FinTech Global FS Regulatory Round-up - w/e 25 October 2024

ICYMI

• 2024 Global Bank Review - Adaptation: Change is the only constant

---

Global

FSI insights: A two-sided affair – banks and tech firms in banking

The Financial Stability Institute (FSI) of the Bank for International Settlements (BIS) has published a paper with the objective of broadening and deepening understanding of: the ways in which tech firms provide banking services, in particular in partnerships with banks and regulatory approaches across jurisdictions; and the implications for the banking value chain and related risks.

It is based on interviews with nine regulatory bodies and seven banks from geographically diverse jurisdictions, together with a desktop review of public information and related regulations, and the authors’ own analysis. The views expressed in the paper are solely those of the authors and do not necessarily reflect those of the BIS or the BCBS. [24 Oct 2024] #BigTech 

FSB analyses interest rate and liquidity risks and the role of technology and social media on depositor behaviour

The FSB has published a report on depositor behaviour and interest rate and liquidity risks in the financial system, drawing on lessons from the March 2023 banking turmoil. The report summarises the main findings from FSB work over the past year to assess vulnerabilities in the global financial system related to solvency and liquidity risks amid rising interest rates, the influence of technology and social media on depositor behaviour during bank runs, and how the use of technologies may affect the planning and execution of a resolution.

The key findings include:

• life insurers, non-bank real estate investors, and a weak tail of banks are most vulnerable to the confluence of solvency and liquidity risks;
• technological developments and social media could accelerate future bank runs, with implications for liquidity risk management practices and supervision; and
• bank managers and financial sector authorities should address the liquidity and solvency vulnerabilities that give rise to extreme deposit outflows and be able to react more quickly to deposit outflows than in the past. [23 Oct 2024] #SocialMedia #OpenBanking #BankRuns

FSB Chair sets out the FSB’s work to maintain financial stability amidst technological advancements

The FSB has published a letter from its Chair, Klaas Knot, to G20 Finance Ministers and Central Bank Governors, setting out the work that the FSB has undertaken on financial innovation, payments systems, and cyber and operational resilience. The letter also introduces the reports that the FSB is submitting to the G20 addressing these issues, including: the financial stability implications of tokenisation; and the status report on the G20 Cryptoasset Policy Implementation Roadmap.

The letter and reports highlight:

• the need for continued momentum in addressing financial system vulnerabilities related to elevated debt levels and asset valuations, non-bank liquidity and leverage, and asset and funding market interlinkages;
• while there appears to be low adoption of tokenisation in the financial sector to date, financial stability risks could arise if tokenisation scales up significantly and if identified vulnerabilities are not addressed; and
• jurisdictions have made progress in implementing the policy and regulatory responses to address the risks of cryptoassets, which have been developed by the International Monetary Fund (IMF), FSB, and standard-setting bodies (SSBs), but challenges remain. [22 Oct 2024] #Tokenisation #Crypto

IAIS: Strategic plan 2025 – 2029

The International Association of Insurance Supervisors (IAIS) has published its strategic plan for 2025 – 2029. The IAIS has identified three strategic themes that will feature prominently in its work programme, one of which is adapting to digital innovation. In terms of activities which the IAIS plans under this theme, the global standard setter indicates that it will review its existing materials (both Insurance Core Principles and ComFrame) to ensure there are effective supervisory requirements captured at a global level regarding the risks stemming from digital innovation and cyber.  The IAIS comments that the trends currently on its radar which require a response include the increasing risk of cyber threats, increasing amounts of data on individuals, and the use of AI and machine learning.  [22 Oct 2024] #AI #Cyber

FSB: G20 roadmap for enhancing cross-border payments – consolidated progress report for 2024

The FSB has published a consolidated progress report for 2024, reporting on a broad range of actions being progressed as part of the G20 roadmap for enhancing cross-border payments. The report is accompanied by a progress report on the implementation of the Legal Entity Identifier (LEI); and an annual progress report on meeting the improved user experience targets for cross-border payments.

