers to questions on supervisory methodology, with clear references to internal methodologies, and automatically translating queries written in plain language into code in order to find specific data points. [26 Feb 2024]

#SupTech #AI

Council adopts IPR

The Council has adopted the Instant Payments Regulation (IPR), which will make instant payments fully available in Euros to consumers and businesses in the EU and in EEA countries. This will help to reduce excessive reliance on third-country financial institutions and infrastructures.

The IPR will allow people to transfer money within ten seconds at any time of the day, not only within the same country but also to another EU member state. The regulation takes into consideration particularities of non-Euro area entities.

Payment service providers such as banks, which provide standard credit transfers in Euro, will be required to offer the service of sending and receiving instant payments in Euros. The charges that apply (if any) must not be higher than the charges that apply for standard credit transfers.

The new rules will come into force after a transition period that will be faster in the Euro area and longer in the non-Euro area, in recognition of the fact that the non-EU area needs more time to adjust. [26 Feb 2024]

#Payments

Hong Kong

SFC reminds public regarding end of VATP application period under transitional arrangements

Further to the reminder of 5 February 2024 (see our previous update), the SFC has issued another reminder to industry participants and investors that the deadline of 29 February 2024 has passed for virtual asset trading platforms (VATPs) to submit licence applications to the SFC in order to continue operating in Hong Kong on or after 1 June 2024.

As a result, VATPs that are operating in Hong Kong but did not submit licence applications to the SFC by the 29 February 2024 deadline must close down their businesses in Hong Kong by 31 May 2024, pursuant to the transitional arrangements.  Carrying on unlicensed activity or actively marketing virtual asset services to Hong Kong investors while unlicensed constitute criminal offences.

Investors are urged to check the regulatory status of VATPs on the SFC’s lists of VATPs.  If they are dealing with VATPs operating in Hong Kong which are not on the list of licensed VATPs or list of VATP applicants, they should close their accounts with such VATPs or transfer to SFC-licensed VATPs for trading virtual assets.

Investors should however note that the applications submitted by those on the list of VATP applicants are still being processed and may (or may not) be approved.  Trading on these platforms therefore carries a risk.  For this reason, the SFC strongly urges investors to trade virtual assets only on SFC-licensed VATPs.  [1 Mar 2024]

#VirtualAssets #VATP #Crypto

Prototype Green Fintech Map launched

The Green and Sustainable Finance Cross-Agency Steering Group has launched the Prototype Hong Kong Green Fintech Map with Cyberport and Invest Hong Kong to help corporates and financial firms identify green and sustainable financial technology (Green Fintech) solutions that meet their business needs.

The map is a directory of Green Fintech firms operating in Hong Kong and includes over 50 firms as of today.  Their product offerings include:

• Environmental, social and governance (ESG) data and analytics;
• ESG disclosures and regulatory reporting;
• Climate risk modelling and assessment;
• Green digital finance and investments; and
• Carbon credit trading and analytics.

The Law, Innovation, Technology and Entrepreneurship Lab at the University of Hong Kong’s Faculty of Law is engaged as the knowledge partner to develop the Green Fintech classification. The classification will be updated taking into account of the latest Green Fintech developments in Hong Kong.

The map was launched at the event 'Green Fintech: Catalyst for Scaling Sustainable Finance' during the Hong Kong Green Week.  The list of Green Fintech firms will also be featured on the FintechHK Community Platform.  [1 Mar 2024]

#GreenFintech

SFC issues 'Disciplinary Proceedings at a Glance' guide for AMLO VATP regime

The SFC has published a guide, Disciplinary Proceedings at a Glance (for regulated persons under Part 5B of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance), to outline the disciplinary process under the new licensing regime for virtual asset trading platforms (VATP) under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO).

The guide provides the reasons for the SFC’s disciplinary actions, persons subject to them, criteria for determining to take action, potential disciplinary measures and disciplinary process, amongst others.

The disciplinary process under the new AMLO VATP licensing regime is based largely on the disciplinary process applicable to persons licensed by or registered with the SFC (as well as those involved in their management) under the Securities and Futures Ordinance (SFO).  Hence, this new guide is based on the Disciplinary Proceedings at a Glance guide for the SFO regime, with appropriate amendments and updates.  [28 Feb 2024]

#Crypto #AMLO #VATP

Financial Secretary announces initiatives in 2024-25 Budget speech to strive for high‑quality development in Hong Kong

In his 2024-25 Budget speech, Hong Kong's financial secretary, Mr Paul Chan, set out the initiatives to 'advance with confidence, seize opportunities, and strive for high‑quality development' in Hong Kong. The key FinTech initiatives include:

• Green technology - The Green and Sustainable Fintech Proof-of-Concept Subsidy Scheme, to be launched in the first half of 2024, will provide early-stage funding support for green fintech, facilitating commercialisation and fostering the development of new green fintech initiatives.

• Digital finance - The HKMA completed Phase 1 of the e-HKD Pilot Programme in October 2023, and studied domestic retail use cases in areas such as programmable payments, offline payments, and tokenised deposits.  Phase 2 will explore new use cases.  Phase 1 of the service developed under Project mBridge, set to launch in 2024, will be one of the first projects globally to settle cross-boundary transactions for corporates using central bank digital currencies.  In addition, the scope of e-CNY pilot testing in Hong Kong will be expanded, allowing the public to set up e-CNY wallets easily and top up funds via the Faster Payment System.

