ICYMI
- CrowdStrike/Microsoft outage: Priority steps for impacted businesses
- High Court considers contractual remedies for failure to transfer cryptocurrency
Global
FSB: Cross-border regulatory and supervisory issues of global stablecoin arrangements in EMDEs
The Financial Stability Board (FSB) has published a report which explores potential factors driving the higher level of activities related to foreign currency-pegged stablecoins in emerging market and developing economies (EMDEs), their associated financial stability risks and regulatory challenges, and provides considerations to address them. [23 July 2024] #Stablecoins
FSB publishes Chair's letter and progress report on NBFI resilience
The Financial Stability Board (FSB) has published a letter from its Chair, Klaas Knot, to G20 Finance Ministers and Central Bank Governors ahead of the G20 meeting on 25-26 July. The letter discusses recent events and highlights several areas that require continued attention, including historically high government and private-sector debt levels; vulnerabilities in non-bank financial intermediation (NBFI); divergent global monetary policies; and the use of foreign-currency pegged stablecoins, which may exacerbate challenges for monetary policy and capital flow management in some emerging market and developing economies. [22 July 2024] #Stablecoins
UK
FCA: Handbook Notice No. 121
The FCA has published Handbook Notice No. 121. Changes have been made to a number of sections, including in relation to:
- Decision Procedure and Penalties Manual (DEPP) (Digital Securities Sandbox) Instrument 2024 – this instrument makes minor consequential amendments to DEPP to apply the existing statements of the FCA’s policy and procedures. It comes into force on 26 July 2024. [26 Jul 2024] #DigitalSandbox
FCA takes first enforcement action against firm enabling cryptoasset trading
The FCA has fined a firm £3.5m for repeatedly breaching a requirement that prevented it from offering services to high-risk customers, between 31 October 2020 and 1 October 2023. The firm is part of a group that operates a globally-accessible cryptoasset trading platform.
The firm is not currently registered to undertake cryptoasset activities in the UK and entered into a voluntary requirement (VREQ) in October 2020. This followed significant engagement with the FCA relating to concerns about the effectiveness of the firm's financial crime control framework. The VREQ prevented the firm from taking on new, high-risk customers while it addressed issues with its framework.
Despite the restrictions, the firm onboarded/provided e-money services to 13,416 high-risk customers, in breach of Principle 2 of the Principles for Businesses in relation to the design, testing, implementation and monitoring of the controls put in place to ensure compliance with the VREQ.
The action was taken under the Electronic Money Regulations 2011 and marks the first occasion that the FCA has taken enforcement action using theses powers. The firm agreed to resolve the matter and qualified for a 30% discount on the fine imposed. [25 July 2024] #Crypto
PSR responds to CMA consultation on digital markets competition regime guidance
The Payment Systems Regulator (PSR) has published its response to the Competition and Markets Authority's (CMA’s) draft guidance on the digital markets competition regime which outlines how the CMA will approach its new functions under Part 1 of the Digital Markets, Competition and Consumers Act 2024.
The PSR welcomed the CMA’s explicit intention to seek input from the wider regulatory community (outside those regulators the Act requires it to consult), via consultations and direct bilateral engagement. The regulator also expressed its commitment to working collaboratively with the CMA's Digital Markets Unit, the industry and other regulatory bodies and users in relation to the role of digital payments in the UK and the increasing importance of big technology firms. In this regard, the PSR highlighted its joint consultation with the FCA on big tech and digital wallets which will remain open for responses until 13 September 2024. [22 July 2024] #DigitalWallet #Payments
Europe
ESAs: Final report on draft RTS under DORA
The ESAs have published their final report on the draft Regulatory Technical Standards (RTS) specifying how to determine and assess the conditions for subcontracting information and communication technology (ICT) services that support critical or important functions under the Digital Operational Resilience Act (DORA). These RTS focus on ICT services provided by subcontractors that support critical or important functions, or material parts of thereof. In addition, the RTS specify the requirements throughout the lifecycle of contractual arrangements between financial entities and ICT third-party service providers. In particular, they require financial entities to assess the risks associated with subcontracting during the precontractual phase, including during due diligence.
The RTS finalise the publication of the ESA's second batch of regulatory products under DORA. They will be considered for adoption by the European Commission (EC). [26 Jul 2024] #DORA #OpRes #Outsourcing
ECB concludes cyber resilience stress test
The European Central Bank (ECB) has announced the conclusion of its cyber resilience stress test, launched in January 2024 with 109 participating banks directly supervised by the ECB. The stress test comprised a scenario under which all preventive measures failed and a cyberattack severely affected the databases of each bank’s core systems. The focus was on how banks would respond to, and recover from, a cyberattack, rather than on how they would prevent it.
The results will feed into the ECB's 2024 Supervisory Review and Evaluation Process (SREP). The results will not affect banks’ Pillar 2 Guidance. Supervisors have provided individual feedback to each bank and will follow up with them accordingly.
In a blog to mark the end of the stress test, Anneli Tuominen, Member of the ECB Supervisory Board, looked at the importance of cyber resilience in the context of geopolitical tensions and digitalisation. He remarked that: 'The results of the stress test are insightful and showed that while banks do have high-level response and recovery frameworks in place, there is still room for improvement.' [26 Jul 2024] #CyberRes #Cyberattack
EIOPA: Regulatory framework – AI systems in the insurance sector
The European Insurance and Occupational Pensions Authority (EIOPA) has published a factsheet setting out a preliminary high-level overview of the legal framework applicable to artificial intelligence (AI) systems in the insurance sector. The factsheet follows on from the publication of the AI Act in the Official Journal of the EU (OJ) earlier in July 2024, and covers:
- new features introduced by the AI Act for the insurance sector; and
- how the AI Act will interact with insurance legislation. [25 July 2024] #AI
EC: Clarification of requirements of the Instant Payments Regulation
The EC has published a document covering over 200 questions and answers (Q&As) on the implementation of the Instant Payments Regulation (IPR), which entered into force on 8 April 2024. The first compliance date under the IPR for payment service providers (PSPs) is 9 January 2025.