Highlights include:

• details of the work to enhance cross-border payments and recognition of the significant achievements of standard setters and international bodies in reducing obstacles to more effective cross border payments; 
• at the global level, the FSB’s key performance indicators (KPIs) indicate that significant progress will be needed to improve the user experience across all payments market segments;
• some jurisdictions have made no tangible progress towards implementing the actions previously set out by the FSB to improve LEI adoption; and
• a call from the FSB calls for continued commitment and collaboration from multiple public and private sector organisations in order to achieve tangible results. [21 Oct 2024]  #Payments #LEI

CPMI report – Tokenisation in the context of money and other assets

The Committee on Payments and Market Infrastructures (CPMI) has published a report on tokenisation, covering opportunities, risks and future considerations for central banks. The report identifies that tokenisation could have implications for the future of finance and the role of central banks in payments, monetary policy and financial stability and, while tokenisation could offer numerous benefits for the financial system and broader economy, costs and risks also need to be considered. In particular, four key areas of consideration for central banks are: private sector initiatives; trade-offs between different types of settlement assets; sound regulation, supervision and oversight for tokenisation; and the impact on monetary policy implementation. [21 Oct 2024] #Tokenisation #Payments

---

UK

FCA: Financial promotions data Q3 2024

The FCA has published a summary of the data collected between 1 July 2024 and 30 September 2024 from its actions against firms breaching financial promotion rules, and from referrals and investigations into unregulated activity. Among the FCA's highlights is that there were 1,702 consumer alerts about illegal crypto promotions and that 900 scam crypto websites and 56 apps were removed following FCA action.  [25 Oct 2024] #Crypto

PSR MD discusses innovation in payments

The Payment Systems Regulator (PSR) has published the speech by its Managing Director David Geale at the Oxera and Financial Markets Group conference. Mr Geale began by talking about the changes in the payments landscape and unlocking innovation, before discussing some of the opportunities available to enhance competition. In this respect, the Managing Director highlighted the PSR's work towards realising the potential of open banking in payments and confirmed that the regulator is progressing work on open banking initiatives, including the development of variable recurring payments (VRP) through industry collaboration. He also touched on the PSR's work on enhancing protections such as the authorised push payment (APP) reimbursement policy that went live recently.  [25 Oct 2024] #Payments

Lords: Data (Use and Access) Bill

The Data (Use and Access) Bill has had its first reading in the House of Lords. The Bill makes provision for a variety of measures relating to the use of and access to customer and business data. A memorandum prepared for the Delegated Powers and Regulatory Reform Committee by the Department for Science, Innovation and Technology (DSIT) to assist with its scrutiny of the Bill has also been published. The second reading has yet to be announced. [24 Oct 2024] #Data

FCA cracks down on illegal finfluencers

The FCA has announced that it is interviewing 20 'finfluencers' voluntarily under caution using its criminal powers, as it launches targeted action against those who may be touting financial services products illegally. The FCA has also issued 38 alerts against social media accounts operated by finfluencers, which may contain unlawful promotions. The FCA highlights that there are an increasing number of younger people falling victim to scams which are often linked to finfluencers. [22 Oct 2024] #Finfluencers #SocialMedia

FCA blog – cryptoasset registrations

The FCA has published a blog setting out its standards and criteria for registering cryptoasset firms. When considering whether to register a firm, the FCA reminds firms that it considers a number of factors, including:

• the risk of money laundering;
• the controls and systems firms have in place;
• the environment that firms operate in;
• the people involved in firms' processes; and
• the customers that firms want to reach.

The FCA encourages firms seeking registration to engage with the FCA early through its pre-application meetings, and to use the wide range of practical support that it offers throughout the registration process. [21 Oct 2024] #Crypto

---

Europe

EIOPA consults on standard formula capital requirements for investments in cryptoassets

The European Insurance and Occupational Pensions Authority (EIOPA) has launched a consultation on its draft technical advice on standard formula capital requirements for cryptoassets within the EU’s regulatory framework for insurers. EIOPA is proposing to introduce a 100% haircut to insurers' cryptoassets regardless of their balance sheet treatment or investment structure. EIOPA acknowledges that for some cryptoassets, like asset-referenced tokens (ARTs) and electronic money tokens (EMTs) authorised under the Markets in Cryptoassets Regulation (MiCAR), a differentiated treatment could be appropriate and suggests a review of prudential treatment in the future.

Responses to the consultation are requested by 16 January 2025. [24 Oct 2024] #Crypto

EBA: ARTs and EMTs classification under MiCAR

The EBA has published a decision setting out the procedural aspects related to the significance assessment of asset-referenced tokens (ARTs) and e-money tokens (EMTs) and the transfer of supervisory responsibilities, including the establishment of supervisory colleges for significant ARTs (s-ARTs) and significant EMTs (s-EMTs) under Markets in Cryptoassets Regulation (MiCAR).

In its decision, the EBA outlines among other aspects: a harmonised reporting calendar for national competent authorities (NCAs); clarifications of the reporting obligations for issuers of s-ARTs and s-EMTs; and procedural arrangements for consultation with related parties. [22 Oct 2024] #Crypto #EMTs #ARTs

ECB: Eurosystem launches initiatives to improve cross-border payments

The European Central Bank (ECB) has launched initiatives to help improve cross-border payments within the EU and beyond. The work, which builds on the Eurosystem’s TARGET Instant Payment Settlement (TIPS) service, will include the following:

• implementation of a cross-currency settlement service in TIPS – initially, euro, Swedish kronor and Danish krone will be available for settlement; and
• exploratory work on linking TIPS with other fast payment systems –  this will include developing links with partners outside the EU to improve cross-border payments globally.

