FinTech Global FS Regulatory Round-up - w/e 6 September 2024

ICYMI

• Corporate reporting – the future of digital reporting
• Cyber Monthly Wrap-up
• Cyber security: A month in retrospect

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Global

FSB: The future of international financial architecture

The Financial Stability Board (FSB) has published a video of FSB Secretary General John Schindler, speaking during a session on digital finance, artificial intelligence (AI) and financial stability at the 2024 Global Economy and Financial Stability Conference.

Mr Schindler discussed various aspects of financial innovation, including tokenisation, AI and non-bank financial intermediation (NBFI). Commenting on tokenisation as a 'profound innovation' which involves 'ripping out the foundations and building new products on it', Mr Schindler noted the potential for tokenisation to facilitate 24/7 global trading. The FSB will publish a report on the risks arising from tokenisation in October 2024. [6 Sep 2024]  #AI #Tokenisation

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UK

FCA speech: Listing rules and capital markets developments

The FCA has published a speech by Sarah Pritchard, Executive Director of Markets and International, delivered at the Capital Markets Industry Taskforce conference. Ms Pritchard's remarks focused on the new listing rules and capital markets developments. She outlined how the FCA had taken a new approach to industry engagement when developing its reforms, noted the introduction of the private intermittent capital exchanges system (PISCES), and commented on the role of the digital securities sandbox in facilitating the development of trading and settlement innovations. Towards the end of her speech, Ms Pritchard mentioned the FCA's ongoing work with the Department for Work and Pensions (DWP) and the Pensions Regulator (TPR) on the value for money framework for pensions. [6 Sep 2024]  #DigitalSandbox

PSR: PS24/5, SD21 – mandatory reimbursement for CHAPS payments

The Payment Systems Regulator (PSR) has published Policy Statement 24/5 CHAPS APP scams reimbursement requirement (PS24/5), as well as Specific Direction 21 (SD21), confirming the approach that the PSR is taking to expand reimbursement protections to CHAPS payments. This approach aligns with the mandatory reimbursement rules that the PSR has already introduced for payments made through the Faster Payments System (FPS). The key requirements in PS24/5 include:

• a policy start date of 7 October 2024, to align with the start date for the FPS reimbursement rules,  ensure delivery of consistent protections for CHAPS consumers, and reduce the risk of fraud migrating from FPS to CHAPS;
• all in-scope payment service providers (PSPs) must register in line with the requirements set out in the CHAPS reimbursement rules as soon as practicable and no later than 7 October 2024; and
• the compliance and monitoring metrics PSPs will need to report to the Bank of England (BoE) on a monthly basis.

SD21 applies to all PSPs participating in CHAPS that provide 'relevant' accounts. Relevant accounts are those provided to a service user, that are held in the UK and can send or receive payments using CHAPS excluding accounts provided by credit unions, municipal banks,  financial market infrastructures (FMIs) and national savings banks. There are no exemptions based on business or firm type. [6 Sep 2024]  #APPScams #Payments

FCA Executive Director discusses targeted and outcomes-based approach to tackling financial crime

The FCA has published a speech by Sarah Pritchard, Executive Director, Markets, delivered at the Financial Crime Summit. With a focus on taking a targeted and outcomes-based approach to tackling financial crime, Ms Pritchard particularly emphasised the FCA's work to:

• Take a system-wide approach – This includes working with technology companies to implement a ban on paid-for adverts for UK financial services that are not approved by an FCA-authorised firm, and ensuring that these organisations remove apps from their stores that breach FCA financial promotions rules. Additionally, the FCA is using its powers through the Office for Professional Body Anti-Money Laundering Supervision (OPBAS) to improve standards in the legal and accountancy sectors.
• Use an innovative and data-led approach – The FCA has increased its capacity to identify illegal financial promotions on websites or social media and is tackling fraud more quickly by scanning approximately 100,000 websites every day to identify potential scams. Ms Pritchard noted that FCA action has resulted in over 10,000 potentially misleading adverts being either amended or withdrawn in 2023 – an increase of 17% on 2022.

