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In this regular update, we round-up FinTech-related regulatory developments for the week ending 5 February 2021.



FCA multi-firm review on implementing technology change

The FCA has published its multi-firm review titled 'Implementing Technology Change', which sets out the findings from its review into how firms manage technology change, the impact of change failures, and industry practices to help reduce the impact of incidents resulting from change management. In particular, the review highlighted the following:

  • firms with well-established governance arrangements have a higher change success rate;
  • relying on high levels of legacy technology is linked to more failed and emergency changes;
  • firms that allocated a higher proportion of their technology budget to change experienced fewer change-related incidents;
  • frequent releases and agile delivery can help firms to reduce the likelihood and impact of change-related incidents; and
  • effective risk management is an important component of effective change management capabilities.

The review contributes to discussions surrounding Operational Resilience, and is intended to influence firms' implementation of technology change in ways that reduce the potential for operational disruption. [5 Feb 2021]






PSR consultation on delivery and regulation of NPA

The Payment Systems Regulator (PSR) has published a consultation setting out the options for reducing risks to the successful delivery of the New Payments Architecture (NPA) for the clearing and settlement of most interbank payments. The decisions that the PSR will make following the consultation will have implications for Specific Directions (SDs) 2 and 3.

Feedback to questions 1 to 6 (and other comments on risks to delivery of the NPA and options for reducing these) is requested by 19 March 2021, while feedback to questions 7 to 14 (and other comments on competition and pricing) is requested by 5 May 2021. The PSR has also published the feedback received in response to its related Call for Input (CfI). [5 Feb 2021]



FCA secures interim restitution order against five individuals

The FCA has announced that it has secured an interim restitution order of over £676,000 against five of the seven defendants accused of carrying on unauthorised deposit taking by accepting money for projects including foreign exchange (forex) trading and cryptoassets without FCA authorisation. The court has also made declarations that the fundraising involved unauthorised deposit taking and ordered permanent injunctions against the five defendants.

The proceedings against the other two defendants continue. [3 Feb 2021]




House of Commons (Treasury): Answer to written question on AI

HM Treasury (HMT) has responded to a written question asking the Chancellor of the Exchequer, what recent assessment he has made of the ability of the financial regulatory framework to respond to the effect of artificial intelligence (AI) on the trading of equities, bonds and derivatives.

The response references the Chancellor's November 2020 speech on the Future of Financial Services which sets out commitments to ensuring that innovative technology delivers better outcomes, and that the UK’s regulatory environment is ready to manage the implications of technological change. It also refers to the Bank of England (BoE) and FCA co-chaired the first AI Public Private Forum. [3 Feb 2021]

Covid-19: FCA announces virtual Women’s Economic Empowerment TechSprint

The FCA has updated its webpage on TechSprints to announce that it will hold a four-day virtual Women's Economic Empowerment TechSprint between 22 and 25 March 2021. The FCA encourages participants to consider four use cases in order to address issues faced by women who have been disproportionately affected by Covid-19.

The deadline for applications to the FCA's data workshops, which will be held during the week beginning 8 February, is 3 February. The deadline to register interest in the TechSprint and the supporting events is 15 February. There is also an option to participate in a team or as an observer in a related US sprint, led by the Alliance for Innovative Regulation, further information on which is available on the webpage.

The FCA has also updated its webpage to include a new section on the evolution of TechSprints. [1 Feb 2021]




Covid-19: ESMA Chair delivers keynote at conference on FinTech and Regulation

The European Securities and Markets Authority (ESMA) has published the speech delivered by Chair Steven Maijoor at the fifth Annual Conference on 'FinTech and Regulation: New Challenges and New Solutions', in which he covered topics including digitalisation, risks and opportunities, accelerating trends, and safe navigation. Mr Maijoor emphasised in particular that Covid-19 has accelerated the trend towards digital finance, and in light of this businesses must continue to reinvent themselves and authorities will need to coordinate their policy responses accordingly. [4 Feb 2021]



ECB Speech: Digitalisation disrupts traditional banking?

The European Central Bank (ECB) has published the remarks delivered by Pentti Hakkarainen, Member of the Supervisory Board, at the 5th Afore Conference. Mr Hakkarainen shared his thoughts on how modern technology can bring positive change to the financial industry in the coming decade. He concluded his speech saying that, 'Digitalisation is driving big changes across all sectors of the economy. Now is the time to embrace change and turn this into an opportunity to improve the banking industry'. [3 Feb 2020]



EU Commission: Request to ESAs for technical advice on digital finance

The EU Commission has published request to the European Supervisory Authorities (ESAs) for technical advice on: the regulation and supervision of more fragmented or non-integrated value chains; platforms and bundling of services; and risks of groups combining different activities. In addition, the EU Commission calls on the European Banking Authority (EBA) to provide advice on non-bank lending and on the protection of client funds and the articulation to the deposit guarantee scheme directive (DGSD).

