FinTech Global FS Regulatory Round-up - w/e 29 November 2024

ICYMI

• Crypto Roadmap - crypto regulatory regime goes live in 2026 (UK)

Global

BCBS Technical Amendments – Crypto exposures

The Basel Committee on Banking Supervision (BCBS) has published Technical Amendment: Finalisation of various technical amendments, which sets out various technical amendments to the Basel Framework, including relating to cryptoasset exposures. The technical amendment to SCO60.80 will be implemented from 1 January 2026 as part of the final cryptoasset exposures standard. [27 Nov 2024] #Crypto

UK

FCA: PS24/17 – Financial Crime Guide updates

The FCA has published Policy Statement 24/17: Financial Crime Guide updates (PS24/17). PS24/17 summarises feedback and finalised changes following the FCA's consultation on updates to the Financial Crime Guide in CP24/9. The proposed changes focus on areas where the FCA identified that firms wanted additional guidance to clarify its expectations. Changes have been made in a number of areas, including in relation to cryptoasset businesses. [29 Nov 2024] #Crypto #FinancialCrime

FCA speech on financial inclusion

The FCA has published a speech by Sarah Pritchard, Executive Director, Markets and International, delivered at The Investing and Saving Alliance (TISA) annual conference. Among other things, Ms Pritchard highlighted that technological innovation, when well-managed, will play a key role in the FCA's new five-year strategy. [28 Nov 2024] #Innovation #FinancialInclusion

SI: The Digital Markets, Competition and Consumers Act 2024 (Commencement No. 1 and Savings and Transitional Provisions) Regulations 2024

The Digital Markets, Competition and Consumers Act 2024 (Commencement No. 1 and Savings and Transitional Provisions) Regulations 2024 have been made.

This statutory instrument (SI) brings into force, from 1 January 2025, certain provisions in the Digital Markets, Competition and Consumers Act 2024, including:

• Part 1 (Digital Markets).
• Part 2 (Competition).
• Chapters 1 (Competition in connection with motor fuel) and 2 (Provision of investigative assistance to overseas regulators) of Part 5 (Miscellaneous).

These provisions mainly amend the Competition Act 1998 (c. 41) and Enterprise Act 2002 (c. 40). The SI also brings into force each Schedule to the Act relevant to the provisions outlined above. [28 Nov 2024] #DigitalMarkets

FOS sees complaints increase by more than 50%

The Financial Ombudsman Service (FOS) has published its latest quarterly complaints data. The key findings include:

• the FOS received 73,692 overall complaints between July and September 2024, an increase of over 50% compared to 46,716 new complaints reported in the same period the previous year;
• fraud and scams cases have reached their highest quarterly level, with 9,091 complaints made in the period, significantly higher than the 6,264 new fraud and scam cases for the same period last year and up from the previous quarter's 8,734 complaints;
• of the latest fraud and scams figure, 4,956 were in relation to authorised push payment (APP) scams;
• on average, across all financial products, the FOS upheld 34% of cases in favour of the consumer. [27 Nov 2024] #FOS #APPFraud #Complaints #Payments

FCA: Crypto regulation roadmap and consumer research on crypto

The FCA has published a research note on consumer attitudes and behaviours towards crypto, alongside a roadmap which sets out planned policy publications for crypto.

The research showed that 12% of UK adults now own crypto, up from 10% in previous findings. Awareness of crypto also rose from 91% to 93%, and the average value of crypto held by people increased from £1,595 to £1,842. Respondents told the FCA that information from family and friends was the most common source of information for those who had never bought crypto. Only one in ten people said they did not do any research before buying crypto. Around a third of people said they believed they could raise a complaint with the FCA if something went wrong and were seeking recourse or financial protection.

In terms of forthcoming policy papers, the next publication will be a discussion paper(s) (DP(s)) on admission and disclosures and market abuse. This will be followed in H1/2025 by a further DP(s) covering trading platforms, intermediation, lending, staking and prudential considerations for crypto exposures and a consultation paper(s) (CP(s)) on stablecoins, custody and a new prudential sourcebook. [26 Nov 2024] #Crypto

HMT: Speech on government's approach to tokenisation and regulation

HM Treasury (HMT) has published a speech by Tulip Siddiq, Economic Secretary to the Treasury, delivered at the Tokenisation Summit. The focus of the speech was the government's approach to tokenisation and regulation and the initiatives that it plans to take forward in the digital asset ecosystem.

