In this regular post, we round-up FinTech-related financial services regulatory developments for the week ending 24 November 2023.
ICMA: Considerations for risk factors and disclosure in DLT bond offering documents
The International Capital Market Association (ICMA) has published a paper on legal aspects of distributed ledger technology (DLT) and blockchain relating to the issuance of debt securities. ICMA’s DLT Bonds Legal Subgroup analysed the offering documents of DLT-based debt securities under Australian, English, French, German, Hong Kong, Luxembourg, Spanish and Swiss law. The main objective was to identify any potential areas of convergence related to the scope and nature of risk factors and other disclosure.
Among other findings, the reviewers noted that additional risk factors feature in bond documentation and can broadly be divided into three categories: (i) technology risks, (ii) the evolving legal and regulatory environment, and (iii) the limited liquidity for DLT-based debt instruments. They also concluded that it will continue to be necessary to take a ‘case-by-case’ approach to risk factors and other disclosure in each transaction. [21 Nov 2023]
IMF: CBDC next phase of development
The International Monetary Fund (IMF) has published a blog Central Bank Digital Currency (CBDC) development. The blog outlines a few of the chapters in the IMF’s recently-launched CBDC Virtual Handbook, which is a new reference guide for policymakers. The Handbook also serves as a basis for the IMF’s engagement with country authorities and others on CBDCs. The chapters noted in the blog cover areas such as: how banks should explore CBDC; a guide to product development; and implications of CBDCs for monetary policy transmission. [20 Nov 2023]
FCA: CfI – Potential competition impacts from the data asymmetry between Big Tech and financial services firms
The FCA has published a Call for Input (CfI) to gather focused information and evidence on whether the data asymmetry between Big Tech and financial services firms could lead to Big Tech firms gaining entrenched market power in financial services. The CfI also seeks to better understand the potential benefits that could arise from greater use of Big Tech firms’ customer data in financial services, and to gather evidence on other significant factors that have evolved since the publication of Feedback Statement (FS23/4), and whether these could lead to Big Tech firms gaining market power in financial services.
Responses are requested by 22 January 2024. The FCA intends to report on the outcomes of the CfI in Q2 2024. [24 Nov 2023]
HMT: Technology Working Group Report on fund tokenisation
HM Treasury’s (HMT’s) Technology Working Group has published a report on fund tokenisation. The report provides a blueprint for implementing fund tokenisation in the UK. It recommends a staged approach to fund tokenisation, starting with a baseline model that could be used within the existing legal and regulatory framework, and progressing to more advanced stages over time. The baseline – or ‘stage one’ – model establishes the infrastructure for fund tokenisation in the UK funds market. Future stages may require legislative or regulatory rule changes and may also depend on other developments in the wider technological environment, such as digital forms of money.
Alongside the report, the FCA has written to HMT confirming that it has identified no significant regulatory barriers to the blueprint model in its Collective Investment Schemes Sourcebook (COLL), Investment Funds Sourcebook (FUND) and Client Assets Sourcebook (CASS). [24 Nov 2023]
Autumn Statement: Consultation outcome – Digital Securities Sandbox
HMT has published the outcome of its consultation on the Digital Securities Sandbox. This confirms the final approach to implementing the Digital Securities Sandbox, summarises the feedback on the consultation, and sets out the HMG’s response. Legislation implementing the DSS will be laid before Parliament in due course. [22 Nov 2023]
Autumn Statement: Future of Payments report
HMT has published the report of the independently-chaired review into the future of payments. The report considers how payments are likely to be made in the future and makes recommendations on the steps needed to successfully deliver world leading retail payments, further boosting UK fintech competitiveness. The primary recommendation in the report is that HMG should ‘develop a National Payments Strategy and Vision’. It then sets out ten conclusions regarding customer experience, Open Banking, and regulatory oversight and alignment. [22 Nov 2023]
Autumn Statement: Pro-innovation regulation of technologies review
HMT has published the outcome of the review conducted by Government Chief Scientific Adviser Professor Dame Angela McLean into pro-innovation regulation of technologies and HMG’s response to the recommendations made. Dame Angela’s recommendations are set out in three parts:
- the Department for Science, Innovation, and Technology (DSIT) and the National Science and Technology Council (NSTC) acting as cross-Government focal points for pro-innovation regulation;
- supporting regulators to drive innovation-led growth; and
- ensuring regulators can access the right skills and resources.