The final report on the protection of client funds and the DGSD should be delivered by 31 October 2021; the final report on the value chains, platformisation, and mixed activity groups should be delivered by 31 January 2022; the final report on the non-bank lending should be delivered by 31 March 2022. [2 Feb 2021]





APRA releases its policy and supervision priorities for 2021

APRA has released its policy and supervision priorities for the coming year, flagging that one of its key focuses is to further enhance the resilience and crisis readiness of Australia’s financial system. APRA suspended much of its planned policy and supervision agenda in March 2020 in order to prioritise activities to respond to the impacts of Covid-19, however the agenda recommenced in late 2020 at the point when APRA and its regulated entities had sufficient capacity. APRA noted that delivering its proposed policy and supervision priorities for the coming 12 to 18 months will be achieved by working closely with peer regulators to deliver efficient, proportionate regulation that facilitates a resilient, competitive and innovative financial sector, able to support the recovery from the impacts of Covid-19. [1 Feb 2021]



Hong Kong

HKMA deputy chief executive delivers Hong Kong banking sector 2020 year-end review and priorities for 2021

The HKMA's Deputy Chief Executive, Mr Arthur Yuen, delivered a presentation on the HKMA's 2020 year-end review and priorities for 2021 for the Hong Kong banking sector.

In his 2020 review, Mr Yuen discussed the pandemic response (including support to the economy, lending capacity and operational resilience) and other supervisory actions (including customer protection, anti-money laundering and counter terrorist financing practices, and green and sustainable banking.

The HKMA's priorities for 2021 include:

  • credit risk management (including monitoring the asset quality trend closely and continuing to support the economy);
  • cyber and operational resilience (with a focus on strengthening cyber resilience through implementation of Cybersecurity Fortification Initiative 2.0);
  • digitalisation (focusing on remote customer on-boarding, non-face-to-face distribution, high-yield products and review of the Code of Banking Practice);
  • managing financial crime risk (including applying international standards in addressing online fraud and related risk and enhancing data and network analytics capability);
  • benchmark transition (with a focus on ensuring a smooth transition away from LIBOR);
  • Regtech and suptech development (including proof-of-concepts for suptech initiatives, virtual regtech conference, adoption index, regtech challenge, practice guidance and lab sessions)
  • promoting green and sustainable banking (focusing on capacity building, collaboration and ecosystem, and climate resilience).  [4 Feb 2021]





HKSCC issues reminder on maintaining system robustness for timely CNS settlement

The Hong Kong Securities Clearing Company Limited (HKSCC) has issued a circular to remind China Connect clearing participants and custodians on maintaining system robustness in order to ensure timely settlement for continuous net settlement (CNS) in accordance with the stipulated deadlines.  The HKSCC notes that the main reason for a number of recent China Connect CNS stock settlement failures has been system issues.

Participants and custodians are reminded to:

  • monitor their internal and/or vendor system health such as system capacity and resilience measures;
  • conduct thorough review or projection of system capacity to ensure that sufficient system buffer is available which is commensurate with their operations during a sudden market surge situation;
  • assess their resilience measures to ensure technical contingencies can be tackled in a timely manner;
  • pay attention to their client facilitation business operations as there have been isolated cases of client system hiccups that resulted in failures; and
  • remind their clients to ensure system robustness and stability.  [4 Feb 2021]
SFC cautions investors on trading volatility

The SFC has published a statement in in light of the recent extreme price volatility in some stocks and related options in overseas markets, to caution investors on the risks of trading highly volatile securities including overseas-listed stocks.

The SFC is in close dialogue with local and overseas regulatory counterparts about investor risks in volatile stocks and will not hesitate to take regulatory action if there is evidence that intermediaries are not acting in the best interests of their clients and the integrity of the market.

Investors should:

  • be aware that brokers may have rights under the terms and conditions of customer agreements to suspend trading services in some circumstances, including where overseas execution brokers have suspended service.  Under such circumstances, investors may not be able to open new positions or close out existing positions, which may result in unexpected losses within a short period.
  • carefully manage market risks arising in any volatile market.  Investors may be asked to meet immediate margin calls to cover their open positions and provide additional margin deposits or collateral, when brokers revise the margin levels for specific products within a very short period in order to properly manage their risk exposures and to meet settlement obligations to clearing houses or other execution brokers.  [3 Feb 2021]




MAS and SGX RegCo highlight risks related to trading incited by online discussions

The Monetary Authority of Singapore (MAS) and Singapore Exchange Regulation (SGX RegCo) have issued a press release which advises the investing public to be on heightened alert to the risks related to trading in securities incited by online discussion forums and social media chat groups. This follows SGX RegCo’s 10 December 2020 warning to the public of “pump and dump” activities exploiting social media channels. The advice reflects MAS' and SGX RegCo's observations of investor interest in Singapore in recent activities in US markets which suggest the possibility for similar speculative activities in the Singapore stock market.  [2 Feb 2021]




