FinTech Global FS Regulatory Round-up - w/e 3 May 2024

In this regular post, we round-up FinTech-related financial services regulatory developments for the week ending 3 May 2024.

ICYMI

• Cyber Monthly Wrap-up (UK, EMEA and the US) – April 2024

Global

BIS: Project Raven – using AI to assess financial system's cyber security and resilience

The Bank for International Settlements (BIS) has announced the launch of Project Raven by the BIS Innovation Hub Nordic Centre. The project aims to create a new solution to help authorities comprehensively assess the cyber security and resilience maturity readiness of their countries' financial systems.

With Project Raven's solution, central banks and regulatory authorities will be able to use artificial intelligence (AI) to:

• enable fast and easy access to a range of complex information, standards and guidelines;
• collect and analyse cyber security and resilience data to get a holistic view of the maturity and readiness of the financial sector and identify areas of action and trends over time; and
• enable efficiency through the intelligent completion of multiple reporting requirements and the reuse of data. [1 May 2024]

#AI #CyberSecurity

ISSB releases digital sustainability taxonomy

The International Sustainability Standards Board (ISSB) has published the IFRS Sustainability Disclosure Taxonomy.

The Taxonomy reflects IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, IFRS S2 Climate-related Disclosures and their accompanying guidance. It has been developed to help support dialogue between companies and investors and it neither introduces new requirements nor affects a company’s compliance with the Standards.

Designed to be consistent with the IFRS Accounting Taxonomy so that companies can provide a holistic digital financial reporting package to investors, the ISSB Taxonomy can also be used with other digital taxonomies. [30 Apr 2024]

#DigitalTaxonomy

CPMI report: Service level agreements for cross-border payment arrangements

The Committee on Payments and Market Infrastructure (CPMI) has published a report on the service level agreements that form part of cross-border payment arrangements, such as correspondent banking relationships, the interlinking between payment systems and payment instrument rulebooks.

The report contains high-level recommendations, key features and guiding questions to inform parties involved in such arrangements. Payment service providers, correspondent banks and/or payment system operators are encouraged to consider the recommendations when establishing new agreements or reviewing existing ones. [29 Apr 2024]

#Payments

UK

PDP: Updated data standards for pensions dashboard

The Pensions Dashboard Programme (PDP) has published its updated data standards for the pensions dashboard. The standards cover the data requirements for finding and viewing pensions information and are mandatory for pension providers and schemes to connect to the ecosystem. The updated standards reflect the PDP's engagement with industry following its consultation and draft version of the standards published in 2022. [2 May 2024]

#PensionsDashboard

BoE ED discusses operational resilience of FMIs

The Bank of England (BoE) has published a speech by its Executive Director of Financial Market Infrastructure, Sasha Mills, on the operational resilience of financial market infrastructures (FMIs).

Ms Mills highlighted the importance of FMIs to financial stability and outlined some of the BoE's key expectations of FMIs ahead of the March 2025 deadline to meet the policy in the area. In this regard, she pointed out that:

• FMIs are expected to accelerate their efforts to ensure that they have calibrated their tolerance for negative impacts on their important business services, and mapped the key people, processes, technology, facilities, and information needed to deliver these services;
• an area requiring significant work is the approach and method FMIs use to test disruption to important business services;
• FMIs must work to ensure that the ‘extreme but plausible’ scenarios they have planned for directly link to the risks and vulnerabilities they face and have mapped; and
• FMIs need to do further work to improve on the sophistication of their testing approaches. [30 Apr 2024]

#OpRes #Payments #Settlement

PSR: Framework for reviewing generally applicable requirements

The Payment Systems Regulator (PSR) has published a review framework on how it keeps under review any generally applicable requirements to meet its obligation under The Financial Services and Markets Act 2023 (FSMA 2023) to publish a statement of policy.

The document covers:

• how the PSR will identify the need to review a particular requirement, including indicators and evidence it will use;
• how stakeholders can request a review;
• the prioritisation criteria the PSR will apply to determine whether to conduct a review; and
• the review methods it may use.

This document is particularly relevant to firms that are subject to the regulations and obligations enforced by the PSR. [30 Apr 2024]

#Payments

Europe

OJ: Corrigendum to MiCAR

Corrigendum to Regulation (EU) 2023/1114 on Markets in Cryptoassets (MiCAR), and amending the regulations on establishing European supervisory authorities, and the Capital Requirements Directive (CRD) and Whistleblowing Directive, has been added to the Official Journal of the EU (OJ). [2 May 2024]

#MiCAR #Cryptoasset

EIOPA report: Digitalisation of the insurance sector

The European Insurance and Occupational Pensions Authority (EIOPA) has published a report which analyses the level of digitalisation in the EU insurance sector. The findings of the report show a broad spectrum of practices in the market and point to substantial differences in the digital readiness of individual insurers.

