FinTech Global FS Regulatory Round-Up – w/e 8 March 2024

In this regular post, we round-up FinTech-related financial services regulatory developments for the week ending 8 March 2024.

ICYMI

• Cyber Monthly Wrap-up (UK, EMEA and the US) – February 2024
• Cyber security: A month in retrospect (Australia) – February 2024
• February Data Wrap: A snapshot of key regulatory developments

UK

FCA: SDEG report on using synthetic data in financial services

The FCA has published a report by the Synthetic Data Expert Group (SDEG) which explores how synthetic data can be used to overcome data challenges and sheds light on practical applications in financial services.

This report focuses on three key themes across the data lifecycle:

• data augmentation and bias mitigation system;
• testing and model validation; and
• internal and external data sharing for fraud controls.

The key findings provide an overview of the steps to consider when creating, using and sharing synthetic data, and the most relevant use cases across financial services.

The FCA invites stakeholders to complete a survey to provide feedback on the report and inform the FCA's future work programme.

Set up by the FCA in March 2023, the SDEG brings together 21 experts from across financial services, public sector, data and technology vendors, and consumer groups to further explore the use of synthetic data in financial markets.

The report does not represent the views of the FCA or any participating organisation and should not be taken as an indication of recommendations, guidance or future policy.  [8 Mar 2024]

#SyntheticData

BoE Director discusses proposed regime for CTPs

The Bank of England (BoE) has published a speech by Gareth Truran, Director, Prudential Policy Directorate, on the proposed UK regime for critical third parties (CTPs).

The Director stated that the overall objective of the CTP regime is very specific in that it is designed to help manage risks to the stability of, or confidence in, the UK financial system posed by systemic third party concentration risk. He also highlighted the importance of cooperation between CTPs, firms and regulators during implementation of the policy in order to enhance the operational resilience of the UK financial sector.  [8 Mar 2024]

#CTPs #Outsourcing

HMT provides update on the National Payments Vision

HM Treasury (HMT) has published an update on the National Payments Vision, the primary recommendation of the Future of Payments review that was published in November 2023. The update confirms that HMG has accepted the recommendation to publish a National Payments Vision this year. In this regard, HMG will undertake a programme of engagement on key issues, and will work closely with key trade associations and membership bodies to gather views. HMG expects to publish the Vision later this year.  [8 Mar 2024]

#Payments

BoE ED discusses data and analytics strategy

The Bank of England (BoE) has published a speech by James Benford, Executive Director for Data and Analytics Transformation and Chief Data Officer, on the steps being taken at the BoE to update its data and analytics strategy.

Mr Benford spoke about the BoE's history with data as well as how it uses data currently. With respect to updating the BoE's data and analytics strategy, he discussed seven important steps towards transforming the strategy. [7 Mar 2024]

#BoE #Data #Analytics

Spring Budget Collection policy documents – FMI Sandbox, Crypto 

Alongside the Spring Budget, a number of policy documents have been released by HM Government (HMG), including:

• Private Intermittent Securities and Capital Exchange System (PISCES) Consultation:  This consultation sets out a proposal for a new platform that will allow private companies to trade their securities in a controlled environment and on an intermittent basis. PISCES will be developed using a financial markets infrastructure (FMI) sandbox. Responses to the consultation are requested by 17 April 2024.
• Cryptoasset Reporting Framework and Common Reporting Standard Consultation: This consultation focuses on UK implementation of the Organisation for Economic Cooperation and Development (OECD) framework for exchanging information to tackle tax evasion.  Feedback is requested by 29 May 2024. [6 Mar 2024]

#FMISandbox #Crypto

FCA COO discusses future-fit workforce in financial services

The FCA has published a speech by Emily Shepperd, COO and Executive Director of Authorisations, delivered at TheCityUK and Financial Services Skills Commission Future Skills Conference.

Ms Shepperd highlighted the importance of attracting and retaining top talent as well as upskilling the existing workforce, and discussed factors that can help achieve this. She also commented on how firms should look at ways to upskill their workforce in light of the potential and challenges linked to artificial intelligence (AI). [5 Mar 2024]

#AI

Europe

EBA consults on guidelines on redemption plans under MiCAR

The European Banking Authority (EBA) has launched a consultation on the guidelines for the plans to orderly redeem asset-referenced tokens (ARTs) or e-money tokens (EMTs) in the event that the issuer fails to fulfil its obligations under the Markets in Cryptoassets Regulation (MiCAR). The guidelines specify the content of the redemption plan, the timeframe for review and the triggers for its implementation. The guidelines are addressed to issuers of ARTs and of EMTs, and to competent authorities under MiCAR. In particular, the draft guidelines:

• clarify the main principles governing the redemption plan, such as the equitable treatment of token holders, and describe the main steps for the orderly and timely implementation of the plan, including the communication plan, the content of the redemption claims and the distribution plan;
• cover the case of pooled issuance, where the same token is issued by multiple issuers; and
• outline the triggers for the activation of the plan by the competent authority and the cooperation with the prudential and resolution authorities.

