ICYMI
Global
BCBS: Working paper – novel risks, mitigants and uncertainties with DLTs
The Basel Committee on Banking Supervision (BCBS) has published a working paper on novel risks, mitigants and uncertainties with permissionless distributed ledger technologies (DLTs). The paper considers the risks which banks face when transacting on DLTs related to operations and security, governance, legal, compliance (including money laundering/financing of terrorism) and settlement finality. It also considers the need for new risk management strategies and safeguards comparing these with current practices. [28 Aug 2024] #DLT
IMF: Cyber resilience of the CBDC ecosystem
The International Monetary Fund (IMF) has published a paper, as part of its Fintech Notes series, on the cyber resilience of central bank digital currency (CBDC) ecosystems. The authors observe that such ecosystems will be high-value targets for threat actors. In that context, they present best practices for developing a cyber-resilient CBDC ecosystem, drawing from experiences with live CBDCs and experiments conducted by central banks and international institutions. The cybersecurity and resilience frameworks designed by standard-setting bodies are also considered.
The paper is structured into four sections. Sections I and II introduce digital risks, including cyber risks and their impact on an interconnected CBDC ecosystem. Section III describes the attributes and examines the pros and cons of common design options in a domestic, retail CBDC implementation; it contains suggested potential mitigations. Section IV looks at best practices for developing a cyber resilient CBDC ecosystem. [28 Aug 2024] #CBDC #Cyber
UK
FCA: New DRCF AI and Digital Hub
The FCA has updated its website on the Digital Regulation Cooperation Forum (DRCF) with information about the new DRCF artificial intelligence (AI) and digital hub. The hub is a new, informal advice service set up by the members of the DRCF – the FCA, the Information Commissioner's Office (ICO), the Competition and Markets Authority (CMA) and Ofcom. It is designed to support innovators with their cross-regulatory queries. The hub will run for a one-year pilot period, ending in March 2025. [27 Aug 2024] #AI
Europe
EBA: Staff paper on the optimal design of stablecoin frameworks
The EBA has published a staff paper entitled Runs, transparency and regulation: On the optimal design of stablecoin frameworks. The paper looks at recent regulatory initiatives designed to mitigate the risk of runs on stablecoins, in particular the introduction of requirements to over-collateralise reserve-asset portfolios and to provide sufficient disclosure to stablecoin holders about composition. Key findings include that transparency incentivises stablecoin issuers to keep a larger share of the reserves in liquid assets, thus reducing the risk of runs and potential bankruptcy ex–ante. In addition, transparency on reserves dis-incentivises stablecoin holders from irrationally demanding the reimbursement of their funds. [27 Aug 2024] #Crypto #Stablecoins
Hong Kong
HKMA hosts launch ceremony for Project Ensemble Sandbox and introduces four main themes of asset tokenisation use cases
The HKMA has hosted the launch ceremony for the Project Ensemble Sandbox and introduced four main themes of asset tokenisation use cases for the initial round of experimentation, marking a significant step in the advancement of tokenisation in real-world application within the financial sector.
Mr Eddie Yue, the Chief Executive of the HKMA, delivered opening remarks at the launch ceremony and outlined the role that the sandbox is intended to play within the HKMA’s broader vision of cultivating a dynamic digital asset ecosystem in Hong Kong.
The sandbox was launched in March 2024 (see our previous update), and the HKMA has completed its building and setup, designed to facilitate interbank settlement using experimental tokenised money, focusing on transactions involving tokenised assets. Participating banks from the Project Ensemble Architecture Community (established in May 2024 – see our previous update) have connected their tokenised deposit platforms to the sandbox, paving the way to conduct experiments for both interbank payment-versus-payment and delivery-versus-payment settlement.
The initial round of experimentation will cover tokenisation of both traditional financial assets and real-world assets, focusing on four main themes: fixed income and investment funds, liquidity management, green and sustainable finance, and trade and supply chain finance. The HKMA will continue to actively engage with the industry to gauge interest in tokenisation, develop new themes and identify further use cases for tokenisation.