Key findings include:

• the level of digitalisation among European insurers is varied and, in most cases, still at an early stage;
• digital-only distribution channels still lag well behind physical or hybrid ones – this is especially true for life insurance products where consumers prefer in-person meetings even though online tools are also used to compare products or get more information about certain offers.
• phone calls, emails and face-to-face meetings are the most popular communication channels for the moment, but the use of chatbots is expected to rise significantly, particularly due to the emergence of generative artificial intelligence (AI);
• most insurers are active on social media and use this channel to interact with customers and to launch marketing and educations campaigns – on occasion in collaboration with influencers; and
• most insurers have active commercial relationships with BigTech firms. [30 Apr 2024]

#Digitalisation #AI

EBA: Opinion on new types of payment fraud and possible mitigants

The European Banking Authority (EBA) has published an opinion in which it assesses payment fraud data that has recently become available to the EBA, identifies new types and patterns of payment fraud, and develops proposals to mitigate them.

The aim of this opinion is to help further strengthen the forthcoming legislative framework under the third Payment Services Directive (PSD3) and the Payment Services Regulation (PSR), which will enshrine anti-fraud requirements for retail payments for several years. [29 Apr 2024]

#Payments

Australia

ASIC succeeds in proceedings regarding a non-cash payment facility involving crypto assets

In proceedings brought by the Australian Securities and Investments Commission (ASIC) against BPS Financial Pty Ltd, the Federal Court found that BPS engaged in unlicensed conduct when offering the ‘Qoin Wallet’, a non-cash payment facility which used a crypto-asset token called ‘Qoin’. This was in contravention of the Corporations Act 2001 (Cth) because, since January 2020 (except for a 10-month period), BPS did not hold an Australian Financial Services Licence, nor was authorised by a licence holder, to issue or provide financial advice about the Qoin Wallet. The Court further found that BPS engaged in misleading or deceptive conduct and made false or misleading representations concerning the Qoin Wallet, including that it was officially registered or officially approved when it was not; and that it could be used to purchase goods and services from an increasing number of Qoin merchants when in fact it was declining. ASIC Chair Joe Longo said that this was a significant finding as the first court outcome against a non-cash payment facility involving crypto. He said that these proceedings ‘should send a message to the crypto industry that their products will continue to be scrutinised by ASIC to ensure consumers are protected and that they comply with regulatory obligations’. A hearing for penalties will be on a date to be fixed later this year. [3 May 2024]

#Crypto

Hong Kong

Hong Kong introduces Asia's first spot VA ETFs

The HKEX has welcomed the listing of Asia’s first spot virtual asset (VA) exchange traded funds (ETFs), adding to the diversity of products in Hong Kong’s markets and further supporting the city's position as the region’s leading ETF marketplace.

Investor interest in VA ETFs has grown since VA Futures ETFs were first launched in late 2022.  In the first quarter of 2024, the combined average daily turnover for the three VA Futures ETFs listed in Hong Kong reached HK$51.3 million, up from HK$8.9 million a year earlier.  These three VA futures ETFs also attracted HK$529 million in net inflows during the first quarter.

The Hong Kong Securities Clearing Company Limited has issued circulars on admission of the shares of the spot VA ETFs as multi-counter eligible securities.  The circulars discuss various arrangements in CCASS, such as inter-counter transfer of shares, custodian services, legal title of the shares, clearing and settlement of the shares, and applications for the creation and redemption of shares:

• Harvest Bitcoin Spot ETF and Harvest Ether Spot ETF
• ChinaAMC Bitcoin ETF and ChinaAMC Ether ETF
• Bosera HashKey Bitcoin ETF and Bosera HashKey Ether ETF

The Stock Exchange of Hong Kong has issued circulars relating to the trading arrangements of the spot VA ETFs.  It also warns that trading in the ETFs may not be suitable for all members of the public, and that exchange participants should advise their clients to carefully consider whether trading in the ETF is appropriate for them in light of their understanding of the product nature and characteristics, their own investment objectives, skills and experience, financial resources, risk tolerance and other relevant circumstances prior to making any decision:

• Harvest Bitcoin Spot ETF and Harvest Ether Spot ETF (trading arrangements and details of market making obligations)
• ChinaAMC Bitcoin ETF and ChinaAMC Ether ETF (trading arrangements and details of market making obligations)
• Bosera HashKey Bitcoin ETF and Bosera HashKey Ether ETF (trading arrangements and details of market making obligations)

Further information can be found on the HKEXnews website and the exchange traded products webpage.  [26, 29 & 30 Apr 2024]

#VirtualAsset #Bitcoin #Crypto

HKMA publishes 2023 annual report and sustainability report

The HKMA has published its 2023 Annual Report, which contains an overview of the HKMA's work in 2023 and priorities and plans for 2024 and beyond.

