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

ICYMI

• June Data Wrap: A snapshot of key regulatory developments
• Cyber security: A month in retrospect (Australia) - June 2024

---

Global

BCBS consults on various technical amendments

The Basel Committee on Banking Supervision (BCBS) has published a consultation on proposals for technical amendments to the Basel Framework. The set of interpretative issues addressed in this document include, among others, cryptoasset exposures. The BCBS has also finalised a set of FAQs, which are set out in the Annex, that will be added to the Framework.

Responses to the consultation are requested by 19 August 2024.  [5 Jul 2024] #Crypto 

BCBS approves disclosure framework and capital standard for banks' cryptoasset exposures

The Basel Committee on Banking Supervision (BCBS) has announced that it approved a finalised disclosure framework for banks' cryptoasset exposures, which includes a standardised set of public tables and templates covering banks' exposures. It also approved a set of targeted revisions to the cryptoasset prudential standard. These revisions aim to further promote a consistent understanding of the standard, particularly regarding the criteria for stablecoins to receive a preferential "Group 1b" regulatory treatment.

The BCBS also agreed to a set of adjustments to the specified interest rate shocks in the interest rate risk in the banking book (IRRBB) standard, consistent with commitments in the standard to periodically update their calibration. Additionally, the BCBS decided it will consult later this month on principles for the sound management of third-party risk.  

The disclosure framework and the updated standards will be published later this month, with an implementation date of 1 January 2026. [4 July 2024] #Crypto #Disclosure

BIS Innovation Hub: Report on Project Nexus – completion of blueprint for cross-border payments

The Bank for International Settlements (BIS) Innovation Hub has published a report on Project Nexus, which aims to enable instant cross-border payments by connecting multiple domestic instant payment systems (IPS) globally. The project has produced a comprehensive blueprint for standardising the way that domestic IPS connect, lowering the obstacles for countries that wish to offer instant cross-border payments. The report describes the:

• governance, scheme and oversight arrangements that accommodate the regulatory differences between countries while ensuring appropriate risk management, safety, efficiency and resilience for all Nexus payments;
• business and revenue model for Nexus to ensure financial self-sufficiency and ensure that key industry participants have strong incentives to join Nexus; and
• the Nexus technology architecture and operational model, building on the insights from the software developed in the 2022 proof of concept. [1 July 2024] #Payments #CrossBorder

---

Europe

EBA issues reminder regarding MiCAR compliance

The EBA has published a statement reminding issuers and offerors of asset-referenced and e-money tokens (ARTs/EMTs) to comply promptly with the Markets in Crypto-assets Regulation (MiCAR). The EBA expects any person who intends to commence ART/EMT activities to comply fully with MiCAR as from 30 June 2024.

A document setting out key topics for supervisory attention across the EU for issuers of ARTs/EMTs in 2024/2025 has also been published.  [5 Jul 2024] #MiCAR #ARTs #EMTs

ESMA: Second final report under MiCAR – transparency, disclosure, record-keeping

The European Securities and Markets Authority (ESMA) has published the second final report under the Markets in Crypto-Assets Regulation (MiCAR). This report covers eight draft technical standards that aim to provide more transparency for retail investors, clarity for providers on the technical aspects of disclosure and record-keeping requirements, and data standards to facilitate supervision by national competent authorities (NCAs).

The technical standards cover: (i) sustainability indicators in relation to climate and other environment-related adverse impacts; (ii) business continuity measures for crypto-asset service providers (CASPs); (iii) pre- and post-trade transparency for CASP trading platforms; (iv) record-keeping requirements for CASPs; (v) white paper formats and data for their classification in the MiCAR register; and (vi) disclosure of inside information.

Once finalised, the draft technical standards will be submitted to the European Commission (EC) for adoption. The EC will decide whether to adopt them within three months. [4 July 2024] #MiCAR #Transparency #CASPs

EBA issues guidance on transfers of funds and cryptoassets

The European Banking Authority (EBA) has published new guidelines on information requirements in relation to transfers of funds and certain cryptoassets that aim to tackle money laundering (ML) and terrorist financing (TF). 