• Web3.0 – The HKMA will soon roll out a 'sandbox' for entities interested in issuing stablecoins, as part of its initiative to develop a regulatory regime for stablecoin issuers (for which a consultation has been launched).  A consultation has also been launched on the regulation of over-the-counter trading of virtual assets.  These follow the implementation of a licensing regime for virtual asset trading platforms in June 2023.

• Offshore renminbi business hub - Hong Kong will continue to (i) deepen mutual-market access schemes that facilitate RMB cross-boundary investment and two-way fund flows, (ii) encourage financial institutions to provide more offshore RMB products and risk-management tools, and (iii) develop the Central Moneymarkets Unit into Asia's major international central securities depository platform to better support RMB businesses in terms of cross-border clearing, settlement, and custodian services.

• Mutual market access - The HKEX will host the 10th Anniversary of the Mutual Access Forum to share experiences and explore ways to inject new impetus into the regime.  Discussions are ongoing with Mainland authorities on introducing block trading, including RMB counters under the Southbound trading of Stock Connect, and expanding the mutual-market access regime to cover real estate investment trusts (REITs).

The SFC, the Accounting and Financial Reporting Council and the Insurance Authority have announced their support for the measures announced by Mr Chan.  Further information on the Budget can be found here.  [28 Feb 2024]

#GreenTech #DigitalFinance #Web3.0 #Stablecoins

SFC warns public of suspicious crypto-related product

The SFC has issued a warning to the public of a suspicious investment product named 'Yieldnodes[dot]com masternode pool' and operated by Exceptional Media Limited (a Hong Kong-incorporated company), involving stake pooling arrangement associated with cryptocurrencies.  The product and its related information (including website and social media accounts) were posted on the SFC’s 'Suspicious Investment Products Alert List' (SIPA list) on 28 February 2024.

The product has not been authorised by the SFC for offering to the Hong Kong public and is suspected to have breached the Securities and Futures Ordinance (SFO).  It displays characteristics of a collective investment scheme (CIS) defined under the SFO.  In general, a CIS must be sold by an intermediary licensed by or registered with the SFC.  Unauthorised CISs may generally be sold to professional investors only.

The SFC wishes to warn investors of 'earnings' or 'staking' arrangements relating to virtual assets (see our previous update regarding the SFC's statement of 13 December 2022 warning the public of virtual asset platforms offering such services).  As these arrangements could amount to unauthorised CISs and may be highly risky, their investors have no or very limited protection under the SFO and may lose all their investments.  The SFC will take all appropriate actions where there is any breach of the law.  [28 Feb 2024]

#Crypto #SIPAList

Singapore

MAS: Response to Parliamentary question on Money Lock feature

The Monetary Authority of Singapore (MAS) has published its response to a Parliamentary question on MAS’ assessment of the effectiveness of the rollout of the Money Lock feature across local banks in protecting consumers from scams and unauthorised transactions, and the adoption of the feature among bank customers.

MAS notes that, to date, there have been no reports of phishing or malware scams involving funds under Money Lock. It also affirmed its commitment to work with banks to continue to encourage customers to adopt the feature, and to monitor its effectiveness.

MAS revealed that since its launch by local banks in November 2023, more than 61,000 Money Lock accounts have been set up, with over $5.4 billion of savings set aside in February 2024. Other major retail banks are expected to introduce the Money Lock feature by mid-2024.  [29 Feb 2024]

#Malware

Malaysia

BNM: Policy document on fintech regulatory sandbox framework

BNM has published a policy document which sets out BNM's revised Financial Technology Regulatory Sandbox Framework. The revisions are focused on ensuring proportionate regulatory facilitation and improving the operational efficiency of the existing sandbox procedures through:

simplifying the sandbox’s Stage 1 (eligibility) assessment; and
introducing a Green Lane, which aims to provide a risk-proportionate and accelerated pathway for innovative solutions by financial institutions with solid risk management capabilities. [29 Feb 2024]

#FinTech #Sandbox

BNM and NBC sign MoU on financial innovation and payments cooperation

BNM and the National Bank of Cambodia (NBC) have signed a memorandum of understanding (MoU) to strengthen regional cooperation in financial innovation and payments.

The MoU will promote closer cooperation between BNM and NBC to drive financial innovation and foster more efficient and secure cross-border payments for the benefit of individuals and businesses in both countries. This includes the linking of domestic payment systems in both countries to enable cross-border QR payments. The cooperation also aims to encourage the use of local currency settlement and support the establishment of a cooperative oversight mechanism for safer cross-border payments.  [27 Feb 2024]

#FinTech #QR #Payments

India

RBI updates Enabling Framework for Regulatory Sandbox

The RBI has published an updated version of the Enabling Framework for Regulatory Sandbox (EFRA). Among other changes, the timelines of the various stages of the Regulatory Sandbox process have been revised from seven months to nine months. The updated framework also requires sandbox entities to ensure compliance with provisions of the Digital Personal Data Protection Act, 2023 (DPDA 2023). The objective of the Regulatory Sandbox, as stated in the framework, is to foster responsible innovation in financial services, promote efficiency and bring benefit to consumers.  [28 Feb 2024]

#Sandbox