Ms Pritchard also touched on the FCA's work to share its approach, expectations and findings more publicly, as part of its outcomes-based mindset towards financial crime. [5 Sep 2024]  #SocialMedia

FOS: Fraud and scam complaints hit highest ever level

The Financial Ombudsman Service (FOS) has reported that complaints regarding fraud and scams are at their highest ever quarterly level. In the first quarter of this financial year (1 April – 30 June 2024), consumers lodged 8,734 complaints about fraud and scams, of which over half were in relation to authorised push payment (APP) scams. In comparison, there were 6,094 fraud and scam complaints in the same period in 2023.

The rise in cases is attributed to a number of factors including:

• increasing numbers of multi-stage frauds which can see consumers put in multiple claims due to the number of firms involved;
• a growth in people inadvertently using their credit or debit cards to pay fraudsters; and
• more online fraud cases being brought by professional representatives. [4 Sep 2024]  #APPScams #Payments

PSR consults on maximum level of reimbursement proposal for APP scams

The Payment Systems Regulator (PSR) has published a consultation on its proposal to change the maximum level of reimbursement for the Faster Payments authorised push payment (APP) scams reimbursement requirement, which comes into effect from 7 October 2024. The PSR is proposing to reduce the maximum level of reimbursement to £85,000 per Faster Payments APP scam claim, reflecting the Financial Services Compensation Scheme (FSCS) reimbursement limit. The maximum value had been set initially at £415,000 which aligned with the Financial Ombudsman Service (FOS) maximum reimbursement limit.

A draft cost benefit analysis and draft updated notice of value accompany the consultation. Responses to the consultation are requested by 18 September 2024. A policy statement on the maximum level of reimbursement will be published by the end of September 2024.

In a statement, industry body Pay.UK confirmed that it remained ready to go-live with APP reimbursement on 7 October 2024; Pay.UK will work with the industry and PSR on any changes resulting from the consultation. [4 Sep 2024]  #APPScams #Payments

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Europe

ECB: Report – update on the work of the digital euro scheme’s RDG

The European Central Bank (ECB) has published its third report outlining the progress of the digital euro scheme Rulebook Development Group (RDG) in developing a draft digital euro rulebook, consisting of a single set of rules, practices and standards for the harmonisation of digital euro payments across the euro area.

Following on from the last update in January 2024, the report provides a detailed overview of the comprehensive feedback that RDG members – representing consumers, retailers and payment service providers – gave on a preliminary draft of the digital euro rulebook, which was shared within the RDG for an interim review at the end of 2023.

The report also provides an update on the seven new workstreams, launched in May 2024, to focus on key areas of the rulebook, including minimum user experience standards and risk management.

A possible decision by the ECB’s Governing Council to issue a digital euro would only be taken after a legislative act has been adopted. [5 Sep 2024]  #DigitalEuro #CBDC

ECB speech on operational resilience

The European Central Bank (ECB) has published a speech by Frank Elderson, Member of the ECB Executive Board and Vice-Chair of the Supervisory Board, on building up and maintaining adequate operational resilience. Mr Elderson focused on the importance of building up banks' operational resilience, noting that, for the Banking Union, ECB Banking Supervision has flagged addressing deficiencies in banks’ operational resilience frameworks as one of the supervisory priorities for 2024-2026. This will mean, for example, that the ECB will be conducting on-site inspections of banks’ cybersecurity management and/or targeted analysis of banks’ outsourcing arrangements with third-party providers, including potential concentrations of risk in certain providers. [4 Sep 2024]  #Cybersecurity #OpRes

ECB opinion on FIDA

The European Central Bank (ECB) has published its opinion on the European Commission's (EC's) proposal for a regulation on a framework for financial data access (FIDA) which incorporates amendments to a number of EU regulations. The ECB says that it welcomes the aim of the proposed regulation. It acknowledges that introducing a framework for access to and use of customer data should encourage innovation and competition as well as empower customers.

