In this regular update, we round-up FinTech-related financial services regulatory developments for the week ending 6 May 2022.

Global

BIS publishes the results of the 2021 survey of central banks on CBDCs

The Bank for International Settlements (BIS) has published a working paper, outlining the results of a survey of 81 central banks in relation to their engagement in central bank digital currency (CBDC) work, as well as their motivations and intentions regarding CBDC issuance. The survey was conducted in autumn 2021 and also asked for central banks’ assessment of the use of stablecoins and other cryptocurrencies (or cryptoassets) in their jurisdictions.

The responses show that Covid-19 and the emergence of cryptocurrencies have accelerated the work on CBDCs. In addition, more than two thirds of central banks consider that they may issue a retail CBDC in the short or medium term. Many are exploring a CBDC ecosystem that involves private sector collaboration and interoperability with existing payment systems. [6 May 2022]

 
BIS: Working paper on big techs, QR code payments and financial inclusion

The Bank for International Settlements (BIS) has published a working paper on big techs, quick response (QR) code payments and financial inclusion. The paper explores whether:

  • the use of QR codes in payments allows firms to have access to big tech credit;
  • access and use of big tech credit allows firms to have access to more traditional bank credit; and

there are real effects arising from the use of QR codes in payment and the subsequent provision of credit on firms’ business volume. [4 May 2022]

 

UK

FCA: Speech on the lessons from the last 30 years

The FCA has published a speech by Nikhil Rathi, Chief Executive, delivered at the Chartered Institute for Securities & Investment 30th anniversary dinner. Mr Rathi emphasised that:

  • the FCA is more resilient to the economic and geopolitical disruptions of today;
  • digital skills will be integrated in all future financial services education as the boundaries become blurred between tech and the industry;
  • along with other regulators, the FCA is working on maximising the benefits to consumers of tech, while mitigating the risks; and
  • the FCA has identified a need to boost financial education as children are beginning to participate in cryptoassets. [6 May 2022]
 
HMG: Response to the consultation on pro-competition regime for digital markets

HM Government (HMG) has published a response to the consultation on a new pro-competition regime for digital markets. The consultation considered views on the proposed design of a new pro-competition regime for digital markets. The majority of respondents supported the proposals for the regime. However, it was noted that aspects of the regime will be new and untested, and respondents suggested further clarity might be needed after the regime has been set up – for example through guidance and transparency. HMG will bring forward legislation to implement these reforms when parliamentary time allows. [6 May 2022]

 

EU

EIOPA: Feedback Statement on blockchain and smart contracts in insurance

The European Insurance and Occupational Pensions Authority (EIOPA) has published a feedback statement on blockchain and smart contracts in insurance. The feedback statement provides a high-level summary of the responses received from stakeholders during an earlier public consultation on the topic as well as EIOPA’s reactions to them. EIOPA notes that insurers see potential in blockchain and are exploring possible use cases across the insurance value chain to streamline business and better serve customers. [6 May 2022]

 
EBA: Response to EC on non-bank lending, digital finance

The European Banking Authority (EBA) has published a final report on non-bank lending in response to the European Commission’s (EC) call for advice on digital finance which was issued in February 2021. The EBA’s proposals address the risks arising from the provision of lending by non-bank entities in the areas of supervision, consumer protection, anti-money laundering and countering the financing of terrorism (AML/CFT), macro and microprudential risks. [4 May 2022]

 

Australia

Court finds Australian financial services licensee failed to adequately manage cybersecurity risks

The Australian Securities and Investments Commission (ASIC) announced that, for the first time in Australia, the Federal Court has found an Australian Financial Services (AFS) licensee breached its licence obligations to act efficiently and fairly by failing to have adequate cybersecurity risk management systems in place. Several cyber incidents occurred from mid-2014 to mid-2020 resulting in the compromise of sensitive personal information of clients. The AFS licensee agreed a Statement of Agreed Facts and Admissions, and the Court ordered the AFS licensee to engage a cybersecurity expert to identify measures necessary to manage its exposure to cybersecurity risks. The judgment highlights the importance of addressing cybersecurity risk as a significant risk in the provision of financial services, and demonstrates the Court’s disapproval of inadequate cybersecurity risk management systems. [5 May 2022]

 

Philippines

BSP explores machine learning uses for central banking functions

The Bangko Sentral ng Pilipinas (BSP) has announced that it is considering how machine learning techniques can be applied to enhance its central bank functions, including its role in banking supervision. The BSP uses natural language processing to convert text into data to produce a quantitative summary, such as the news sentiment index and economic policy uncertainty index that are currently being developed. The central bank also employs machine learning approaches to generate nowcasts of regional inflation and domestic liquidity. These models supplement the BSP’s existing suite of models for macroeconomic forecasting.

With regard to banking supervision, the BSP aims to utilise machine learning techniques to enhance its data validation processes and better identify atypical data. Although exploring the diverse opportunities which machine learning presents, the BSP also notes that there are challenges associated with the technology, from difficulties in interpreting the causal relationships in machine learning models to the necessary investment in IT infrastructure and capacity building. [4 May 2022]