The decision contributes to the goal of the Eurosystem’s retail payments strategy, which aims to help European consumers and businesses make and receive payments involving partners outside the euro area. It also supports the G20 roadmap for enhancing cross-border payments. [22 Oct 2024] #Payments

---

Hong Kong

HKMA publishes revised guidance following consultation conclusions on renaming of 'virtual banks' as 'digital banks'

The HKMA has published its Guideline on Authorisation of Digital Banks, which sets out the principles which it will take into account in deciding whether to authorise digital banks applying to conduct banking business in Hong Kong.  This follows the HKMA's recent consultation conclusions on the renaming of 'virtual banks' as 'digital banks' (see our previous update).  The guideline supersedes the previous guideline on authorisation of virtual banks, most recently revised on 30 May 2018 (see our previous update).

The HKMA has also updated Chapter 9 (Authorisation of Digital Banks) of its Guide to Authorisation.  [25 Oct 2024] #DigitalBanks

HKMA publishes revised SPM Module TM-E-1 'Risk Management of E-banking', taking effect on 25 October 2024

The HKMA has issued a circular to inform authorised institutions (AIs) that it has published a revised version of the Supervisory Policy Manual (SPM) module TM-E-1, 'Risk Management of E-banking', following a consultation that closed on 24 May 2024 (see our previous update).

The HKMA has reviewed and enriched module TM-E-1 as part of its continued efforts to ensure the effective supervision of AIs' e-banking services and payment card services.  The revised module integrates relevant requirements outlined in various supervisory documents, with a view to providing AIs with a more comprehensive overview of supervisory guidance on these services.

The revised module took effect on 25 October 2024 and includes the following key changes:

• Expanding the scope of the module to cover controls over payment card transactions;
• Consolidating relevant security measures outlined in various supervisory documents into the module;
• Providing more principle-based guidance to strengthen AIs' risk management controls for e-banking and payment card services.

The revised module is available on the HKMA website and the Supervisory Communication Website.  [25 Oct 2024] #eBanking

 HKMA showcases initial results of Interbank Account Data Sharing pilot programme and launches developer platform in collaboration with HKSTP

The HKMA has held a showroom day to showcase the initial results of the pilot programme for the Interbank Account Data Sharing initiative, which commenced in January 2024 with a total of 28 participating banks (see our previous update).

The programme has established the rules and standards to facilitate interbank data sharing that is subject to customer consent, covering retail, corporate and small and medium-sized enterprise customer segments.  This allows banks to share customers’ deposit account information (including account availability, status, balances and transaction records) with other banks.

At the showroom day, banks shared practical applications of Interbank Account Data Sharing, including streamlining of loan application procedures, consolidated financial analysis, and online identity verification.  It is expected that banks will gradually launch the relevant products to the market.

In collaboration with the Hong Kong Science and Technology Parks Corporation (HKSTP), the HKMA has also announced the launch of the IADS Developer Platform.  This is a one-stop platform that provides testing account data and simulated application programming interfaces from participating banks, facilitating collaboration between banks and technology firms to jointly develop more data-driven products and services. 

In addition, the official Chinese name for the Interbank Account Data Sharing initiative, '戶口互聯', has been announced.  [23 Oct 2024]  #Data #API 

Insurance Authority indicates upcoming review of RBC regime and introduction of Cybersecurity Resilience Assessment Framework in 2025

The Chairman of the Insurance Authority, Mr Stephen Yiu, delivered a speech at the Asian Actuarial Conference, themed 'Exploring the Future of Insurance and Beyond: Innovation, International Hubs and Hong Kong'. 