The guidelines specify which information should accompany a transfer of funds or crypto assets and also list the steps that payment service providers (PSPs), intermediary PSPs, crypto asset service providers (CASPs) and intermediary CASPs should take to detect missing or incomplete information, and what they should do if a transfer of funds or a transfer of crypto assets lacks the required information.

The guidelines will be translated into the official EU languages and published on the EBA’s website. The deadline for competent authorities to report whether they comply with the guidelines will be two months after the publication of the translations. The guidelines will apply from 30 December 2024. [4 July 2024] #Cryptoassets #ML #TF

---

Australia

ASIC chair warns against ‘AI washing’ 

The ASIC chair Joe Longo has issued a warning to Australian businesses regarding the use of artificial intelligence (AI), cautioning against deceptive practices such as 'AI washing'. He emphasised the need for AI to be employed responsibly and safely, particularly to mitigate issues like AI-powered scams and unfair credit scoring and insurance practices. Mr Longo highlighted ASIC's role in applying existing laws to regulate AI neutrally across corporations and financial services. He also mentioned monitoring global AI regulations, including the European Union's AI Act, to ensure AI systems are safe and uphold fundamental rights. Additionally, Mr Longo addressed ASIC's proactive stance under his leadership, focusing on reforms to enhance the regulator's responsiveness and effectiveness, particularly in areas like climate-related reporting and improving superannuation services for retirees. [28 Jun 2024] #AIWashing

---

Hong Kong

SFC warns public of suspected virtual-asset related fraud by seven entities

The SFC has warned the public of seven entities suspected of engaging in fraudulent activities purported to be related to virtual assets, operating under the names of:

• XTCQT;
• CEG;
• BTEPRO;
• Bitones.org;
• Yomaex Crypto Market Limited (also known as "Yomaex");
• Bstor (also known as "Bstorest"); and
• Taurusemex.

The entities purport to provide cryptocurrency trading services and some of them utilised social media platforms or instant messaging apps to refer investors to their respective websites to register as a user for investment in cryptocurrencies.  Taurusemex also falsely claimed that their investors’ accounts were regulated by the SFC.

Investors have reported withdrawal issues with the entities. In some cases, the entities would claim that money laundering activities or illegal funds were involved in investors' accounts to justify suspension of withdrawals. Investors were required to pay exorbitant "fees" or "tax" for withdrawals or reactivation of suspended accounts.

At the SFC’s request, the Hong Kong Police Force has taken steps to block access to relevant websites.  The public should nonetheless be aware that scammers may continue to create websites with similar domain names.  The SFC has posted the relevant websites and pages on its Suspicious Virtual Asset Trading Platforms Alert List.  [5 Jul 2024] #VirtualAssets #Fraud

HKMA issues circular on regulatory requirements applicable to AIs participating in pilots for standard contract for cross-boundary flow of personal information within Guangdong-Hong Kong-Macao Greater Bay Area

In December 2023, the Innovation, Technology and Industry Bureau and the Cyberspace Administration of China announced the facilitation measure on "Standard Contract for the Cross-boundary Flow of Personal Information Within the Guangdong-Hong Kong-Macao Greater Bay Area (Mainland, Hong Kong)" and its early and pilot implementation arrangements, and invited participation in such pilots from (among others) the banking and credit referencing sectors (see our previous update).

Authorised institutions (AIs) participating in such pilots may be sharing and/or using consumer credit data and commercial credit data through credit reference agencies (CRAs) in Hong Kong and/or on the Mainland.

The HKMA has issued a circular to remind AIs that are participating in the pilots to comply with the requirements under the Personal Data (Privacy) Ordinance when handling cross-boundary flow of consumer credit data or commercial credit data where personal data is involved.  

