FinTech Global FS Regulatory Round-up - w/e 5 April 2024

In this regular post, we round-up FinTech-related financial services regulatory developments for the week ending 5 April 2024.

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Global

BIS announces project to explore tokenisation of cross-border payments

The Bank for International Settlements (BIS) has announced Project Agorá which will explore how tokenisation of wholesale central bank money and commercial bank deposits on programmable platforms can improve the monetary system. The project brings together seven central banks that will seek to work in partnership with private financial firms convened by the Institute of International Finance (IIF).

The project builds on the unified ledger concept proposed by BIS and will investigate how tokenised commercial bank deposits can be seamlessly integrated with tokenised wholesale central bank money in a public-private programmable core financial platform. The primary area of exploration will be to increase the speed and integrity of international payments, while lowering costs.

BIS will issue a call for expressions of interest to private financial institutions (FIs) to join Project Agorá. The IIF will act as the intermediary and convener of private sector participants. It is envisaged that several regulated FIs will participate representing each of the seven currencies. [3 Apr 2024]

#Tokenisation

UK

FCA updates perimeter report

The FCA has updated its perimeter report webpage which explains the areas regulated by the FCA and describes specific issues as well as actions being taken in response to perimeter-related issues. The previous version of the report was published in March 2023. Sections that have seen substantial updates include: contracts for differences (CFDs), financial promotions on social media (including influencers), unregulated collective investment schemes (UCIS) as well as various measures introduced by the Financial Services and Markets Act 2023 (FSMA 2023) affecting the FCA's remit and responsibilities.  [5 Apr 2024]

#SocialMedia

BoE/FCA consult on approach to operating the Digital Securities Sandbox

The Bank of England (BoE) and the FCA have published a joint consultation on their proposed approach to operating the Digital Securities Sandbox (DSS). The DSS will modify regulations in the UK to enable financial market participants to use new technology – such as distributed ledger technology (DLT) – in the trading and settlement of digital securities such as shares and bonds.

The consultation includes:

• an outline of the proposed approach to the operation of the DSS, including the BoE's rules and fee regime; and
• a draft guidance document for potential applicants.

The DSS will last five years and may lead to a new permanent regulatory regime for securities settlement under which firms could operate in future.

Responses to the consultation are requested by 29 May 2024. The regulators propose to publish final guidance for firms and open the DSS for applications in Summer 2024. [3 Apr 2024]

#DigitalSandbox

Europe

ESMA: Letter to EU institutions on DLT Pilot Regime implementation

The European Securities and Markets Authority (ESMA) has published a letter from Verena Ross, Chair, to Mairead McGuinness, Commissioner for Financial Services, Financial Stability and Capital Markets Union (DG FISMA); Irene Tinagli, Chair of the Committee on Economic and Monetary Affairs (ECON) in the European Parliament (EP); and Vincent van Peteghem, President of the Economic and Financial Affairs Council (ECOFIN).

Ms Ross advises that ESMA will not publish the first annual report required under the Distributed Ledger Technology (DLT) Pilot Regime Regulation by 24 March 2024. She explains that as the legislation only entered into force on 23 March 2023, there have yet to be any DLT market infrastructures authorised.

The letter then provides an update on four official applications that have been submitted so far; a further eight may be submitted in the course of 2024.

Ms Ross says that the novelty of the regime may account for the relatively low uptake alongside some challenges which ESMA has identified that the European Commission (EC) may wish to consider further. In particular, the EC could clarify aspects related to innovative solutions for cash settlement, the use of self-hosted wallets, and the scope and the thresholds of admitted DLT financial instruments. It would also be helpful for applicants to know the duration of the DLT Pilot Regime. [4 Apr 2024]

#DLT

Singapore

MAS: Two central banks join RPC initiative

MAS has reported that Brunei Darussalam Central Bank (BDCB) and Bank of the Lao PDR (BOL) have officially joined the Regional Payment Connectivity (RPC).  This brings the RPC group to a total of eight ASEAN central banks.  RPC is an initiative that aims to promote, faster, cheaper, more transparent, and more inclusive cross-border payments.  [3 Apr 2024]

#Payments

MAS: Response to Parliamentary question on youth financial literacy, digital assets

MAS has published the response to a Parliamentary question on financial literacy initiatives for young people, including with regard to 'sensible investing in digital assets'.  The response highlights programmes in schools and tertiery institutions, and supplementary support from MoneySense.  Additionally, the response refers to MAS' warnings 'against trading in cryptocurrencies given their lack of intrinsic value, volatile prices and highly speculative nature', observing that this message is regularly repeated by MoneySense on social media. [2 Apr 2024]

#Crypto

MAS expands scope of regulated payment services and imposes requirements on DPT service providers

MAS has announced that it has introduced amendments to the Payment Services Act and its subsidiary legislation to expand the scope of payment services regulated by MAS, and to impose user protection and financial stability-related requirements on digital payment token (DPT) service providers. The amendments will take effect in stages from 4 April 2024

The following activities will be brought within the scope of regulation under the Act:

• provision of custodial services for DPTs;
• facilitation of the transmission of DPTs between accounts and facilitation of the exchange of DPTs, even where the service provider does not come into possession of the moneys or DPTs; and
• facilitation of cross-border money transfer between different countries, even where moneys are not accepted or received in Singapore.

Transitional arrangements will be provided for entities currently conducting activities under the Act’s expanded scope. Such entities must notify MAS within 30 days and submit a licence application within six months from 4 April 2024 if they wish to continue the activities on a temporary basis while MAS reviews their licence applications.  [2 Apr 2024]

#DPT

Thailand

BoT: QR cross-border payment between Thailand and Laos

The Bank of Thailand (BoT) has announced the launch of a QR cross-border payment service between Thailand and Laos. The project aims to support the use of local currencies for trade, investment and tourism under the ASEAN Payment Connectivity plan to promote sustainable growth and development of regional economies.  [3 Apr 2024]

#QRPayment

SECT consults on draft regulation on the offering of sustainability-related digital tokens

SECT has published a consultation on proposed requirements and draft regulations regarding the offering of sustainability-related digital tokens. The proposed rules aim at ensuring that the disclosure of information related to sustainability is sufficient for investors to make informed investment decisions and aligns with relevant international standards.

Responses to the consultation are requested by 12 April 2024.  [28 Mar 2024]

#DigitalTokens

US

FEDS Notes: Tokenized assets on public blockchains

The Fed has published a new article in its economic research series, FEDS Notes.  The article shares findings from research on the kind of transparency offered by smart contract-based projects deployed on public blockchains.

FEDS Notes are articles in which Fed staff offer their own views and present analysis on a range of topics in economics and finance. [3 Apr 2024]

#TokenisedAssets