Ms Siddiq began with an overview of current work, including the Digital Securities Sandbox and the Chancellor's plans, announced in the Mansion House speech, to introduce a Digital Gilt Instrument, known as 'DIGIT', for which the pilot issuance will take place in the Sandbox.

On the subject of cryptoasset regulation, Ms Siddiq confirmed that, while the government intends to proceed with the new regulated activities for stablecoins and that this will be implemented at the same time as the rest of the regulatory regime for cryptoassets. The government will not bring stablecoins into UK payments regulation at this time, as this would not be proportionate based on the current stablecoin use cases. [25 Nov 2024] #Tokenisation #Crypto #Stablecoins

Europe

EC: Commission delegated regulation on transparency data – MiCAR

A Commission Delegated Regulation supplementing the Markets in Cryptoassets Regulation (MiCAR) with regard to regulatory technical standards (RTS) specifying the manner in which cryptoasset service providers operating a trading platform for cryptoassets are to present transparency data has been added to the register of European Commission (EC) documents. [29 Nov 2024] #Crypto

OJ: MiCAR ITS – Reporting

The Commission Implementing Regulation laying down implementing technical standards (ITS) for the application of MiCAR with regard to reporting related to asset-referenced tokens (ARTs) and to e-money tokens (EMTs) denominated in a currency that is not an official currency of a Member State has been published in the Official Journal (OJ).

The regulation will enter into force on the 20th day following its publication and will apply from 1 January 2025. [28 Nov 2024] #Crypto #AMT #EMT

OJ: MiCAR ITS – Cooperation between competent authorities

Commission Implementing Regulation laying down implementing technical standards (ITS) for the application of MiCAR with regard to standard forms, templates and procedures for the cooperation and exchange of information between competent authorities has been published in the OJ.

The regulation will enter into force on the 20th day following its publication. [27 Nov 2024] #Crypto

Australia

ASIC welcomes recent IOSCO reports outlining key developments for global market regulators

ASIC has expressed approval for recent consultations, reports and a statement published by the International Organization of Securities Commissions (IOSCO), which include, among others:

• CR/09/2024 on digital engagement practices (IOSCO requests responses by 20 January 2025);
• CR/10/2024 on online imitative trading practices, e.g. copy trading (IOSCO requests responses by 20 January 2025); and
• CR/08/2024 on finfluencers (IOSCO requests responses by 20 January 2025).

These reports highlight significant developments for global market regulators and address various topics, including the use of AI and machine learning by market intermediaries and asset managers. ASIC has voiced its support for IOSCO's efforts and reaffirmed its commitment to adopting IOSCO's standards and policies in Australia.  [28 Nov 2024] #DigitalEngagement #InitativeTrading #AI #MachineLearning #Finfluences

Hong Kong

HKMA publishes new SPM module TM-C-1 'Supervisory Approach on Cyber Risk Management'

The HKMA has issued a circular to inform authorised institutions (AIs) that it had published a new Supervisory Policy Manual (SPM) module TM-C-1 'Supervisory Approach on Cyber Risk Management' following consultations with the industry associations.  

This SPM module is not intended to introduce any new requirements but sets out holistically the HKMA’s guidance and supervisory processes on cyber risk management, as well as its expectation for deeper collaboration between the banking sector and other stakeholders in the ecosystem.  The HKMA considers it timely to articulate in an SPM module its policy, overarching principles and supervisory approach on banks for managing cyber risks in light of the escalating risks and the potential systemic impact of a severe cyber incident on financial stability.  The module is premised on a risk-based, forward-looking and collaborative approach in managing cyber risks.  [29 Nov 2024] #Cyber 

Insurance Authority indicates it will publish white paper on federated learning to promote data analytics in 2025

The Executive Director of Policy and Legislation of the Insurance Authority, Mr Clement Lau, delivered a keynote speech at the 22nd Appointed Actuaries Symposium, discussing the impact and transformative power of technology and data-driven innovation on the insurance industry.

Mr Lau commented that artificial intelligence (AI) is bringing notable changes to the insurance industry, offering benefits across the value chain.  He noted that technology, including AI, goes hand in hand with data.  For the insurance industry, real-time access to data helps spot trends, enhance risk management, and refine analysis.  A broader data scope also promotes product development.  The Insurance Authority launched the Open API Framework last year to provide guidance to the industry in deploying application programming interface for data transfer (see our previous update).  The framework aims to foster data connection and cross-sector partnerships by standardising processes.  In 2025, the Insurance Authority will publish a white paper on federated learning to promote data analytics without privacy concerns based on new or alternative data sources.

