FinTech Global FS Regulatory Round-up - w/e 10 May 2024

In this regular post, we round-up FinTech-related financial services regulatory developments for the week ending 10 May 2024.

ICYMI

• Women in Tech - Video series
• Cyber security: A month in retrospect (Australia) – April 2024

UK

FCA COO discusses innovation and responsible lending in building societies

The FCA has published a speech by its Chief Operating Officer (COO), Emily Shepperd, at the Building Societies Annual Conference. Ms Shepperd spoke about the positive impact of building societies on personal finance and, among other things, called on the industry to embrace innovations such as Open Finance, artificial intelligence (AI) and digitalisation in order to succeed in an increasingly competitive landscape. [10 May 2024]

#AI #Digitalisation #OpenFinance

PSR consults on APP scams in CHAPS and amending data publication guidance

The Payment Systems Regulator (PSR) has published two consultations regarding arrangements to combat authorised push payment (APP).

Consultation Paper 24/8 (CP24/8) relates to the PSR's plans to direct banks and other payment firms participating in CHAPS (the UK's real-time, high-value sterling payment system) to reimburse victims of APP scams which involve CHAPS. The PSR indicates that it has made its approach to CHAPS as similar as possible to its approach to the Faster Payment System (FPS) in order to reduce duplication of work for firms while also ensuring a high level of protection in both systems. Feedback to CP24/8 is requested by 31 May 2024. The PSR expects to publish a specific direction in September 2024, and proposes a 'go live' date of 7 October 2024 to align with the 'go live' date for FPS.

CP24/7 is concerned with the publication of APP scam data by payment services providers (PSPs). Specifically, the PSR is proposing to make some changes to its existing guidance which was released in October 2023. Responses to CP24/7 are requested by 30 May 2024. The PSR expects to issue final guidance in advance of the next APP scam data publication (referred to as 'cycle 2'). [8 May 2024]

#APPscams #CHAPS

HMT: UK/Singapore collaboration on sustainable finance and Fintech

HM Treasury (HMT) has published a policy paper on collaboration between the UK and Singapore in sustainable finance and FinTech. Following the 9th UK-Singapore Financial Dialogue, held in Singapore on 8 May, the paper notes that the UK and Singapore have reaffirmed their commitment to scale financing in support of the net zero agenda. The paper also sets out the outcome of discussions on: aspects of sustainable finance such as transition, disclosure standards, and sustainable infrastructure and investment; Fintech and innovation, including AI, cryptoassets, central bank digital currencies (CBDC) and distributed ledger technology (DLT); and developments in the non-bank financial institution (NBFI) sector and cross-border payment connectivity. [8 May 2024]

#AI #Crypto #CBDC #DLT #Payments

BoE: FPC member discusses the potential impact of AI on financial stability

The Bank of England (BoE) has published a speech by Jonathan Hall, external member of the Financial Policy Committee (FPC), delivered at the University of Exeter Business School. The speech focused on how developments in AI, notably the developments known as 'deep learning', could impact financial stability. Mr Hall noted two particular risks which may amplify shocks and reduce stability: deep trading agents, whilst increasing efficiency in good times, could lead to an increasingly brittle and highly correlated financial market; and the incentives of deep trading agents could become misaligned with that of regulators and the public good.

Mr Hall also discussed potential ways to reduce these risks and set out three areas for focus: training, monitoring and control of any deep trading algorithms; alignment with regulations; and new kinds of stress testing. [7 May 2024]

#AI #Algos #DeepTrading

Europe

ESMA: EC letter on DLT Pilot Regime Implementation

The European Securities and Markets Authority (ESMA) has published a letter from the European Commission (EC) regarding the implementation of the DLT Pilot Regime (DLTR). The letter underlines the continued importance of the regime and of exploring high quality solutions based on DLT to create new markets, improve efficiency of existing ones, reduce costs and mitigate certain risks. It also notes the EC's commitment to working with experts from ESMA and national competent authorities (NCAs) to mitigate challenges in the implementation of the DLTR. The letter also clarifies that there is no expiration date for the DLTR and currently no proposal to terminate the regime is envisaged. [8 May 2024]

#DLTR

EBA: ARTs issued under MiCAR – final draft RTS and ITS

The EBA has published three sets of final draft regulatory technical standards (RTS) and one set of final draft implementing technical standards (ITS) relating to: the authorisation as issuer of asset-referenced tokens (ARTs); the information for the assessment of acquisition of qualifying holdings in issuers of ARTs; and to the procedure for the approval of white papers for ARTs issued by credit institutions under the Markets in Crypto-assets Regulation (MiCAR). [7 May 2024]

#MiCAR #ART

Hong Kong

SFC warns public of suspected virtual-asset related fraud

The SFC has warned the public of suspected virtual asset-related fraud involving an entity operating under the name of 'Quantum AI' (also known as 'AI Quantum').

Quantum AI claims to provide cryptocurrency trading services with its underlying AI technology, and operates a number of websites and Facebook groups.