• In the case of consumer credit data, the requirements set out in the Code of Practice on Consumer Credit Data issued by the Privacy Commissioner for Personal Data should also be observed.  AIs should also (where relevant and practical) observe the guidance in Supervisory Policy Manual (SPM) module IC-6 on “The Sharing and Use of Consumer Credit Data through Credit Reference Agencies”.  In particular, AIs participating in the pilots should pay attention to Section 5 of module IC-6 to ensure that the cross-boundary data are properly safeguarded with regard to security and confidentiality, as well as Section 7 on engagement of CRAs.
• In the case of commercial credit data, AIs should observe the guidance in SPM module IC-7 on “The Sharing and Use of Commercial Credit Data through a Commercial Credit Reference Agency” and other relevant requirements.  [28 Jun 2024] #DataSecurity #CrossBoundary

HKMA issues circular on arrangements for conducting pilots for cross-boundary credit referencing and application of regulatory requirements

The HKMA has issued a circular to set out the arrangements for conducting pilots for cross-boundary credit referencing, and the application of Supervisory Policy Manual (SPM) module IC-7 on “The Sharing and Use of Commercial Credit Data through a Commercial Credit Reference Agency” on such pilots.

The HKMA and the People’s Bank of China (PBOC) have signed a Memorandum of Understanding on Cross-boundary Credit Referencing Business Pilots (MOU), which aims to set out the cooperative arrangements for facilitating and conducting pilots of transfers of commercial credit reference information across the boundary, in support of the promotion and development of cross-boundary credit referencing.  Authorised institutions (AIs) are strongly encouraged to make use of the pilot arrangements under the MOU to conduct pilots for meeting their business development needs.

As enabled by the MOU, the cross-boundary credit referencing pilots aim to cover both southbound and northbound transfers of commercial credit information, and will be implemented via credit reference agencies (CRAs).  The MOU sets out the principles under which such pilots are to be conducted:

• Customer consent must be obtained for transmission of all data related to the customer;
• Compliance with the relevant requirements in data security and protection;
• Proper risk management and control;
• Focus on facilitating commercial lending, in particular small and medium enterprise lending, in the initial stage;
• Open to participation by different banks and CRAs with specific proposals based on their market and business needs;
• Pilots to be carried out between Hong Kong and Mainland cities, starting from Shenzhen in the first phase; and
• The HKMA and the PBOC will oversee the pilots from the perspectives of data security and prudent risk management.

The circular reminds AIs of the relevant provisions under SPM module IC-7 which should be complied with in respect of the sharing and using of commercial credit data under the pilot arrangements.  In the event personal data is involved in cross-boundary data transfer, AIs should also comply with the requirements of the Personal Data (Privacy) Ordinance.  [28 Jun 2024] #DataSecurity #CrossBoundary

SFC warns public of suspected virtual asset-related fraud and/or unlicensed activities

The SFC has warned the public of entities operating under the following names for suspected virtual asset-related fraudulent activities and/or purporting to operate virtual asset trading platforms (VATPs) in Hong Kong without a licence:

• Tokencan, a purported VATP operated in Hong Kong without a licence which claims to provide cryptocurrency trading services and uses social media platforms to refer investors to its websites for investment in cryptocurrencies – It provided the SFC with false information and falsely claimed it had filed a licence application with SFC.  Investors reported withdrawal issues and their accounts were frozen subsequently.
• VBIT Exchange, an entity suspected of actively marketing its purported VATP services to Hong Kong investors without a licence, falsely claiming on its website to be regulated by authorities in various jurisdictions.
• HKD.com Corporation, an entity that has adopted a name and logo that is very similar to another VATP when they are not associated – Investors were asked to deposit funds into designated bank accounts for investment purposes, but subsequently reported difficulties with fund withdrawal.

The SFC has posted the above entities and their respective websites on the SFC’s Suspicious Virtual Asset Trading Platforms Alert List.

At the SFC’s request, the Hong Kong Police Force has taken steps to block access to relevant websites and social media pages.  The public should nonetheless be aware that scammers may continue to create websites with similar domain names.  [28 Jun 2024] #VirtualAssets #Fraud

FSTB and Cyberport announce Green and Sustainable Fintech Proof-of-Concept Funding Support Scheme

The Financial Services and the Treasury Bureau (FSTB) and Cyberport have announced the launch of the Green and Sustainable Fintech Proof-of-Concept Funding Support Scheme, modelled after the Fintech Proof-of-Concept Subsidy Scheme, to encourage the industry to develop more fintech projects and promote their commercialisation.