The SFC welcomes the launch of the sandbox and will co-lead with the HKMA on tokenisation initiatives for the asset management industry. Ms Julia Leung, the Chief Executive Officer of the SFC, delivered opening remarks at the launch ceremony in support of Project Ensemble and the sandbox.
On the international front, the HKMA will explore collaborating with the BIS Innovation Hub Hong Kong Centre, and will engage the CBDC Expert Group to further advance the sandbox. [28 Aug 2024] #Tokenisation #Sandbox
HKMA and Digital Policy Office jointly announce full operation of CDI-CDEG linkage following trial
The HKMA and the Digital Policy Office have jointly announced the full operation of the connection arrangement between the HKMA’s Commercial Data Interchange (CDI) and the Government’s Consented Data Exchange Gateway (CDEG), which was established in late December 2023 (see our previous update).
With the successful completion of the trial run by pilot banks, the CDI-CDEG linkage (also known as 'CR@CDI') is now open to all CDI participating banks.
As the first government data source of the CDI, the Companies Registry (CR) has connected to the CDI through CDEG. By connecting to the CR via the CDI-CDEG linkage, banks can directly obtain company particulars (such as company names, registered office addresses and share capital structure), which helps streamline various banking processes including account opening, fraud detection and know-your-client checks.
The connection facilitates financial institutions, upon authorisation, to access government data related to corporate and business operations, thereby supporting the digitalisation of the financial services industry. The HKMA and the Digital Policy Office will continue to explore the possibility of including additional business operation data in the future.
Since its launch, the CDI has enhanced the small and medium-sized enterprise loan approval processes, facilitating over 27,000 loan applications and reviews, with an estimated credit approval amount exceeding HK$23.8 billion as of the end of June 2024. The HKMA will explore the feasibility of extending the use of CDI to personal level (beyond corporate level), leveraging the CDI-CDEG linkage. [26 Aug 2024] #Data
SFC and SEHK jointly announce temporary modifications to requirements for specialist technology companies and de-SPAC transactions, commencing on 1 September 2024
The SFC and The Stock Exchange of Hong Kong Limited (SEHK) have jointly announced temporary modifications to the Listing Rules and amendments to the SEHK's guidance materials relating to (1) specialist technology companies and (2) de-SPAC transactions conducted by special purpose acquisition companies (SPACs).
A specialist technology company is a company primarily engaged in the research and development of, and the commercialisation and/or sales of, products and/or services that apply science and/or technology within an acceptable sector of any of the specialist technology industries under the Listing Rules.
A SPAC is a shell company that raises funds through its listing for the purpose of acquiring a business at a later stage (a de-SPAC transaction) within a pre-defined time period after listing.
The modifications will be in effect temporarily for a fixed period of three years from 1 September 2024 to 31 August 2027. The SEHK may review and consult the public on these requirements before the end of this period, if necessary.
The modifications are designed to address the change in market conditions since the introduction of both listing regimes, taking into account the SEHK’s experience gained from handling specialist technology companies’ listing applications and de-SPAC transactions. They include:
- Reducing the initial market capitalisation thresholds of specialist technology companies under Main Board Listing Rule 18C.03(3);
- Reducing the minimum independent third party investment required for a de-SPAC transaction under Main Board Listing Rule 18B.41; and
- Aligning the independence test for third party investors in a de-SPAC transaction pursuant to Main Board Listing Rule 18B.40 with that for sophisticated independent investors in specialist technology companies.
