FinTech Global FS Regulatory Round-up - w/e 12 April 2024

In this regular post, we round-up FinTech-related financial services regulatory developments for the week ending 12 April 2024.

ICYMI

• Cyber security: A month in retrospect (Australia)
• How open is open source? Averted cyber attack indicates watershed moment in open source supply chain security and poses important questions on software liability
• March Data Wrap: A snapshot of key data-related regulatory developments

Global

IOSCO updates 2024 workplan

The International Organization of Securities Commissions (IOSCO) has published its updated workplan for 2024. The revised workplan announces new workstreams to reflect increased focus on artificial intelligence (AI), tokenisation and credit default swaps, as well as additional work on transition plans and green finance.

The workplan continues to set out its priorities under five themes: protecting investors; addressing new risks in sustainability and fintech; strengthening financial resilience; supporting market effectiveness; and promoting regulatory cooperation and effectiveness.  [12 Apr 2024]

#AI #Tokenisation

UK

BoE: Policy statement and consultation on enhanced data in CHAPS

The Bank of England (BoE) has published a policy statement and consultation on mandating ISO 20022 enhanced data in the Clearing House Automated Payment System (CHAPS). The publication seeks views on proposals to expand the mandatory requirements for enhanced data in CHAPS payments from 2027. It also provides further clarification on the BoE's previously published mandatory requirements for enhanced data coming into effect in 2025 and 2026.

The BoE is proposing the following expansions of its mandatory requirements on enhanced data in CHAPS payments from November 2027:

• including all initiation channels within the scope of enhanced data requirements from November 2027; and
• mandating the inclusion of Purpose Codes for all CHAPS payments from November 2027.

The policy statement reiterates the BoE's role in facilitating and working with the payments industry to realise the potential benefits of ISO 20022 enhanced data, such as improved efficiency, payment prioritisation, and prevention of financial crime.

Responses to the consultation are requested by 28 June 2024. The BoE will publish its response in due course.

On a related note, the BoE has updated its webpage on the real-time gross settlement (RTGS) renewal programme to confirm that the new RTGS core ledger and settlement engine (Transition State 3) will be introduced in Autumn 2024.  [12 Apr 2024]

#CHAPS #ISO20022

PSR writes to Pay.UK on NPA, FPS

The Payment Systems Regulator (PSR) has published its letter to Pay.UK, dated 21 March 2024, in which it requests information that will help inform the PSR's approach to investment in the current Faster Payments Scheme (FPS) system.

The letter was sent in recognition of regulatory processes being ongoing, the uncertainty and delay created by HM Government's (HMG's) announcement of its intention to consider the New Payments Architecture's (NPA's) role as part of the National Payments Vision, and Pay.UK’s subsequent decision to pause the NPA programme. These developments have led to a significant delay to the earliest date by which FPS would be replaced.

The letter also acknowledges that the delay, and the consequences flowing from it, is likely to impact Pay.UK’s ability to meet its Specific Direction 3 deadline of 1 July 2026. The PSR will therefore continue to engage with Pay.UK on the matter. [11 Apr 2024]

#Payments

BoE: Minutes of first CBDC academic advisory group meeting

The Bank of England (BoE) has published the minutes of the first meeting of its central bank digital currency (CBDC) academic advisory group. The topics presented and discussed included:

• the future of money and payments;
• behavioural drivers of cash usage preferences;
• the risks and opportunities of CBDCs from a technology perspective; and
• a roundtable discussion examining potential scenarios of the future payments landscape, what a ‘mixed’ payments ecosystem looks like, and how current trends in payment technology could inform future adoption of new forms of money.

The next meeting will be focused on privacy and trust. [8 Apr 2024]

#CBDC

Europe

ESAs to run voluntary dry run exercise in May 2024 – DORA

The European Supervisory Authorities (EBA, EIOPA and ESMA – the ESAs) have announced that they will launch a voluntary exercise for the collection of the registers of information of contractual arrangements on the use of ICT third-party service providers by financial entities.

Under the Digital Operation Resilience Act (DORA) and starting from 17 January 2025, financial entities will have to maintain registers of information regarding their use of ICT third-party providers. The dry run exercise will serve as preparation for the implementation and reporting of registers of information under DORA.