The document is the output of a series of workshops hosted by the EC with stakeholders. It does not purport to express in law, or prejudge, the EC's position on the interpretation or application of the IPR or any other EU law and is without prejudice to the interpretation that the Court of Justice of the EU (CJEU) may give. [24 July 2024] #Payments
Hong Kong
Eddie Yue reappointed as Chief Executive of HKMA for five years from 1 October 2024
The Financial Secretary, Mr Paul Chan, has announced the reappointment of Mr Eddie Yue as the Chief Executive of the HKMA for a term of five years, with effect from 1 October 2024. Mr Yue has served as the Chief Executive of the HKMA since October 2019.
In response to Mr Chan's announcement, Mr Yue indicated that looking ahead, the macroeconomic environment, the international financial landscape, and geopolitics are likely to remain complex and uncertain for some time. He and his team are committed to safeguarding monetary and financial stability, and will work closely with the industry to better serve and support the real economy. The HKMA will leverage Hong Kong's unique advantages to further deepen the connectivity with markets on the Mainland and enhance the city’s role as global offshore RMB hub. It will also double down on its efforts to promote financial technology and sustainable finance to ensure that Hong Kong continues to stay at the forefront of these global trends. [26 Jul 2024] #Fintech
SFC warns public of unlicensed VATP
The SFC has warned the public of an unlicensed virtual asset trading platform (VATP) operating in the name of "CoinUnited.io".
CoinUnited.io claims to provide trading services in cryptocurrency, stocks, indices, forex and commodities, and previously claimed to have a flagship store in Hong Kong and to be hiring in Hong Kong. However, it is not licensed by the SFC and has not made any application to the SFC for a licence. The SFC has posted CoinUnited.io and its website on the Suspicious Virtual Asset Trading Platforms Alert List.
Under the Securities and Futures Ordinance and the Anti-Money Laundering and Counter-Terrorist Financing Ordinance, it is an offence to carry on a business in a regulated activity and a business of providing a virtual asset service in Hong Kong, and/or actively market such services to Hong Kong investors, without a licence. [25 Jul 2024] #VirtualAsset #VATP
HKMA informs AIs of BCBS's updated cryptoasset disclosure requirements and standard amendments and its intention to align local requirements with such updates
The HKMA has issued a circular to authorised institutions (AIs) noting the publication of the Disclosure of cryptoasset exposures (setting out the final disclosure framework) and Cryptoasset standard amendments (setting out a set of targeted amendments) by the Basel Committee on Banking Supervision (BCBS) on 17 July 2024 (see our previous update).
- The final disclosure framework includes a standardised table and a set of standardised templates for banks’ cryptoasset exposures. These require banks to disclose qualitative information on their cryptoasset-related activities, quantitative information on the capital and liquidity requirements for their cryptoasset exposures, as well as details of the respective accounting classifications.
- The targeted amendments to the cryptoasset standard primarily aim to further specify the criteria for stablecoins to be eligible for a preferential regulatory treatment. Other revisions include various technical amendments in order to promote a consistent understanding of the cryptoasset standard.
The HKMA plans to align the proposed regulatory framework introduced in its consultation paper of February 2024 (see our previous update) with the latest updates from the BCBS. If there are any major additional changes to the local requirements, the HKMA will consult the industry again in due course. [23 Jul 2024] #Crypto #Stablecoin
Malaysia
SCM issues warning on deepfake investment scams impersonating prominent personalities
The SCM has cautioned the public on investment scam tactics using deepfakes created through artificial intelligence (AI) to mimic prominent people and names of reputable companies. The public is advised to be vigilant in evaluating investment offers, including ensuring that they do not transfer or deposit money into suspicious accounts. [22 Jul 2024] #AI #Deepfake
Philippines
BSP, BTr roll out fully automated intraday settlement facility
The BSP and the Bureau of the Treasury (BTr) have rolled out the fully automated Intraday Settlement Facility (ISF) for financial institutions (FIs). The facility is available to all eligible FIs that encounter timing mismatches when settling their transactions through the Peso Real-Time Gross Settlement (RTGS) Payment System operated by the BSP. [22 Jul 2024] #Payments
US
Federal bank regulatory agencies issue reminder of potential risks associated with third-party deposit arrangements and request additional information on bank-fintech arrangements
The Fed, the FDIC, and OCC have issued a statement reminding banks of potential risks associated with third-party arrangements to deliver bank deposit products and services.
The agencies express support for responsible innovation and banks engaging in these arrangements in a safe and sound manner and in compliance with applicable law. However, while these arrangements can provide benefits, they note that supervisory experience has identified a range of safety and soundness, compliance, and consumer-related concerns with the management of these arrangements. The statement details the potential risks and provides examples of effective risk management practices for these arrangements. In addition, the statement reminds banks of relevant existing legal requirements, guidance, and related resources. The statement does not establish new supervisory expectations.
Separately, the agencies have requested additional information on a broad range of bank-fintech arrangements, including with respect to deposit, payments, and lending products and services. The agencies are seeking input on the nature and implications of bank-fintech arrangements and effective risk management practices. Comments are requested within 60 days of publication in the Federal Register. [25 Jul 2024] #BankFintech
Rashid Ahmed
FSR & CCI Professional Support Paralegal, London
Vasuki Balasubramaniam
FSR & CCI Professional Support Paralegal, London
Disclaimer
The articles published on this website, current at the dates of publication set out above, are for reference purposes only. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action.