HMG’s response accepts eleven of twelve of the recommendations, and notes that the twelfth merits further investigation. Of particular note for the financial services sector among the recommendations and HMG’s intended actions are:
- the possibility of a new ‘concierge service’ to aid innovators to navigate the regulatory landscape (Recommendation 1b); and
- the intention to publish a roadmap in early 2024 with HMG’s vision for a Smart Data ecosystem which will encompass various sectors, including finance, banking and ‘homebuying’ (Recommendation 2e). [22 Nov 2023]
Autumn Statement: National Quantum Strategy Missions
DSIT has published a policy paper under the National Quantum Strategy setting out five long-term quantum missions, including
- Mission 1: by 2035, there will be accessible, UK-based quantum computers capable of running 1 trillion operations and supporting applications that provide benefits well in excess of classical supercomputers across key sectors of the economy (including finance);
- Mission 2: by 2035, the UK will have deployed the world’s most advanced quantum network at scale, pioneering the future quantum internet (the UK will reach year 0 for the quantum internet); and
- Mission 5: by 2030, mobile, networked quantum sensors will have unlocked new situational awareness capabilities, exploited across critical infrastructure in the transport, telecoms, energy, and defence sectors.
HMG plans to define the programmes under each Mission ‘in the coming weeks’; it will work with industry, academia, and investors on this. [22 Nov 2023]
FCA: Responses to unanswered questions from APM
The FCA has published its responses to unanswered questions from its Annual Public Meeting (APM), which took place on 4 October 2023. The questions are grouped into a number of broad themes including, for example, the FCA’s view on the use of blockchain and distributed ledger technology (DLT) to automate processes for AML and KYC client onboarding. [21 Nov 2023]
EBA: CP on applying the Travel Rule guidelines for cryptoassets
The European Banking Authority (EBA) has published a consultation paper (CP) proposing guidelines on preventing the abuse of funds and certain cryptoassets transfers for money laundering and terrorist financing purposes – the ‘Travel Rule’ guidelines.
The guidelines specify the steps that payment service providers (PSPs), intermediary PSPs (IPSPs), crypto-asset service providers (CASPs) and intermediary CASPs (ICASPs) should take to detect missing or incomplete information that accompanies a transfer of funds or cryptoassets. They also detail the procedures all these providers should put in place to manage a transfer of funds or a transfer of cryptoassets that lacks the required information. The guidelines aim to forge a common understanding to ensure the consistent application of EU law as well as a stronger anti-money laundering and countering the financing of terrorism (AML/CFT) regime.
Responses are requested by 26 February 2024. [24 Nov 2023]
#Cryptoasset #CASPs #AML #CFT
EIOPA Chair discusses supervision in light of hidden risks and new horizons
The European Insurance and Occupational Pensions Authority (EIOPA) has published a speech delivered by its Chair, Petra Hielkema, entitled Hidden risks and new horizons: What’s next for supervision? The key takeaways from the speech included: the need for effective development, implementation and supervision of cross-sectoral regulation such as the Artificial Intelligence (AI) Act; the importance of improving financial literacy; and the necessity of developing the pensions dashboard, to be able to accurately measure the pensions gap. [21 Nov 2023]
ASIC Annual Forum 2023
ASIC hosted its Annual Forum 2023 on 21 and 22 November. On the first day, ASIC held sessions across its Annual Forum including on The impact of artificial intelligence (AI) on financial services. In this session, the panel considered how AI can be used to leverage good outcomes for consumers, and the challenges that it poses. ASIC is closely monitoring how the development and application of AI is affecting the safety and integrity of Australia’s financial ecosystem.
On the second day, sessions included an overview of the pace of technologically driven change in global financial markets. In this session, ASIC expressed its support for technology that improves outcomes for market operators and users across the financial system, to the extent it doesn’t compromise the fundamentals of the financial market. Another session focused on navigating disruption and covered Australia’s financial services and consumer protection regulators’ perspectives on how they are navigating change and disruption. [21 – 22 Nov 2023]
ASIC Annual Forum 2023: Navigating Disruption – Setting a direction for ASIC in 2024
ASIC has published the keynote delivered by Joe Longo, ASIC Chair, at the ASIC Annual Forum. In his speech, Mr Longo reaffirmed that ASIC’s primary interests are the safety and integrity of Australia’s financial system and capital markets, and ensuring good outcomes for consumers, investors, and business. He also noted that cyber resilience needs to be prioritised by ASIC and companies alike. Additionally, the ASIC Chair spoke to three of the regulator’s key focus areas: sustainable financial reporting and disclosure; improved consumer outcomes and addressing misconduct in the superannuation sector; and ensuring fair and orderly financial markets. [21 Nov 2023]
ASIC Annual Forum 2023: Enforcement session opening remarks
ASIC has published the opening speech delivered by ASIC Deputy Chair Sarah court as the enforcement session during ASIC Annual Forum. Ms Court noted that the regulator is one of the most active enforcement agencies in the country and has delivered against its 2023 enforcement priorities. She also stated that technology and operational resilience for market operators and market participants, including compliance with the new market integrity rules will receive an increased level of focus in 2024. [21 Nov 2023]
HKMA signs MOU with FSRA of ADGM to deepen partnership on fintech
The HKMA has signed a memorandum of understanding (MOU) with the Abu Dhabi Global Market (ADGM)’s Financial Services Regulatory Authority (FSRA) to deepen their ongoing partnership on fintech, particularly in cross-border trade-related data exchange and business collaboration, with a view to further promoting inclusive and innovative financial services leveraging fintech and data in both markets.