MAS replies to Parliamentary Question on the implications of consumer data monopoly by firms, data protection, and CBDCs

MAS has issued a written response to a Parliamentary Question which asked the following:

  • whether MAS has done any study to monitor the extent and implications of consumer data monopoly by firms;
  • how is the personal data of users of digital payments being protected when they use this payment mode; and
  • what has been the progress on the Central Digital Currency project and whether it will be an appropriate substitute for consumers who wish to preserve their privacy when paying digitally.

In response, MAS notes there are measures in place, such as the Personal Data Protection Act (PDPA), to ensure that the confidentiality of personal financial data is safeguarded.  In addition, firms, including payment service providers, must adhere to cyber hygiene requirements and meet standards on technology risk management, in order to protect personal data.

With regard to central bank digital currencies (CBDCs), MAS explained that it was assessing the case for a retail CBDC and monitoring digital currency developments. [1 Feb 2021]






SEBI announces revised framework for Innovation Sandbox

SEBI has issued a circular announced revisions to the framework for its Innovation Sandbox. The Innovation Sandbox reflects SEBI's focus on encouraging the adoption and usage of financial technology (FinTech); it facilitates access to an environment (testing facilities and test data) provided by organisation such as stock exchanges, depositories and qualified registrar and share transfer agents (QRTAs) for innovators to conduct tests in isolation from the live market.

The framework revisions aim to make Sandbox participation more convenient, and include changes to both the Innovation Sandbox's objectives and eligibility criteria. [2 Feb 2021]




Covid-19: FINRA Issues Investor Alert to Retail Investors and Publishes Study on Retail Investment

Following recent market volatility, FINRA has issued an investor alert on retail investing and social media, which includes tips and resources for retail investors to consider. FINRA’s Investor Education Foundation and NORC at the University of Chicago have also published a new study titled ‘Investing 2020: New Accounts and the People Who Opened Them’, which provides information on the surge in taxable, non-retirement account openings by investors during Covid-19. [29 Jan, 2 Feb 2021]




SEC and DoJ Charge Individuals with Fraud in Relation to Digital Asset Securities Offerings

The SEC has announced that it has charged three individuals with defrauding retail investors out of more than $11 million through two fraudulent and unregistered digital asset securities offerings. The complaint, filed in the US District Court for the Eastern District of New York, charges two individuals with violating the antifraud and registration provisions of the federal securities laws, and a third individual with aiding and abetting the antifraud violations. The complaint seeks injunctive relief, disgorgement plus interest, penalties, and an officer-and-director bar against two of the individuals. In a parallel action, the US Attorney's Office for the Eastern District of New York and the Department of Justice’s (DoJ’s) Fraud Section have announced criminal charges against one of the individuals. [1 Feb 2021]




CFTC: Statement by Acting Chair Behnam on Trading in Silver Markets

The Commodity Futures Trading Commission (CFTC) has published a statement by Acting Chair Rostin Behnam on recent trading in the silver markets, noting that the CFTC is monitoring the situation, particularly with regard to possible related fraud and manipulation. [1 Feb 2021]



SEC: Statements on Recent Market Volatility

On 27 January 2021, the SEC published a joint statement by Acting Chair Allison Herren Lee, Director of the Division of Examinations, Pete Driscoll, and Acting Director of the Division of Trading and Markets, Christian Sabella, in relation to recent market volatility. The statement noted that the SEC is aware of and actively monitoring the ongoing volatility.

On 29 January 2021, the SEC published a further statement by Ms Herren Lee and Commissioners Hester M Peirce, Elad L Roisman and Caroline A Crenshaw, noting, among other things, that the SEC will:

  • closely review actions taken by regulated entities that may disadvantage investors or otherwise unduly inhibit their ability to trade certain securities; and
  • act to protect retail investors when the facts demonstrate abusive or manipulative trading activity that is prohibited by the federal securities laws. [27, 29 Jan 2021]


FINRA: Upcoming Virtual Compliance Boot Camps 

FINRA is advertising its upcoming virtual compliance boot camps, which are one-hour interactive virtual classroom sessions on topics including cybersecurity and AML. The sessions – which focus on basic regulatory requirements and compliance responsibilities – are designed for compliance professionals who are new to the role or those looking to reinforce their understanding of regulatory requirements and compliance responsibilities. Information on upcoming sessions can be found on the webpage linked above. [28 Jan 2021]


Key contacts

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Nick Pantlin

Partner, Head of TMT & Digital UK & Europe, London

Nick Pantlin
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Alex Kay

Partner, London

Alex Kay