The SEHK has also published amendments to its guidance materials that align the definition of a 'sophisticated investor' for independent third party investment more closely with the requirement for identifying qualified sophisticated independent investors in specialist technology companies – see marked-up changes to the Guide for New Listing Applicants, the guidance letter HKEX-GL113-22 and the frequently asked questions on SPACs. [23 Aug 2024] #Listing #SPACs
India
RBI: Recognition of SROs in the FinTech sector
The Reserve Bank of India (RBI) has announced that, following its issuance of the Framework for Self-Regulatory Organisations (SROs) in the FinTech sector (SRO-FT), it has received three applications for recognition as an SRO-FT. One of these has been recognised as an SRO-FT, one application has been returned with a provision for resubmission after meeting certain requirements, and the third application is currently under review. [28 Aug 2024] #Supervision
RBI Governor discusses Fintech innovation
The RBI has published a speech by Governor Shri Shaktikanta Das, delivered at the Global Fintech Fest. The Governor identified a number of priories for the FinTech sector, including:
- digital financial inclusion;
- Digital Public Infrastructure (DPI);
- consumer protection and cybersecurity;
- sustainable finance; and
- global integration and cooperation, including future technologies and regulatory architecture. [28 Aug 2024 #FinancialInclusion #DPI
SEBI consults on mandatory offering of UPI block mechanism for secondary market trading
SEBI has published a consultation looking at whether secondary market trading using the unified payment interface (UPI) block mechanism should be mandatorily offered by Qualified Stock Brokers (QSBs). The consultation also seeks views on whether a '3-in-1 trading account facility' can be offered by QSBs as an alternative.
Feedback is requested by 12 September 2024. [28 Aug 2024] #UPI
RBI Governor discusses DPI and emerging tech
The RBI has published a speech by Governor Shri Shaktikanta Das, delivered at the 'Global conference on DPI and emerging technologies'. Topics covered included:
- India's experience with DPI, including the success of the UPI;
- artificial intelligence (AI) and DPI, including such challenges as data privacy and the need for ethical AI governance; and
- the potential for DPI to enhance the efficiency of cross-border payment. [26 Aug 2024] #DPI #Payments
Philippines
BSP: Outcome of open finance hackathon
The Bangko Sentral ng Pilipinas (BSP) has announced that an app that can help Filipinos plan for a financially secure retirement has emerged as the top proof-of-concept (POC) at 'Race to the Future: The Open Finance PH Hackathon' conducted by the BSP in partnership with the International Finance Corporation (IFC).
To support open finance, hackathon participants developed solutions for three use cases: next generation financial management through account aggregation; reducing barriers to micro-, small- and medium-sized enterprises (MSMEs) lending; and digital payments innovation. [23 Aug 2024] #OpenFinance
US
SEC charges crypto lender with unregistered offers and sales of crypto securities
The SEC has filed settled charges against an LLC, which does business through a separate company selling a crypto lending product, for failing to register the offers and sales of its retail crypto asset lending product. The SEC also charged the lending product company with operating as an unregistered investment company.
The crypto loan product company started to offer and sell the product in the United States in July 2020, or around that time, according to the SEC's lawsuit. Through the program, investors might pledge to pay a variable interest rate in exchange for tendering their crypto assets. The product program had assets of over $600m, of which about $500m came from American investors. According to the lawsuit, the business misrepresented the product as a way for investors to "auto-magically" earn interest on their crypto holdings.
The SEC further claims that the business used investors' crypto holdings however it saw fit in order to profit from the transactions and pay interest. The complaint also alleges that the product was offered and sold as a security and that the offers and sales did not qualify for an exemption from SEC registration.
The SEC’s complaint finds that the company operated for at least two years as an unregistered investment company because it issued securities and held more than 40 percent of its total assets, excluding cash, in investment securities, including its loans of crypto assets to institutional borrowers.
The SEC’s complaint, filed in the U.S. District Court for the District of Columbia, charges the company with violating Sections 5(a) and 5(c) of the Securities Act of 1933 and Section 7(b) of the Investment Company Act of 1940. To settle the charges, the company, without admitting or denying the allegations, has consented to an injunction prohibiting it from violating the registration provisions of the Securities Act and the Investment Company Act and requiring it to pay civil penalties. [26 Aug 2024] #Crypto
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.