Mr Lau also mentioned that in response to the escalating cyber threats in the digital era, it will be launching a Cyber Resilience Assessment Framework under the Guideline on Cybersecurity to strengthen insurers’ cybersecurity and operational resilience.  It will also conduct an industry survey to better understand the market landscape, and to facilitate the development of a robust but flexible regulatory framework to spur the fair, transparent and ethical use of AI.  Both of these initiatives were mentioned at the Hong Kong Fintech Week in October 2024 (see our previous update).  [29 Nov 2024] #Data #Cyber

HKMA indicates potential expansion of use of Scameter data and scope of bank-to-bank information sharing to enhance detection and prevention of fraud and scams

The Executive Director (Enforcement and AML) of the HKMA, Mr Raymond Chan, delivered opening remarks at the Experience Sharing Forum on Use of Artificial Intelligence for Monitoring of Suspicious Activities.

Mr Chan emphasised the HKMA's commitment to ensuring the right approach, technology, tools and data are employed to tackle the rapidly evolving challenges of global financial crime.  He reiterated the importance of maintaining trust in Hong Kong's financial system, noting that fraud represents 46% of all crime in the city.

Mr Chan also highlighted the importance of establishing a network of banks with improved data streams powered by advanced capabilities, such as analytics and artificial intelligence.  Since having the right data at the right quality is critical, the HKMA is exploring with the Police and the banking industry the possibility of a wider use of Scameter data in banks’ customer due diligence and fraud and scam monitoring processes (see our previous update on the launch of Scameter in 2022).  It is also working with the Police and other stakeholders to expand the scope of bank-to-bank information sharing to further enhance the detection and prevention of fraud and scams.  [28 Nov 2024] #Scams #FraudDetection

HKMA welcomes launch of InvestLM Generative AI Platform aimed at supporting financial services industry in adopting GenAI technologies

The HKMA welcomes the launch of the InvestLM Generative AI Platform announced by the School of Business and Management of The Hong Kong University of Science and Technology (HKUST Business School).  This platform aims to support the local financial services industry, particularly small-to-medium financial institutions, in harnessing the potential of generative artificial intelligence (GenAI) technologies.

In line with the Government’s Policy Statement on Responsible Application of Artificial Intelligence in the Financial Market of October 2024 (see our previous update), the HKMA adopts an interactive and iterative approach in promoting artificial intelligence adoption by banks while understanding the potential challenges. 

The HKMA encourages banks to explore GenAI's potential through the InvestLM platform to increase operational efficiency and provide more tailored customer services.  Banks also have the option of fine-tuning or adapting the underlying InvestLM model to suit the needs of specific banking operations, while establishing a robust set of guardrails to address challenges arising from such fine-tuning processes.

The InvestLM model will be accessible through the GenAI Sandbox (see our previous update).  The sandbox provides a risk-managed framework for banks to pilot novel GenAI use cases, and offers technical resources and targeted supervisory feedback for banks to explore additional avenues to test or finetune the InvestLM model.  During the fine-tuning process, banks can also benefit from the vast experience of the research team at the HKUST Business School in addressing common challenges related to similar GenAI models, such as bias and hallucination risks.  [28 Nov 2024] #GenAI

HKMA launches Digital Bond Grant Scheme with an initial period of three years

The HKMA has launched the Digital Bond Grant Scheme, which was announced in the 2024 Policy Address (see our previous update).  The scheme aims to promote the development of the digital securities market and encourage a broader adoption of tokenisation technology in capital market transactions. 

The HKMA stated accepting applications on 28 November 2024, with an initial period of three years.  Applications can be made for bonds issued on or after the Policy Address announcement on 16 October 2024.

Following an industry consultation, the HKMA has set out the details of the scheme, including eligibility requirements, eligible expenses and the application process, in the Guideline on the Digital Bond Grant Scheme.  The scheme covers 50% of eligible expenses for each digital bond issuance up to:

• HK$1.25 million (half grant) if the issuance meets the basic requirements under the guideline;
• HK$2.5 million (full grant) if the issuance meets the basic requirements and all of the additional requirements under the guideline.