Responses to the consultation are requested by 10 June 2024. The EBA will hold a virtual public hearing on the consultation paper on 22 May 2024.  [8 Mar 2024]

#MICAR #Crypto

ECB statement on advancing CMU

The European Central Bank (ECB) has released a statement highlighting the areas it considers should be prioritised in order to advance the Capital Markets Union (CMU). The EBA cites the need to address 'challenging open dossiers'. It further comments on financial market infrastructure (FMI) development, including with respect to the use of new technology for issuance, trading and settlement, along with the potential for fostering tokenisation and a possible unified EU ledger. [8 Mar 2024]

#Tokenisation #UnifiedLedger

Council and EP reach provisional agreement on cyber package

The Council of the EU has announced that it has reached a provisional agreement with the European Parliament (EP) on the 'Cyber Solidarity Act', which is aimed at strengthening the EU’s response to cybersecurity threats and enhance the block's cyber resilience. Additionally, the Council and EP have reached a provisional agreement on targeted amendment to the Cybersecurity Act (CSA).

In terms of next steps, both texts will have to be endorsed by the Council and the EP prior to formal adoption. Once approved, the draft legislative acts will be submitted to a legal/linguistic review before being formally adopted by the co-legislators, published in the EU’s Official Journal (OJ). The acts will enter into force on the 20^th day following publication in the OJ. [6 Mar 2024]

#Cyber

Australia

ACCC announces compliance and enforcement priorities for 2024-2025

The Australian Competition and Consumer Commission (ACCC) has released its updated 2024-2025 Compliance and Enforcement Policy and Priorities, of which one entails promoting competition in essential services including the financial services industry.  Among its priorities, the regulator identified the opportunities and disruptions of digital transformation.  [7 Mar 2024]

#DigitalTransformation

ASIC releases latest enforcement activity update

ASIC has released its latest Enforcement and Regulatory Update: Report 780 (Update), which canvasses its investment scams disruption work. [4 Mar 2024]

#Enforcement #Phishing

Hong Kong

SFC publishes quarterly report for October to December 2023 

The SFC has published its quarterly report summarising its work and key developments from October to December 2023. The highlights covered by the report include (among others):

• Virtual assets (VAs) and tokenisation – The SFC refined its VA regulatory regime by enabling retail investors to access VA dealing and advisory services provided by SFC-regulated intermediaries and set out its requirements for intermediaries involved in distributing investment products with exposure to VAs.  The SFC also provided guidance on tokenised securities-related activities and tokenisation of SFC-authorised investment products, as well as guidance on authorising investment funds with VA exposure of more than 10% of their net asset value for public offering in Hong Kong.  The SFC formed a joint working group with the Hong Kong Police Force in October 2023 to combat suspected fraudulent activities involving VAs in a more timely way.

• Increase in licensing applications – The SFC received around 7,200 licence applications in 2023, an increase of 16% from 2022.  Six virtual asset trading platforms applied for a corporate licence.  The SFC conducted on-site inspections of 52 licensed corporations to review their compliance with regulatory requirements.

• Products – The SFC has been working with the HKEX and related parties to set up an integrated fund platform for distributing retail funds.  Assets under management of Hong Kong-domiciled funds increased 4.9%, and net fund inflows increased by 92.9%, year-on-year.  The SFC also authorised Asia' first and the world’s largest exchange-traded fund investing in Saudi Arabian listed stocks.  [8 Mar 2024]

#VirtualAssets #Tokenisation

HKMA announces Project Ensemble on wCBDC to support development of Hong Kong tokenisation market

The HKMA has announced the commencement of Project Ensemble, a new wholesale central bank digital currency (wCBDC) project to support the development of the tokenisation market in Hong Kong.

Project Ensemble will seek to explore innovative financial market infrastructure (FMI) that will facilitate seamless interbank settlement of tokenised money through wCBDC.  The project will initially focus on tokenised deposits (a digital representation of commercial bank deposits) issued by commercial banks and made available to the general public.

The HKMA plans to launch a wCBDC Sandbox this year to further research and test tokenisation use cases (including settlement of tokenised real-world assets such as green bonds, carbon credits, aircraft, electric vehicle charging stations, electronic bills of lading and treasury management).  It could potentially forge a new FMI that bridges the existing gap between tokenised real-world assets and money in transactions.

If the wCBDC Sandbox attracts sufficient interest from the industry, the HKMA will conduct a 'live' issuance of the wCBDC at an appropriate time.

To help set industry standards and a future-proof strategy, the HKMA will form a wCBDC Architecture Community consisting of local and multinational banks, key players in the digital asset industry, technology companies and the CBDC Expert Group.