Administered by Cyberport, this new scheme will provide early-stage funding to support technology companies or research institutes which are registered and have commenced business in Hong Kong, and conduct green fintech activities, to collaborate with local enterprises (such as financial institutions, listed companies, and carbon credit entities) which can benefit from adopting the green and sustainable fintech solutions, to co-develop new projects in the market that can address the industry pain points. 

The scheme covers five key areas which fulfil the goal of integrating fintech and sustainable development:

• Green & digital finance and investment;
• Environmental, social and governance (ESG) disclosure, compliance and regulatory reporting;
• Carbon trading, analytics and technology;
• ESG data, intelligence and analytics; and
• ESG / climate risk modelling and assessment.

The maximum grant for each approved project is HK$150,000, and the application period of the scheme will run from 28 June to 20 September 2024.  Further details of the scheme can be found on this webpage.  [28 Jun 2024] #Fintech #Sustainability

---

Singapore

Singapore updates Terrorism Financing National Risk Assessment and National Strategy for Countering the Financing of Terrorism

Singapore has published its updated Terrorism Financing National Risk Assessment (TF NRA) and National Strategy for Countering the Financing of Terrorism. The key terrorism financing (TF) risk areas in 2024, which are largely similar to those identified in 2020, are:

• money remittances (High risk), with cross-border online payments identified as a potential new channel for TF activities;
• banks (Medium-High risk), with new cross-border fast payment systems identified as a potential new channel for TF activities;
• digital payment token service providers (Medium-High risk);
• non-profit organisations (Medium-Low risk), with foreign online crowdfunding identified as an emerging TF typology of concern;
• cross border cash movements (Medium-Low risk); and
• precious stones, precious metals, and precious products (Medium-Low risk).

The 2024 TF NRA has observed that the TF threat of raising and moving funds for terrorists and terrorism activities overseas remains pertinent in Singapore’s context. Self-radicalised individuals continue to pose the most salient TF threat to Singapore. [1 Jul 2024] #Payments #Tokens

---

Malaysia

SCM warns against pre-IPO scams

The Securities Commission Malaysia (SCM) has cautioned the public against investment scams enticing investors with pre-Initial Public Offering (IPO) shares of companies seeking listing on Bursa Malaysia. To date, the SCM has received various complaints and inquiries from investors who had reported substantial losses, exceeding RM800,000.

The scam involves perpetrators posing as ‘agents’, promoting pre-IPO investments via a public WhatsApp group. These schemes may be accompanied by fake testimonials. Payments for the ‘subscription’ will be required to be made to bank accounts of entities not related to the IPO and suspected of being mule bank accounts. On the IPO listing day, these ‘agents’ will proclaim that the IPO shares have been listed and have made profits, and that additional payments are needed for the shares to be allotted.

The SCM advises the public to be vigilant in evaluating investment offers sand to verify investment offers through the SCM Investment Checker. The SCM will continue to monitor, and take action against, scam activities. [4 Jul 2024] #Scams #SocialMedia

BNM announces completion of phase three of Project Nexus by BIS

BNM has announced the completion by the Bank for International Settlements (BIS) of the comprehensive blueprint for phase three of Project Nexus, which will allow participants to work towards the next stage of connecting their instant payment systems.

BNM notes that phase four will see itself, Bangko Sentral ng Pilipinas (BSP), the Monetary Authority of Singapore (MAS), Bank of Thailand (BOT) and domestic IPS operators – who worked together in phase three – joined by the Reserve Bank of India (RBI), expanding the potential user base to India’s Unified Payments Interface (UPI), the world’s largest instant payments system (IPS). [1 Jul 2023] #Payments