• Mr Yiu noted that the risk-based capital (RBC) regime had been in effect since July 2024 (see our previous update).  Given that there is always room for improvement, particularly in light of the ever-changing business and economic environment, the Insurance Authority will undertake a review of the RBS regime in 2025, with a view to calibrating the risk factors more scientifically so as to strike a better balance between market stability and industry development.
• Mr Yiu mentioned three key socio-economic trends influencing the development of the insurance sector: (i) climate change and the related natural catastrophes, (ii) ageing population, and (iii) technological advancements. 
• With regard to the first trend, Mr Yiu noted that since the Insurance Authority launched the insurance-linked securities regulatory regime in March 2021, five catastrophic bonds had been issued, with a total size of over US$700 million covering a wide range of natural catastrophe events across different regions globally.  In the coming year, the Insurance Authority hopes to more thoroughly strategise its plans to develop Hong Kong into a preferred insurance-linked securities domicile.
• As for the third trend, the increasing integration of artificial intelligence, big data analytics, machine learning and cloud computing is revolutionising how the industry assesses risk, underwrites, prices policies, pays claims, or even detects fraudulent claims.  The industry must be mindful of the added cybersecurity risk and the importance of responsible usage of these new tools. 
• The Insurance Authority has been revamping the Guideline on Cybersecurity by introducing a new Cybersecurity Resilience Assessment Framework.  This will be published shortly and will come into effect in January 2025.  The revised guideline aims to keep pace with the digital transformation and the evolving cybersecurity threats, without being a hindrance to market development and technological adoption.
• The Insurance Authority will also continue to closely monitor the relevant developments, deepen its understanding of the industry landscape and promulgate further guidance and share good practices as necessary to facilitate responsible adoption new technologies.  [23 Oct 2024] #Cyber

---

India

SEBI consults on requirements for recognition as an SDP

The Securities and Exchange Board of India (SEBI) has published a consultation on the requirements for recognition as a specified digital platform. The consultation contains proposals on the provisions of a draft circular.

Responses are requested by 12 November 2024. [22 Oct 2024] #SpecifiedDigitalPlatform

RBI: October 2024 bulletin

The RBI has published the latest edition of its monthly bulletin. The October 2024 edition covers a variety of topics, including, but not limited to, how Indian banks are adopting AI and the contribution of digitalisation to productivity growth. [21 Oct 2024]  #AI #Digitalisation

---

Philippines

BSP and German printer sign MoU on payments and currency management

The Bangko Sentral ng Pilipinas (BSP) has announced that it has signed a five-year memorandum of understanding (MoU) with German government banknotes printer Bundesdruckerei GmbH. Under the MoU, BSP and Bundesdruckerei GmbH will collaborate on. among other things: digital payments infrastructure; research and development on digital payments and banknote substrate; and technology exchange. [24 Oct 2024] #Payments

---

US

SEC announces settled charges with four companies in relation to misleading cyber disclosures

The Securities and Exchange Commission (SEC) has announced charges against four current and former public companies relating to  materially misleading disclosures regarding cybersecurity risks and intrusions. The SEC also charged one of the four with disclosure controls and procedures violations. Without admitting or denying the SEC's findings, the companies have agreed to pay nearly $7m in civil penalties. The SEC noted that each company also cooperated during the investigation, including by voluntarily providing analyses or presentations that helped expedite SEC staff’s investigations and by voluntarily taking steps to enhance cybersecurity controls.  [22 Oct 2024] #Cyber

CFPB finalizes Personal Financial Data Rights rule to advance open banking

The CFPB has finalized a rule to give consumers greater rights, privacy, and security over their personal financial data. The rule requires financial institutions, credit card issuers, and other financial providers to unlock an individual’s personal financial data and transfer it to another provider at the consumer’s request for free. The CFPB notes that the rule will move the US "closer to having a competitive, safe, secure, and reliable 'open banking' system."

Compliance with the rule will be implemented in phases. Financial firms will be required to comply based on their size; the largest institutions will have to comply by April 1, 2026, while the smallest covered institutions will have until April 1, 2030. Certain small banks and credit unions are not subject to this rule.  [22 Oct 2024] #OpenBanking

SEC announces 2025 examination priorities

The SEC's Division of Examinations has released its 2025 examination priorities. This year’s examinations will prioritize perennial and emerging risk areas, such as fiduciary duty, standards of conduct, cybersecurity, and AI.

In the report, cybersecurity, AI and cryptoassets are addressed as risk areas impacting various market participants (section VII of the report). Discussing these topics, report highlights:

• a continued focus on cybersecurity risks and resiliency goals in relation to third party providers and governance controls around IT;
• plans to review how AI capabilities are represented and firms' systems and controls around their AI use, including use of third party AI models; and
• given the proliferation of investments involving cryptoassets that has been observed, monitoring of firms' conduct and systems and controls will continue.  [21 Oct 2024]  #AI #Crypto #Cyber

Fed: Governor Waller considers the role DeFi could have

The Federal Reserve (Fed) has published the remarks on decentralized finance (DeFi) delivered by Governor Christopher J Waller at the Vienna Macroeconomics Workshop, Institute of Advanced Studies, in Austria. Governor Waller set out his views on how DeFi innovations may be complementary and may deliver improvements to centralized finance.  [18 Oct 2024] #DeFi