The expenses incurred by the digital bond issuer that are eligible for reimbursement include (among others) fees to distributed ledger technology platform providers and Hong Kong-based arrangers (excluding those that are associates of the issuer), and Hong Kong-based legal advisors and auditors.

The Chief Executive of the HKMA, Mr Eddie Yue, has published an article explaining how the scheme aligns with the HKMA's Project Evergreen.  [28 Nov 2024] #DigitalBond

Singapore

MAS and NFRA reaffirm commitment to strengthen supervisory cooperation

The Monetary Authority of Singapore (MAS) and the Chinese National Financial Regulatory Administration (NFRA) have reaffirmed their commitment to strengthen supervisory cooperation at the annual MAS-NFRA Supervisory Roundtable.

The regulators welcomed the strong momentum in cooperation over the past two years, including staff attachments from the NFRA to MAS and study visits covering technology resilience, digital assets and AI. The roundtable discussions covered supervisory priorities in relation to Singaporean and Chinese banks, and the latest developments in the NFRA’s insurance supervision framework. The regulators also exchanged views and experiences on the supervisory practices and development of the asset management sector.  [27 Nov 2024]  #DigitalAssets #AI

Malaysia

BNM: Opening Remarks by Governor Abdul Rasheed Ghaffour at LIAM's 50th anniversary dinner

Bank Negara Malaysia (BNM) has published the opening remarks by Governor Abdul Rasheed Ghaffour, delivered at the Life Insurance Association of Malaysia (LIAM) 50th anniversary dinner. The Governor focused on the ‘three Ts’ needed to shape the future of the life insurance industry in Malaysia, namely:

• Technology and digitalisation – in particular, the BNM's enhancement of the Financial Technology Sandbox Framework, which includes introducing a Green Lane track to speed up the testing of innovative insurance solutions while ensuring regulatory compliance and BNM's recent publication of the licensing and regulatory framework for Digital Insurance and Takaful Operators (DITOs).
• Transformation – the Governor emphasised that there is a growing need for innovative and inclusive insurance solutions that not only cater to evolving consumer preferences but also ensure affordable and accessible protection.
• Talent development and retention – the Governor highlighted BNM's support for the Future Skills Framework (FSF), launched in July 2024, which aims to facilitate the ability of the life insurance industry to build new talent pipelines and succession pools through reskilling and talent development. [25 Nov 2024] #Digitalisation #DITO

BSP: Summary of Fin-Ed Stakeholders Congress

The Bangko Sentral ng Pilipinas (BSP)  has published a summary of the Financial Education (Fin-Ed) Stakeholders Congress, held on 19 November 2024. The BSP and its partners discussed ways to use digital technology to improve the financial literacy of Filipinos, and ways to empower Filipinos to make better-informed decisions in areas such as savings, investment, and retirement planning. [25 Nov 2024] #Digitalisation #FinancialLiteracy

US

Fed: Governor Bowman addresses symposium on AI in the financial system

The Federal Reserve (Fed) has published the remarks delivered by Governor Michelle W. Bowman at the 27th Annual Symposium on Building the Financial System of the 21st Century: An Agenda for Japan and the United States in Washington, D.C. Governor Bowman commented on the potential which AI has to influence the financial services industry and the economy more widely. While cautioning against any rush to regulate, she said it would be important to monitor how AI develops and its impact in the real world.  [22 Nov 2024] #AI

CFTC: GMAC advances recommendation on tokenized non-cash collateral

The Commodity Futures Trading Commission (CFTC) has announced that its Global Markets Advisory Committee (GMAC) has advanced a recommendation to expand the use of non-cash collateral through the use of distributed ledger technology (DLT). This recommendation provides a legal and regulatory framework for how market participants can apply their existing policies, procedures, practices, and processes to support use of DLT for non-cash collateral in a manner consistent with margin requirements.  [21 Nov 2024] #DLT #Tokenisation

CFPB finalizes rules on oversight of large nonbank companies offering digital funds transfer and payment wallet apps

The Consumer Financial Protection Bureau (CFPB) has finalized a rule regarding the supervision the largest nonbank companies offering digital funds transfer and payment wallet apps. The rule will enable the CFPB to proactive supervise companies handling more than 50m transactions per year in U.S. dollars.

The rule will be effective 30 days after publication in the Federal Register.  [21 Nov 2024] #Payments #DigitalWallets