The SFC suspects that Quantum AI uses AI-generated deepfake videos and photos of Mr Elon Musk on its websites and through social media to deceive the public that Mr Musk is the developer of its underlying technology.  The SFC also suspects that Quantum AI may have used a 'news' website to disseminate false and misleading information about itself and promote its cryptocurrency trading services to the Hong Kong public, claiming that the Hong Kong public has been using its technology to trade in cryptocurrencies and is able to earn 'too-good-to-be-true' returns.

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.  Nonetheless, the public should be aware that scammers may continue to create websites and social media pages with similar domain names.  The SFC also posted the aforesaid websites and pages on its Suspicious Virtual Asset Trading Platforms Alert List on 8 May 2024.  [8 May 2024]

#AI #VirtualAsset #Fraud

HKMA establishes Project Ensemble Architecture Community with industry to support development of tokenisation market

The HKMA has announced the establishment of the Project Ensemble Architecture Community to collaborate with the industry in shaping standards and providing suggestions to support the development of Hong Kong’s tokenisation market.

The formation of the community is based on a range of careful considerations, including the members’ expertise in contributing to the development of the tokenisation market in Hong Kong, experience and competency in relevant fields and innovative capability.

• The community aims to develop a set of industry standards to support interoperability among wholesale CBDC (wCBDC), tokenised money, and tokenised assets, and will initially focus on establishing a mechanism to support seamless interbank settlement of tokenised deposit through wCBDC for tokenised asset transactions.
• The community will also assist in the design and implementation of the Project Ensemble Sandbox (see our previous update), targeted to launch by around mid-2024, to facilitate further research and testing of tokenisation use cases.

The community comprises a diverse spectrum of industry representatives across multiple domains, including regulators (the SFC and the HKMA), international organisations (the BIS Innovation Hub Hong Kong Centre), academia (the CBDC Expert Group), local and multinational banks, key players in the digital asset industry, and technology companies.  The HKMA will be working closely with the industry and will review the size and composition of the community as and when deemed appropriate.  [7 May 2024]

#CBDC #Tokenisation # ProjectEnsemble

Authorities announce pilot launch of Shenzhen-Hong Kong cross-boundary data validation platform

The Shenzhen and Hong Kong authorities have announced the pilot launch of the Shenzhen-Hong Kong cross-boundary data validation platform, which aims to promote safe cross-boundary data flow and enhance banks’ operational efficiency and risk management.

The platform uses blockchain technology and data coding for document verification without any cross-boundary transfer or storage of the original documents.  The HKMA has been working closely with Mainland authorities to facilitate the development of fintech innovation and cross-boundary data flow in Guangdong and Hong Kong.

During the first phase of implementation, pilot trials will be conducted with cross-boundary use cases in the financial sector, covering validation of credit referencing reports and account opening documents for corporate customers.  The HKMA will continue to work closely with the Mainland authorities, facilitating more banks to conduct pilot trials involving cross-boundary data validation in Shenzhen and Hong Kong, and enhancing industry engagement through the HKMA’s Fintech Supervisory Sandbox.  [6 May 2024]

#Data

Singapore

MAS: Parliamentary Question on regulatory response following collapse of Terraform Labs

The Monetary Authority of Singapore (MAS) has published a written response to a Parliamentary Question on the regulatory response following the collapse of Terraform Labs. In its response, MAS noted the following points:

• Terraform Labs Pte Ltd was not performing activities requiring a licence from the MAS and was consequently neither licensed nor exempted from licensing by the MAS.
• Spillovers to the mainstream financial system and the economy from the collapse of the TerraUSD stablecoin were limited, and key financial institutions in Singapore have insignificant exposures to cryptocurrency and crypto players.
• Since 2017, MAS has consistently warned the public about the risks of speculating in cryptocurrencies, and in January 2022, restricted advertising of cryptocurrency services in public spaces.
• MAS has introduced a number of regulatory measures for cryptoassets, including requiring cryptocurrency platforms to determine a customer’s risk awareness before accessing trading services, prohibiting incentives that would entice consumers to trade, and prohibiting the provision of credit or leverage to consumers that could magnify losses. The MAS has also introduced business conduct requirements on cryptocurrency platforms. [8 May 2024]

#Crypto #Stablecoin #TerraUSD

MAS: UK/Singapore collaboration on sustainable finance and Fintech

Following the 9th UK-Singapore Financial Dialogue on 8 May, MAS has published a release on collaboration between the UK and Singapore in sustainable finance and FinTech. The UK and Singapore have reaffirmed their commitment to scale financing in support of the net zero agenda. The release also reports the outcome of discussions on: aspects of sustainable finance such as transition, disclosure standards, and sustainable infrastructure and investment; Fintech and innovation, including AI, cryptoassets, central bank digital currencies (CBDC) and distributed ledger technology (DLT); and developments in the non-bank financial institution (NBFI) sector and cross-border payment connectivity. [8 May 2024]

#CBDC #Crypto #DLT #Payments

MAS: Parliamentary Question on use of COSMIC

The MAS has published a written response to a Parliamentary Question on whether a digital platform for the collaborative sharing of money laundering (ML), terrorism and proliferation financing (TF) information and cases, along the lines of MAS’ Collaborative Sharing of ML/TF Information and Cases (COSMIC), may be designed for use by other gatekeepers such as law firms, trust and company service providers and accounting firms.