The data collection is set to be launched in May 2024 with the participating financial entities expecting to submit their registers of information to the ESAs through their competent authorities between 1 July 2024 and 30 August 2024. [11 Apr 2024]

#DORA

ESMA: TRV risk analysis – Cryptoassets

The European Securities and Markets Authority (ESMA) has published an article – Crypto assets: Market structures and EU relevance. The article aims to improve the understanding of crypto-asset trading and the extent to which it resembles or differs from traditional financial markets. It also identifies current and potential areas of risk, not only to consumers but also to market order and financial stability. Finally, the analysis informs and supports the implementation of the EU Markets in Crypto-Assets regulation (MiCAR). [10 Apr 2024]

#Crypto #MiCAR

EC: Newsletters on CMU, digital finance and ESG ratings

The European Commission (EC) has published various newsletters, including one on Digital finance, which discusses the Data Hub (the European Commission’s new data-sharing tool).

#DigitalFinance #DataSharing

Australia

ASIC commences proceedings against blockchain mining companies and directors

ASIC has commenced proceedings against blockchain mining companies NGS Crypto Pty Ltd, NGS Digital Pty Ltd and NGS Group Ltd and the companies' respective sole directors. ASIC alleges that the NGS Companies contravened s 911A of the Corporations Act 2001 (Cth) (Corporations Act) by providing financial services without an Australian Financial Services Licence (AFSL). Relatedly, on 10 April 2024, the Federal Court made orders appointing receivers over the digital currency assets of the NGS Companies and directors, due to a concern that the digital assets of investors were at risk of dissipation. Orders were also made by the Federal Court restraining one of the relevant directors from travelling outside of Australia.  [12 Apr 2024]

#Blockchain #DigitalAssets

ASIC appeals Finder Wallet decision

ASIC has lodged its appeal in relation to the Federal Court’s decision to dismiss ASIC’s proceedings against Finder Wallet Pty Ltd (Finder Wallet). In the primary proceedings, ASIC alleged that Finder Wallet had contravened the Corporations Act by carrying on a financial services business without holding an AFSL, and offering a debenture without a disclosure document or a target market declaration, in relation to its crypto-asset related product ‘Finder Earn’. In the notice of appeal, filed on 10 April 2024, ASIC relies on two grounds of appeal, which variously contend that the primary judge erred in holding that the ‘Finder Earn’ product was not a debenture pursuant to s 9 of the Corporations Act. The appeal will be heard by the Full Federal Court on a date to be determined.   [10 Apr 2024]

#Crypto

Hong Kong

HKMA Chief Executive shares his thoughts on CBDCs and digital money framework more broadly

The HKMA's Chief Executive, Mr Eddie Yue, delivered a keynote speech at the International Conference on Central Bank Digital Currencies and Payment Systems to share his thoughts on central bank digital currencies (CBDCs) and what they mean for the future of money and payment systems.

• The HKMA envisions that a close-knit relationship between public money and private money will continue.  Central banks should continue to play their role in the provision of public money serving as a trusted monetary anchor, enabling the private sector to confidently develop innovative, value-adding financial products for consumers and businesses.  When implementing regulation, it is crucial to strike the right balance between enabling innovation and maintaining stability.
• A holistic digital money framework is required to facilitate the healthy co-existence of public and private money.  The HKMA envisions that this framework will comprise three key components: retail CBDCs, regulated stablecoins, and tokenised deposits.
• Retail CBDC – A retail CBDC could be a potential 'backbone' and anchor, bridging a legal tender and digital assets, offering price stability and confidence needed to empower more innovations.  However, it remains to be seen whether the benefits of its issuance would outweigh the risks, and how its introduction would impact the broader financial system.  The HKMA will continue to take a use-case driven approach in considering whether and when to introduce a retail CBDC.
• Regulated stablecoins – The HKMA has recently completed its consultation on a legislative proposal to implement a regulatory regime for stablecoin issuers, and is in the process of considering the feedback received.
• Tokenised deposits – Over the past year, the industry has been exploring the idea of tokenised deposits.  Whilst the full potential has yet to be explored, the HKMA has observed strong interest in this area, and will continue to work closely with the industry in developing commercially viable use cases.
• Mr Yue also pointed out that a wholesale CBDC could potentially forge a new financial market infrastructure that bridges the existing gap between different forms of digital money, including retail CBDCs, regulated stablecoins, and tokenised deposits.  [11 Apr 2024]

#CBDC

Anti-Scam Consumer Protection Charter 2.0 launched

The SFC has joined the Insurance Authority and the Mandatory Provident Fund Schemes Authority to lend full support to the Anti-Scam Consumer Protection Charter 2.0, an updated charter which has been published by the HKMA and the Hong Kong Association of Banks.  The original Anti-Scam Consumer Protection Charter was launched in June 2023 (see our previous update).