The HKMA will continue to partner with Cyberport and Hong Kong Science and Technology Parks Corporation to foster the development of asset tokenisation and support homegrown fintech innovation.

Project Ensemble is part of the HKMA's portfolio of initiatives for developing the tokenisation market, including e-HKD and collaborations with the BIS Innovation Hub Hong Kong Centre on projects such as mBridge, Dynamo and Genesis.  It will also build on the experimentation of tokenised deposit use cases that the HKMA conducted with HSBC, Hang Seng Bank and Ant Group in 2023.  [7 Mar 2024]

#wCBDC #FMI #mBridge #Dynamo #Genesis

SFC publishes synopsis of speeches and panel discussions at Regional Securities Regulatory Leadership Symposium

The SFC has published a synopsis of the speeches and panel discussions at the SFC Regional Securities Regulatory Leadership Symposium, which took place on 28 February 2024.  The symposium gathered more than 300 government officials, financial regulators and business leaders to exchange views on Asia-Pacific capital market developments.  One of the discussions focused on the intersection of fintech and artificial intelligence (AI) in wealth management. This Panel noted that the use case potential of AI and generative AI is promising in wealth management, which can make trading and investments much more efficient and cost-effective, including in areas such as client servicing (eg, roboadvisors) and compliance (eg, regulatory requirements on know-your-clients and anti-money laundering).  The panel also noted that tokenisation can be a game changer, allowing instant settlement and fractionalisation of assets without the need of financial intermediaries.  The panel also acknowledged the need to address the risks of AI, including those relating to data governance, privacy and confidentiality, model instability and hallucination.  [6 Mar 2024]

#AI #Roboadvisors #Tokenisation

SFC warns public of suspicious websites impersonating licensed VATPs and suspected virtual asset-related fraud

The SFC has warned the public of the following:

• Various suspicious websites impersonating two licensed virtual asset trading platforms (VATPs), Hash Blockchain Limited and OSL Digital Securities Limited – Victims have reported fund withdrawal difficulties and have stated that they were asked to pay exorbitant 'fees and taxes' to withdraw their funds from the websites.

• Suspected virtual asset fraud involving a purported VATP operating under the name of BitForex – BitForex, purportedly headquartered in Hong Kong, has neither been licensed by the SFC nor applied for an SFC licence to operate a VATP in Hong Kong.  Victims have experienced increasing difficulties in recent days in withdrawing assets from the platform under the guise of 'wallet and website maintenance'. They are now reporting that the website of BitForex has been shut down, preventing them from accessing their own accounts and withdrawing assets held with BitForex.

At the SFC’s request, the Hong Kong Police Force has taken steps to block access to relevant websites and take down relevant social media pages.

The above entities and websites were posted on the SFC’s Suspicious Virtual Asset Trading Platforms Alert List (SVATP Alert List) on 4 March 2024.

The SFC warns investors to be wary of online investment scams as well as the risks of trading virtual assets on an unregulated VATP.  It reminds the public to make use of its public register of licensed persons and registered institutions and list of licensed virtual asset trading platforms for up-to-date information on licensed entities, including their official websites.  [4 Mar 2024]

#VATPs #Crypto

Thailand

BOT announces procedures and conditions for applications for licenses to operate virtual banking businesses

The Bank of Thailand (BOT) has announced that the procedures and conditions for applying for licenses and issuing licenses for virtual banking businesses are now available to those with technological expertise. The announcement lists seven considerations that the BOT will use in its assessment of the applications for permission to operate virtual bank businesses according to the proposed model and plan.  [5 Mar 2024]

#VirtualBank

India

RBI publishes latest OP

The RBI has published  Volume 44, No.1, 2023 of its Occasional Papers (Ops), a research journal containing contributions from its staff. Among other topics, this issue includes harnessing artificial neural networks to gauge the systemic risk exposure of banks in India. [4 Mar 2024]

#NeuralNetworks #SystemicRisk

RBI Governor discusses digital payments

The RBI has published a speech by its Governor, delivered at the Digital Payments Awareness Week celebrations. Among other things, the Governor discussed:

• the growth of retail digital payments in India over the last 12 years;
• the flagship ‘UPI’, has become the most talked about fast payment system not only in India but across the world. It is the biggest contributor to the growth of digital payments in India;
• scope for expanding the use of digital payments in India; and
• the importance of safety and security to engender trust in digital payments. [4 Mar 2024]

#Payments

US

CFTC GMAC advances recommendations – U.S. Treasury ETFs, T+1, digital assets

The Commodity Futures Trading Commission’s (CFTC's) Global Markets Advisory Committee (GMAC) has advanced new recommendations, including one of those made by the Digital Asset Markets Subcommittee with regard to the Adoption of an Approach for the Classification and Understanding of Digital Assets.  [7 Mar 2024]

#Crypto