In its response, the MAS explains that due consideration for its governance, effectiveness, and safeguards in the design of COSMIC. While there is potential to study the usefulness of such a model for other sectors at a later stage, the initial focus will be on banks, and learning from the experience. MAS is taking a phased approach, starting with six major commercial banks, before considering the expansion of COSMIC to a wider segment of the financial sector in subsequent phases. [7 May 2024]

#COSMIC

MAS: Parliamentary Question on PayNow surcharges levied by Banks and PSPs

The MAS has published a written response to a Parliamentary Question on charges levied by banks and payment service providers (PSPs) on merchants for using PayNow (a real time payments system that uses mobile phone numbers). The response indicates that merchants are not allowed to impose a surcharge for the use of PayNow, and the Association of Banks in Singapore (ABS), which owns the PayNow scheme, has in place clear rules to prohibit such practice. The MAS encourages customers who encounter any PayNow surcharge to provide feedback to their own PayNow Financial Institution (FI) or ABS. If a merchant is found to have imposed a surcharge in violation of the service agreement, the PayNow FI will take action against the merchant. [7 May 2024]

#Payments #PayNow

Malaysia

SCM Chair discusses improving financial planning industry

Securities Commission Malaysia (SCM) has published a speech delivered by Chair Dato’ Seri Dr. Awang Adek Hussin, at the Financial Planning Association of Malaysia (FPAM) Annual Signature Financial Planning Symposium 2024. Among other things, the Chair noted:

• The SCM extends the Digital Innovation Fund (DIGID) grant to mid-tier capital market entities, with revenue of up to RM100 million for projects with cutting-edge solutions that utilise advanced tech, such as generative AI or provide industry-wide tech utility infrastructure.
• The SCM and Private Pension Administrator (PPA) will work with private retirement scheme (PRS) providers to develop a digital process for PRS members to switch across funds more seamlessly. [8 May 2024]

#AI #DIGID

Thailand

SECT reiterates prohibition on meme token services by digital asset exchanges and warns digital asset brokers against misleading investor

The Securities and Exchange Commission Thailand (SECT) has issued a statement reiterating that, pursuant to the current rules for undertaking digital asset business, digital asset exchanges are prohibited from listing meme tokens. This is to maintain orderliness in digital asset trading and protect investors against unfair activities as well as mitigate the risk of price manipulation, as meme tokens lack fundamental factors and rely on individual preferences.

The SECT states that any entity holding both digital asset exchange and brokerage licenses intending to offer meme token trading services must send such trading orders to sourced exchanges solely in their capacity as broker, without misleading the general public into believing that the orders are serviced by digital asset exchange. Moreover, influencers and trading partners must also adhere to this principle. [7 May 2024]

#MemeTokens #DigitalAssets

India

RBI holds meeting on scaling up UPI

The Reserve Bank of India (RBI) has published a short summary of its meeting on 8 May 2024, with the major stakeholders in the unified payments interface (UPI) ecosystem. These include banks, the National Payments Corporation of India (NPCI), third party application providers and Technology Service Providers (TSPs). The focus of the meeting was potential strategies for further expanding the reach of UPI. [8 May 2024]

#Payments #UPI

Philippines

BSP announces launch of Paleng-QR Ph Plus program

Bangko Sentral Pilipinas (BSP) has announced that the City of Laoag has launched the Paleng-QR Ph Plus program to promote the use of digital transactions in public markets, public transportation, and business establishments. The program is one of the priority initiatives under the National Strategy for Financial Inclusion 2022-2028, and encourages cashless transactions using QR PH, the national standard for quick response (QR) codes. [9 May 2024]

#QRCodes

USA

CFTC TAC makes recommendations on AI

The CFTC's Technology Advisory Committee (TAC) has released a report: Responsible AI in Financial Markets.  The TAC made five recommendations as to how the CFTC should approach AI evolution in order to safeguard financial markets:

• The CFTC should host a public roundtable discussion and CFTC staff should directly engage in outreach with CFTC-registered entities to seek guidance and gain additional insights into the business functions and types of AI technologies most prevalent within the sector.
• The CFTC should consider the definition and adoption of an AI Risk Management Framework (RMF) for the sector, in accordance with the guidelines and governance aspects of the National Institute of Standards and Technology (NIST), to assess the efficiency of AI models and potential consumer harms as they apply to regulated entities, including but not limited to governance issues.
• The CFTC should create an inventory of existing regulations related to AI in the sector and use it to develop a gap analysis of the potential risks associated with AI systems to determine compliance relative to further opportunities for dialogue on their relevancy, and potential clarifying staff guidance or potential rulemaking.
• The CFTC should strive to gather and establish a process to gain alignment of their AI policies and practices with other federal agencies, including the SEC, Treasury, and other agencies interested in the financial stability of markets.
• The CFTC should work toward engaging staff as both observers and potential participants in ongoing domestic and international dialogues around AI, and where possible, establish budget supplements to build the internal capacity of agency professionals around necessary technical expertise to support the agency’s endeavors in emerging and evolving technologies.  [2 May 2024]

#AI #RiskManageent