The priorities for 2024 and beyond include (among others):

• Staying vigilant against potential risks – This includes monitoring risks and vulnerabilities in domestic and external environments;

• Future-proofing the banking sector – This includes pressing on with the roll-out of the initiatives under the new Fintech Promotion Roadmap, launching a Fintech Knowledge Hub, and enhancing guidance on competence and ethical behaviour;

• Staying ahead of technological advances – This includes taking forward the initiatives under the 'Fintech 2025' strategy, progressing with the proposals on establishing a regulatory regime for stablecoin issuers, and administering a stablecoin sandbox;

• Other areas including the Government establishing a task force to identify opportunities and devise measures to further develop the asset and wealth management industry, exploring policy initiatives to foster wider adoption of technology including further issuance of tokenised Government bonds, and working with the People's Bank of China in pilot testing the e-CNY.  [30 Apr 2024]

#Tokenisation # Stablecoin

HKMA publishes presentation materials for upcoming briefing to LegCo Panel on Financial Affairs on 6 May 2024

The HKMA has published presentation materials for its upcoming briefing to the Legislative Council (LegCo) Panel on Financial Affairs on 6 May 2024.  Updates on the work ahead are provided in various areas, including:

• Fintech – The HKMA will continue its work on initiatives relating to (among others) central bank digital currencies (wholesale and retail) and the Commercial Data Interchange (slide 71).

• Crypto-assets and stablecoins – The consultation on legislative proposals to implement the regulatory regime for stablecoin issues ended in February 2024.  Over 100 responses were received with the vast majority supporting the proposals.  The Financial Services and the Treasury Bureau will publish their conclusions and introduce the amendments as soon as possible (slide 84).  [29 Apr 2024]

#CBDC #Crypto #Stablecoin

Hong Kong Government to issue policy statement within 2024 on policy stance and approach on application of AI in financial market

The Secretary for Financial Services and the Treasury, Mr Christopher Hui, attended the 2024 Zhongguancun Forum Fintech Parallel Forum in Beijing and delivered a keynote speech on how Hong Kong's financial sector addresses the opportunities and challenges brought by artificial intelligence (AI).

Mr Hui noted that AI development is a global trend and that Hong Kong, as an international financial centre, must consider its impact on the financial industry.  His views are that:

• the data-driven nature of the financial sector makes it suitable for AI integration, which could significantly enhance efficiency and competitiveness;

• AI is like a double-edged sword – improper use can bring considerable risks; and

• as AI becomes more prevalent, the amount of investment it attracts will continue to increase, creating new businesses that will revamp the industry ecosystem.

Mr Hui emphasised that Hong Kong's financial market is open and inclusive towards the application of AI.  Hong Kong is committed to building a healthy and sustainable market environment while safeguarding overall financial security with responsible use of AI.

Mr Hui also revealed that the Government will issue a policy statement later this year outlining its policy stance and approach on the application of AI in the financial market.  [29 Apr 2024]

#AI

HKMA launches FiNETech series to promote fintech adoption

The HKMA has launched the FiNETech series to explore next-level collaboration in the areas of wealthtech, insurtech, greentech, artificial intelligence (AI), and distributed ledger technology (DLT) with around 100 banks, securities and insurance companies and technology firms.

The HKMA published the Tech Baseline Assessment in June 2022 (see our previous update) as part of the 'All banks go Fintech' initiative under the 'Fintech 2025' strategy, which took stock of Hong Kong banks’ then current and planned adoption of fintech in the next three years.  The HKMA aims to capitalise the vast growth opportunities in five fintech business areas and technology types, as well as the benefits that the wider financial services sector can derive from an expanded network of local fintech solutions.

FiNETech will provide financial institutions with a one-stop access to the latest information about sourcing options provided by the technology community.  It will enable financial institutions and technology partners to approach the HKMA’s Fintech Supervisory Chatroom on innovative fintech proposals.  The HKMA’s Fintech Supervisory Sandbox 2.0 will also be available for testing and obtaining early supervisory feedback on proposals.

The HKMA aims to achieve the following through FiNETech series in the next six to twelve months:

• To zoom into the themes of AI, including Generative AI, as well as DLT and greentech through further FiNETech sessions, and in collaboration with the supporting organisations, industry associations and market experts;

• To make tangible progress in fintech adoption by banks and other financial institutions;

• To follow up on innovative cases and share good industry practices; and

• To issue further practical guidance for the priority themes, where appropriate, also making reference to global development and international experience.

FiNETech is supported by financial regulators (the HKMA, the SFC, the Insurance Authority and the Mandatory Provident Fund Schemes Authority), industry associations (the Hong Kong Association of Banks and the Fintech Association of Hong Kong), as well as technology communities and market experts.  [26 Apr 2024]

#AI #Greentech #DLT

Malaysia

SCM signs MoU with IsDB – Islamic capital market, social finance

The Securities Commission Malaysia (SCM) has signed a memorandum of understanding (MoU) with the Islamic Development Bank (IsDB) Group on cooperation in Islamic capital market. Under the MoU the parties will collaborate in several key areas. These include facilitating innovation in Islamic fintech, promoting development of Islamic social finance, and encouraging inflow of investments, among others.  [29 Apr 2024]

#Fintech

India

RBI consults on Reserve Bank of India (Electronic Trading Platforms) Directions, 2024

The RBI has published a consultation on the draft master direction: Reserve Bank of India (Electronic Trading Platforms) Directions, 2024. The Directions are issued to entities operating electronic trading platforms on which transactions in eligible instruments, as defined under the Directions, are contracted.

Comments on the draft Directions are invited from electronic trading platform operators, banks, market participants and other interested parties by 31 May 2024.  [29 Apr 2024]

#e-trading