The updated charter expands the participation of institutions beyond card issuing banks and merchant institutions to also cover:

• Authorised institutions under the Banking Ordinance carrying on retail banking business;
• Authorised insurers and licensed insurance broker companies under the Insurance Ordinance carrying on long term insurance business and general insurance business and focusing on retail customers;
• Mandatory Provident Fund (MPF) approved trustees and principal intermediaries under the Mandatory Provident Fund Schemes Ordinance; and
• Licensed corporations under the Securities and Futures Ordinance carrying on regulated activities and focusing on retail customers.

The principles have correspondingly been expanded to cover digital frauds more broadly.

In his opening speech at the launch of the updated charter, Mr Eddie Yue (Chief Executive of the HKMA), noted that data since the launch of the original charter has shown that the charter and other measures have been effective.

Over 200 institutions from the banking, insurance, MPF, and securities and futures industries, as well as 13 new merchants, have signed up to the updated charter.

Regulated financial institutions wishing to sign up to the updated charter should indicate their interest by 28 June 2024 via the reply template in the annex of the joint circular.  [10 Apr 2024]

#Scams

SFC CEO discusses five-pronged approach to raise Hong Kong market's competitiveness in keynote speech at HSBC Global Investment Summit

The CEO of the SFC, Ms Julia Leung, delivered a keynote speech at the HSBC Global Investment Summit, where she unravelled some of the myths about Hong Kong's financial markets and discussed the SFC's five-pronged approach to raise the Hong Kong market's competitiveness.

Ms Leung provided data which showed (among other things) a growing number of licensed firms (particularly those holding securities advisory and asset management licences), hedge fund managers, private equity fund managers, family offices, as well as registered open-ended fund companies and limited partnership funds.

Among others, the SFC's five-pronged approach to raise the Hong Kong market's competitiveness included:

• expanding connectivity (including potential initiatives such as block trading and RMB counter inclusion on Stock Connect, REIT Connect, and strengthening ties with the Middle Eastern and Southeast Asian markets);
• RMB internationalisation (including preparations to launch China treasury bond futures contracts, and to bring RMB counters into Stock Connect); and
• leading financial market transformation through technology (including supporting the development and responsible use of innovations such as distributed ledger technology, Web3 ecosystem, and tokenisation) and ESG (priority is to align Hong Kong's corporate reporting standards with the IFRS Sustainability Disclosure.

#DLT #Web3 #Tokenisation

SFC warns public against unlicensed VATP

The SFC has warned the public of a purported virtual asset trading platform (VATP) operating under the name of 'Sure X' (also known as 'Sure Bit International Pte Ltd / Sure Bit International Ltd / Sure 9') on various websites.

The SFC suspects that Sure X may have actively marketed its purported VATP services to Hong Kong investors without a licence under the guise of providing education and training on blockchain and cryptocurrencies.

Although Sure X's platform websites currently appear to be inaccessible, its platform and/or websites may still be accessible via other means on the internet.  Accordingly, the SFC posted Sure X and its websites on the Suspicious Virtual Asset Trading Platforms Alert List on 5 April 2024.  [5 Apr 2024]

#Crypto #VATP

Singapore

MAS and Mastercard Sign MoU to Enhance Cooperation in Cybersecurity

The Monetary Authority of Singapore (MAS) has announced that it has signed a memorandum of understanding (MoU) with Mastercard to enhance cooperation in cybersecurity, with the aim of strengthening cyber resilience in the financial services sector in Singapore. The MoU provides for collaboration between the MAS and Mastercard through:

• bilateral information sharing of cyber threat intelligence to raise cyber situational awareness in the financial services sector;
• joint analysis of the latest cyber threats impacting the financial services sector to produce actionable insights and recommendations on possible countermeasures; and
• competency-building activities, such as joint cybersecurity exercises, staff training and study visits. [9 Apr 2024]

#Cybersecurity

India

RBI Governor discusses development of financial markets in India and areas for improvement by the banking sector

The Reserve Bank of India (RBI) has published the keynote address delivered by its Governor, Shri Shaktikanta Das, at the FIMMDA-PDAI annual conference in Barcelona. Among other things, the address included: the history of the RBI and its role in developing the financial markets in India; reforms to foster trust, stability and innovation; and key areas for improvement, including leveraging technology for greater efficiency, taking up opportunities presented in the context of the recent regulatory reforms, and appropriate safeguards to address the challenges posed by new products, participants and markets. [8 April 2024]

#Tech

USA

Fed issues enforcement action against two banking entities

The Federal Reserve (Fed) has announced the execution of the enforcement actions against two banking entities. In one case, the Fed found the board of the respective entities failed to adequately oversee the management of the banks operations with respect to its FinTech business strategy. Following the enforcement, the banking entity will have to submit a written plan to strengthen board oversight of management and operations.  [4 Apr 2024]

#FinTechStrategy