---

Thailand

BOT announces completion of phase three of Project Nexus by BIS

The Bank of Thailand (BOT) has announced the completion by the Bank for International Settlements (BIS) of the comprehensive blueprint for phase three of Project Nexus, which will allow participants to work towards the next stage of seamlessly connecting their instant payment systems. Phase four will see the Bank Negara Malaysia, Bangko Sentral ng Pilipinas, the Monetary Authority of Singapore, the BOT and domestic IPS operators – who worked together in phase three – joined by the Reserve Bank of India (RBI), expanding the potential user base to India’s Unified Payments Interface (UPI), the world’s largest instant payments system (IPS).  [1 July 2024] #Payments

---

India

RBI joins Project Nexus

The RBI has announced that it has joined Project Nexus, a multilateral international initiative conceptualised by the Innovation Hub of the Bank for International Settlements (BIS) to enable instant cross-border retail payments by interlinking domestic faster payment systems (FPS) of Malaysia, Philippines, Singapore, Thailand and India, initially. The platform is expected to go live by 2026. This builds on the RBI's previous collaboration with various countries to link India’s FPS – the Unified Payments Interface (UPI) – with their respective FPS for cross-border Person to Person (P2P) and Person to Merchant (P2M) payments. [1 Jul 2024] #Payments

---

Philippines

Advisory on individuals and entities misrepresenting the BSP

The Bangko Sentral ng Pilipinas (BSP) has advised the public to remain vigilant against individuals and entities unlawfully representing themselves as officers, employees, offices, or units of the BSP. These entities have been found to have used the names or signatures of BSP officers, or the name and logo of the BSP, in their letters, e-mails, messages, websites, or social media accounts, to obtain information to perpetrate scams and other fraudulent activities.

To guard against these illegal activities, the BSP urges the public to refrain from providing their personal or financial account information to these individuals or sending money to unverified or suspicious sources. [4 Jul 2024] #Scams #SocialMedia

BSP: Financial inclusion initiatives

The BSP has announced that it is enhancing its financial inclusion efforts by exploring use cases for open finance, measuring financial health, collecting data on the pricing of digital payments, and supporting a legislative measure on internet access. These are priority initiatives that the BSP and the United Nations Secretary-General's Special Advocate for Inclusive Finance for Development (UNSGSA), Her Majesty Queen Máxima of the Netherlands, had discussed during her official visit to the Philippines from 21 to 23 May 2024. [2 Jul 2024] #FinancialInclusion #OpenFinance

BSP announces completion of phase three of Project Nexus by BIS

The BSP has announced the completion by the Bank for International Settlements (BIS) of the comprehensive blueprint for phase three of Project Nexus, which will allow participants to work towards the next stage of seamlessly connecting their instant payment systems. Phase four will see the BSP, the Central Bank of Malaysia, the Monetary Authority of Singapore (MAS), Bank of Thailand (BOT) and domestic IPS operators – who worked together in phase three – joined by the Reserve Bank of India (RBI), expanding the potential user base to India’s Unified Payments Interface (UPI), the world’s largest instant payments system (IPS) [1 Jul 2024] #Payments

---

US

CFTC: Federal Court Enters Summary Judgment Against Oregon Man and Orders $83 Million in Restitution for Fraud Victims

The Commodity Futures Trading Commission (CFTC) announced that the U.S. District Court for the Northern District of Illinois entered an order granting summary judgment to the CFTC on all counts of its complaint against an Oregon man and several business entities (“Defendants”) found to have misappropriated funds through a carbon offset program, and to have committed violations of the Commodity Exchange Act and CFTC regulations, including fraud and failure to register. Further, the Court found that defendants operated as “a classic Ponzi scheme,” including in connection with the defendants’ carbon offset program. The summary judgment order found that the Defendants recruited participants to his funds through webinars and trade shows by promising participants they would earn a steady distribution of 15% income per year of supposed “net profits” through investments in digital asset commodities such as Bitcoin and Ethereum, and commodity interests. The defendants did not return any net profits to the participants, instead transferring much of the funds to earlier investors in their other fund to allow them to avoid losses, resulting in a shortfall of more than $20m. The CFTC will seek injunctive relief and a civil monetary penalty. [3 Jul 2024] #DigitalAssets #Fraud