However, the ECB raises concerns that the regulation provides for it to supervise significant credit institutions' compliance; this responsibility is not prudential in nature and, as such, is outside the scope of the ECB. The ECB's suggested amendments to the regulation include clarification of its role and change to provide a 'clear legal basis' for cooperation between the ECB and competent authorities. [3 Sep 2024]  #DataAccess #OpenFinance

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Hong Kong

SFC Executive Director of Enforcement shares insights on effective investigation strategy

The SFC's Executive Director of Enforcement, Mr Christopher Wilson, delivered a keynote speech at the GIR Live: Asia-Pacific Investigations Summit 2024, highlighting the SFC's investigation strategy in light of technological advancements and digital anonymity which pave the way for more sophisticated financial crimes. Amongst other areas, Mr Wilson highlighted:

• The growth and diversity of digital devices and technology present enormous challenges in terms of data volume, interoperability and heterogeneity.  The SFC is "drowning in data" but is often "starved of actionable insights".

• In 2023, the SFC set up a Strategy and Technology team to drive strategic initiatives, including the adoption of new technologies (such as artificial intelligence) to improve operational efficiencies and accelerate investigations. The team includes financial engineers, data scientists and forensic specialists.  [3 Sep 2024] #AI

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Thailand

SECT amends regulations on the use of digital assets as a means of payment

The Securities and Exchange Commission Thailand (SECT) has announced an amendment to the regulations prohibiting the use of digital assets as a means of payment for products or services to include all current types of digital asset business operators. It has also amended regulations to allow digital asset business operators under SECT’s supervision to participate in the Programmable Payment Sandbox created by the Bank of Thailand (BoT). The amendments take effect from 6 September 2024.  [3 Sep 2024]  #DigitalAsset

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US

NY Fed: Tokenization – innovating responsibly

The Federal Reserve Bank of New York (NY Fed) has published an article entitled Tokenization: Another Giant Leap for Securities? The article considers tokenisation in the context of the historical background of settlement of money and securities. It discusses:

• the potential of tokenisation to materially improving settlement speed and post-trade efficiency;
• lessons from the past, for example, that tokenization systems must contain certain features to ensure resilience; and
• using research and experimentation to better understand tokenisation’s potential capabilities and limitations.

The article concludes with the view that central banks need to be collaborative to ensure responsible innovation in relation to tokenisation. [5 Sep 2024]  #Tokenisation

CFTC issues order against a firm for offering illegal digital asset derivatives trading

The Commodity Futures Trading Commission (CFTC), as part of its continuing enforcement focus on digital asset decentralized finance (DeFi), has issued an order filing and settling charges against a Delaware company. The order relates to the illegal offering of leveraged or margined retail commodity transactions in digital assets and requires the company to pay a $175,000 civil monetary penalty, and to cease and desist from violating the Commodity Exchange Act (CEA), as charged. The monetary penalty was reduced in recognition of the company’s substantial cooperation with the Division of Enforcement's investigation. [4 Sep 2024]  #DigitalAsset #DeFi

SEC charges crypto-focused advisory firm with custody failures

The SEC has announced that it has charged a crypto-focused advisory firm with compliance failures relating to the safeguarding of client assets, including cryptoassets being offered and sold as securities. The firm failed to ensure that certain cryptoassets held by the private fund that it advised were maintained with a qualified custodian, in violation of the Investment Advisers Act’s Custody Rule. Additionally, the firm held certain cryptoassets in online trading accounts on trading platforms that were not qualified custodians. The SEC also found that the firm misled fund investors about the notice period required for redemptions.

Without admitting or denying the SEC's findings, the firm agreed to pay a civil penalty of $225,000, which will be distributed to harmed investors. [3 Sep 2024]  #Crypto