In this regular update, we round-up FinTech-related financial services regulatory developments for the week ending 20 January 2023.
Recent updates from Herbert Smith Freehills include:
- Need for caution in marketing cryptoassets (Moneybrain Ltd v The Financial Conduct Authority)
- When AI meets the Consumer Duty
- NFT infringes trade mark rights – Italian Court grants preliminary injunction in Juventus case
|PSR summary of digital payments roundtable discussion
The Payment Systems Regulator (PSR) has published a summary of the discussion at its 29 November 2022 roundtable on the Digital Payments Initiative. The roundtable was particularly focused on barriers to using digital payments, examining why people rely on cash, the role that prepaid cards could play in meeting the needs of the cash-reliant, and ways to provide access for cash-reliant customers.
Alongside the summary, the PSR’s Head of Policy Kate Fitzgerald has written a short thought piece on barriers to using digital payments. Ms Fitzgerald writes that protecting access to cash is a priority for the PSR, and then outlines the Digital Payments Initiative, the PSR’s work on this theme, and the roundtable discussion.[19 Jan 2023]
|FSCP: Response to FCA DP22/5 on the competition impacts of Big Tech entry and expansion in retail financial services
The Financial Services Consumer Panel (one of the independent statutory panels consulted by the FCA when developing policy) has published its response to Discussion Paper 22/5: The potential competition impacts of Big Tech entry and expansion in retail financial services (DP22/5). The FSCP’s comments cover:
|LawTech UK releases DP on AI in legal services
LawtechUK has released a discussion paper (DP) on the adoption and development of AI in legal services. The questions in the paper focus on understanding the risks, risk management techniques, and the areas of legal services regulation that may require clarity to support the responsible use of machine learning. Feedback is requested by 5 February 2023. [18 Jan 2023]
|EIOPA Consumer Trends Report 2022
The European Insurance and Occupational Pensions Authority (EIOPA) has released its Consumer Trends Report 2022 which focuses on the financial health of consumers and small businesses through their use of insurance and pension savings products. Among EIOPA’s findings are that digitalisation and technology are gradually transforming the pension value chain, lowering costs and improving members’ and beneficiaries’ engagement with their pensions.
The report is accompanied by a video, a heatmap of key findings, and several Eurobarometer reports, some covering the full EU-27 and others with extracts for specific EU Member States. [18 Jan 2023]
|EC: Indicative agenda for forthcoming college meetings – Financial services policies
The European Commission (EC) has published its indicative list of agenda items for college meetings over the period 25 January to 28 June 2023. With respect to financial services regulation, the following dates are relevant:
|HKMA launches consultation on proposed amendments to AML/CFT Guideline for authorised institutions
The HKMA has launched a consultation on proposed amendments to its Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Authorised Institutions) (AML/CFT Guideline). Feedback on the proposals is required by 8 March 2023.
The proposed amendments are to provide guidance in light of the recent enhancements to AML/CFT requirements under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (see our previous update). The areas which have been amended include (among others):
|SECT issues rules on management of digital wallets for custody of digital assets and keys
The Securities and Exchange Commission of Thailand (SECT) has issued regulations requiring digital asset business operators that provide custody to establish a digital wallet management system to accommodate efficient and secure custody of clients’ digital assets and keys. The regulations cover the following requirements:
The regulations are with effect from 16 January 2023. [17 Jan 2023]
|BSP Replaces Unfit Currency with Digital Cash in Tagbilaran
The Bangko Sentral ng Pilipinas (BSP) has announced that its Visayas Regional Office (VRO) offered currency exchange services in Tagbilaran City to encourage the public to replace their unfit banknotes and coins with digital cash. The ‘BSP Piso Caravan’ currency exchange program was conducted for the first time in Visayas to replace unfit money by depositing the equivalent amount to clients’ e-wallets. The BSP VRO staff also assisted those without e-wallets in setting them up. The BSP Piso Caravan is in line with the central bank’s commitment to preserve the integrity of Philippine currency and promote digital payments to bolster financial inclusion. [16 Jan 2023]
|SEC: Nexo agrees to pay $45 million in penalties and cease unregistered offering of crypto asset lending product
The Securities and Exchange Commission (SEC) has charged Nexo Capital Inc. with failing to register the offer and sale of its retail crypto asset lending product, the Earn Interest Product (EIP).
According to the SEC’s order, in or around June 2020, Nexo began to offer and sell the EIP in the US. The EIP allowed US investors to tender their crypto assets to Nexo in exchange for Nexo’s promise to pay interest. The order states that Nexo marketed the EIP as a means for investors to earn interest on their crypto assets, and Nexo exercised its discretion to use investors’ crypto assets in various ways to generate income for its own business and to fund interest payments to EIP investors. The order finds that the EIP is a security and that the offer and sale of the EIP did not qualify for an exemption from SEC registration. Therefore, Nexo was required to register its offer and sale of the EIP, which it failed to do.
To settle the SEC’s charges, Nexo agreed to pay a $22.5 million penalty and cease its unregistered offer and sale of the EIP to US investors. In parallel actions, Nexo agreed to pay an additional $22.5 million in fines to settle similar charges by state regulatory authorities. [19 Jan 2023]
|CFTC: Keynote address by Commissioner on lessons learned from FTX’s collapse
The Commodity Futures Trading Commission (CFTC) has published a keynote address by Commissioner Christy Goldsmith Romero, at The Wharton School and the University of Pennsylvania Carey Law School. In her address, Ms Goldsmith Romero sets out her assessment of the lessons to be learned from FTX’s collapse, including:
|DoJ: Founder of cryptocurrency exchange charged with processing over $700 million of illicit funds
The Department of Justice (DoJ) has announced that the founder and majority owner of a cryptocurrency exchange, Bitzlato Ltd, has been arrested for his alleged operation of a money transmitting business that transported and transmitted illicit funds and that failed to meet US regulatory safeguards, including anti-money laundering (AML) requirements.
The defendant is alleged to have helped operate a cryptocurrency exchange that failed to implement required AML safeguards and enabled criminals to profit from their wrongdoing, including ransomware and drug trafficking. The individual is alleged to have knowingly allowed Bitzlato to become a perceived safe haven for funds used for and resulting from a variety of criminal activities,
French authorities and the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) are taking concurrent enforcement actions. [18 Jan 2023]