The exchange of the MOU is an important milestone in cementing and strengthening the collaboration between the two authorities, building on the co-operation agreement signed in 2018.
Under the MOU, the two authorities will contemplate joint proof-of-concept projects to connect the HKMA’s Commercial Data Interchange to the ADGM’s SME Financing Platform. They will also join forces to explore use cases for cross-border data exchange with user consent to address potential pain points in cross-border banking services, such as small and medium-sized enterprise account opening and financing to facilitate cross-border trading. [22 Nov 2023]
HKSCC reminds market participants about launch of FINI platform on 22 November 2023 and related rules and procedures
The Hong Kong Securities Clearing Company Limited (HKSCC) has issued a circular to remind market participants of the launch of the Fast Interface for New Issuance (FINI) platform on 22 November 2023.
- The cutover and migration of EIPO functions from the Central Clearing and Settlement System (CCASS) to FINI became effective after close of business on 21 November 2023.
- All new listings with a listing document issuance date on or after 22 November 2023 are processed on FINI and the first permissible listing date will be 5 December 2023. For new listings launched on 22, 23 or 24 November 2023, a special arrangement on a slightly extended public offer subscription period may be applied.
- New listings with a listing document issuance date on or before 21 November 2023 were allowed to complete their processing on CCASS using the pre-FINI operational arrangements.
The HKEX reminds all market participants that the FINI-related rules, procedures and terms (including the following) have been in effect since 22 November 2023 (further information can be found on the FINI webpage):
- Amendments to the Listing Rules;
- Amendments to the General Rules of HKSCC (renamed from ‘General Rules of CCASS’);
- Amendments to the HKSCC Operational Procedures (renamed from ‘CCASS Operational Procedures’);
- Terms and Conditions of FINI;
- Amendments to the Terms and Conditions for Investor Participants; and
- Template for the ‘How to Apply for Hong Kong Public Offer Shares’ section in Prospectus. [21 Nov 2023]
Pilot programme launched for Multiple Credit Reference Agencies Model, officially named as ‘Credit Data Smart’
The banking industry associations (namely, the Hong Kong Association of Banks, the Hong Kong Association of Restricted Licence Banks and Deposit-taking Companies, and the Hong Kong S.A.R. Licensed Money Lenders Association Limited) have announced the naming of the Multiple Credit Reference Agencies Model as ‘Credit Data Smart’ and the launch of a pilot programme. This has been welcomed by the HKMA.
The HKMA has been working closely with the industry associations to introduce more than one consumer credit reference agency (CRA) in Hong Kong through the Credit Reference Platform, with a view to promoting the market competition of consumer credit reference services in Hong Kong, enhancing the service quality of consumer CRAs and reducing the operational risk of having only one commercially run service provider in the market, particularly the risk of single point of failure. This initiative is part of the Fintech 2025 strategy in creating next-generation data infrastructure and driving fintech development in Hong Kong.
The Credit Reference Platform began operation on 28 November 2022 and three CRAs were selected to participate (see our previous update). The participating credit providers and selected CRAs have completed various tasks, including the uploading and downloading, cleansing and validation of consumer credit data.
Under the pilot programme, individuals invited to participate will obtain their consumer credit reports from the CRAs in order to review the data accuracy and assess the overall service performance of the CRAs. [17 Nov 2023]
MAS: Singapore FinTech Festival attracts record participants
The Monetary Authority of Singapore (MAS) has published a report on the eighth edition of the Singapore FinTech Festival. This year’s event drew a record 66,000 participants, up from 62,000 attendees in 2022. Highlights of the event include:
- more than 2,400 government and regulatory attendees across 530 central banks, regulatory institutions and other government organisations participated in the Regulation Zone;
- 56 sessions at the Technology Zone showcased advancements in artificial intelligence (AI) and quantum technologies, as well as their practical applications in e-commerce and payments; and
- the ESG Zone hosted the launch of MAS’ Gprnt digital platform – a culmination of Project Greenprint – which will serve as a baseline for all businesses to seamlessly report their ESG information moving forward. [24 Nov 2023]
#AI #GreenTech #Gprnt
MAS: Regulatory measures for DPT services
MAS has published its final tranche of responses to feedback received on its proposed regulations for digital payment token (DPT) service providers in Singapore. The consulted proposals detail business conduct and consumer access measures to limit potential consumer harm. It also stipulates minimum technology and cyber risk management requirements for DPT service providers.
With regard to business conduct, MAS will issue guidance for DPT service providers to implement these measures:
- identify, mitigate and clearly disclose potential and actual conflicts of interest;
- publish policies, procedures and criteria that govern the listing of a DPT; and
- establish effective policies and procedures to handle customer complaints and resolve disputes.
With regard to consumer access measures, DPT service providers should discourage speculation by retail customers by:
- determining a customer’s risk awareness to access DPT services;
- not offering any incentives to trade in cryptocurrencies;
- not providing financing, margin or leverage transactions;
- not accepting locally issued credit card payments; and
- limiting the value of cryptocurrencies in determining a customer’s net worth.
In the area of technology and cyber risk, MAS will require DPT service providers to maintain high availability and recoverability of their critical systems, in line with current requirements imposed on financial institutions.
MAS’ regulatory measures on DPT services will be implemented through regulations and guidelines, which will take effect in phases from mid-2024. [23 Nov 2023]
#DPT #Crypto #CyberRisk
RBI Deputy Governor: Changing paradigms in the financial landscape
The Reserve Bank of India (RBI) has published the remarks by its Deputy Governor, Swaminathan Janakiraman, at the FIBAC 2023 Conference. Mr Janakiraman discussed prudent risk management practices and the need for the traditional banking business model to adapt to an evolving marketplace. In this regard, he highlighted a number of aspects where changes are expected in the next decade or so:
- banks will have to transition from a sectoral approach to an ecosystem approach as the era of banks being the exclusive providers of banking services comes to an end;
- the banking future will be ‘hyper-personalised’, with banking services increasingly embedded in other products and services;
- the current form may give way to customer preference-based verticals, that a move to targeting of segments and the provision of products and services which are demanded by those customers; and
- the traditional break-up of assets and liabilities could undergo drastic changes, transforming bank balance sheets as the economy and technology progress. [23 Nov 2023]
BSP: Support for WR Bill
The BSP has announced, following a conference hosted by itself and the International Finance Corporation (IFC), that there is support for the immediate passage of the Warehouse Receipts (WR) Financing Bill. The WR Bill aims to strengthen and modernise the Warehouse Receipts Law of 1912 by establishing a central electronic registry where goods and products can be deposited in exchange for a warehouse receipt that can easily be traded, bartered or sold in order to obtain credit.
In addition to discussing the legislative process for the WR Bill, the conference attendees exchanged knowledge on WR finance practice in developed markets, the needs and digitalisation of the agriculture sector, and the next steps for the country’s lenders and policymakers to move forward with WR finance. [20 Nov 2023]
NY Fed brief: Fintech and unsecured consumer lending
The Federal Reserve Bank of New York’s (NY Fed) Community Development team has released a research brief: “The Role of Fintech in Unsecured Consumer Lending to Low- and Moderate-Income Individuals.” The brief reports that 22.7m American borrowers had an outstanding unsecured personal loan at the end of Q2 2023, with loans from fintech firms a significant driver of new unsecured loans. Most borrowers used unsecured personal loans from fintech lenders to consolidate debt, the authors found. The brief analyzes 2017 through 2023 data from TransUnion to explore how the market for unsecured consumer loans has grown and how alternative data and underwriting have been key drivers of this growth. [21 Nov 2023]
SEC charges crypto companies for operating as an unregistered securities exchange, broker, dealer, and clearing agency
The SEC has charged two companies with operating a crypto trading platform as an unregistered securities exchange, broker, dealer, and clearing agency since at least September 2018. The SEC’s complaint, filed in federal district court in San Francisco, alleges violation of the registration provisions of the Securities Exchange Act of 1934 and seeks injunctive relief, conduct-based injunctions, disgorgement of ill-gotten gains plus interest, and penalties. In February of this year, the companies agreed to cease offering or selling securities through crypto asset staking services or staking programs and to pay a civil penalty of $30 million. [20 Nov 2023]