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In this weekly post, we round-up FinTech-related financial services regulatory developments for the week ending 11 August 2023.



US SEC moves against individual directors over SolarWinds nation state supply chain attack

A cautious approach: What does the EU-US adequacy decision actually mean for international data transfers?

Online safety in the dawn of immersive technologies and the metaverse (Australia)




IIF: Digital Asset Forum – Visions for Financial Infrastructure

The Institute of International Finance (IIF) has published a briefing note summarising its July Digital Asset Forum. Discussing visions for future digital financial infrastructure, participants in the forum emphasised the importance of a collective approach to building, operating and governing financial infrastructure, particularly through public-private collaboration, and noted a non-negotiable need for the robustness of any future infrastructure. [11 Aug 2023]

#Crypto #Infrastructure

BIS working paper: quantifying HFT dark pool latency arbitrage

The Bank for International Settlements (BIS) has published a working paper which investigates stale reference pricing and liquidity provision in dark pools using proprietary, participant-level regulatory data to identify the market participants that are most often responsible for latency arbitrage.

The study found that at least 4% of dark trading occurs at stale reference prices and that high-frequency trading firms (HFTs) almost always benefit from such stale prices, being on the profitable side of the trades between 96 and 99% of the time. The paper also examines the effectiveness of two market-design solutions that can address the negative consequences of speed races. [8 Aug 2023]

#Algos #HFT



HMT: Update on membership of the CBDC Engagement Forum

HM Treasury (HMT) has published updated information on the membership of the joint HMT / Bank of England (BoE) Engagement Forum for Central Bank Digital Currency (CBDC). With regard to the Engagement Forum and the recently announced new Academic Forum, the BoE is accepting applications for both groups; the closing date for applications is 3 September 2023. [10 Aug 2023]


PSR Annual Report 2022/23

HM Treasury (HMT) has published the Payment Systems Regulator (PSR) Annual Report and Accounts 2022/23, which summarises the PSR’s activities over the year 2022 to 2023.  The PSR has also issued a press release to accompany the report, highlighting that it had met all of the commitments made in its 2023/23 annual plan, including: examining developments in the cryptoassets market and being an active member of the Crypto Assets Taskforce; working with the CBDC Taskforce to explore the implications a CBDC may have for the payments landscape; progressing the New Payments Architecture (NPA); and working with the FCA and other members of the Joint Regulatory Oversight Committee (JROC) on advancing open banking. [8 Aug 2023]

#CBDC #Crypto #OpenFinance #Payments

HMT consultation response: Payments Regulation and the Systemic Perimeter

HMT has published the Government's response to its 2022 call for evidence and consultation on reforms to the Bank of England’s (BoE's) and Payment Systems Regulator’s (PSR's) respective regulatory frameworks for the payments sector. The response summarises the feedback received to the call for evidence and outlines the Government’s overall approach to enabling the proposed reforms through primary legislation when future parliamentary time allows.

The paper also provides updates in relation to (i) the Government’s commitment to enable rulemaking and direction-making powers for the FCA and the PSR over their aspects of retained EU payments law; and (ii) the remit of the Senior Managers & Certification Regime (SMCR) in relation to payments, noting the Government’s ongoing wider review of the Regime. [7 Aug 2023]




EC: Open finance framework – enabling data sharing and third party access in the financial sector

The European Commission (EC) has updated the deadline for providing feedback on the adopted open finance proposal to 6 October 2023. [11 Aug 2023]

#Open Finance

EBA: Report on mystery shopping exercise for personal loans and payment accounts

The EBA has published a report on its recent mystery shopping exercise into personal loans and payment account. The EBA coordinated the mystery shopping exercise in 2023 involving five national competent authorities (NCAs). The exercise focused on the pre-contractual phase of obtaining personal loans and, in some jurisdictions, payment accounts, including those with basic features. In the conclusion to the report, the EBA highlights a number of actions which NCAs may consider as a follow-up to the exercise, including addressing the lack of information provided to consumers using digital channels.  [8 Aug 2023]



Hong Kong

SFC issues warning statement regarding improper practices by unlicensed VATPs

The SFC has issued a statement regarding improper practices by unlicensed virtual asset trading platforms (VATPs), warning VATPs of the potential legal and regulatory consequences of such practices and reminding investors to be wary of the risks.

  • Some unlicensed VATPs claim to have submitted licence applications to the SFC when they have not in fact done so.  It is an offence under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance for any person to make a fraudulent or reckless misrepresentation such as this for the purpose of inducing another person to trade in virtual assets. The SFC will take into account any such misrepresentation should the relevant VATP eventually submit a licence application.
  • Some unlicensed VATPs, anticipating the transitional arrangements under the new VATP licensing regime, set up new entities to provide virtual asset services in Hong Kong. They have also publicly announced their intention to apply for licences for these new entities. However, the services and products offered by some of these new entities may not be in compliance with the legal and regulatory requirements under the new regime.
  • Some unlicensed VATPs continue to launch new services under existing entities that may not comply with the applicable legal and regulatory requirements, such as trading services in virtual asset derivatives, or arrangements involving virtual assets such as virtual asset “deposits”, “savings” or “earnings”.

Established entities providing virtual asset services that are subject to the new VATP licensing regime should apply for SFC licences or they should proceed to close their business in Hong Kong.  Conducting unlicensed activities in Hong Kong is a criminal offence.

The SFC, in considering a VATP licence application, will take into account any past non-compliant activities and whether they could have reasonably been avoided.  It will also consider whether licence applicants can demonstrate a genuine intention to rectify non-compliant activities, including gradually unwinding impermissible transactions in an orderly manner.

Separately, the SFC reminds investors to take account of the risks of trading virtual assets on unregulated VATPs.  When the SFC approves a VATP to provide services to retail investors, it will update the list of virtual asset trading platforms on its website.  [7 Aug 2023]




MAS commits up to S$150m for technology and innovation in financial sector

The Monetary Authority of Singapore (MAS) has announced that it will commit up to S$150 million over three years under the renewed Financial Sector Technology and Innovation Scheme (FSTI 3.0). FSTI 3.0 seeks to accelerate and strengthen innovation by supporting projects that involve the use of cutting-edge technologies or with a regional nexus, while redoubling MAS’ commitment to promote a vibrant technology ecosystem for the financial sector.

FSTI 3.0 will continue to support advanced capability development and adoption in key areas such as Artificial Intelligence and Data Analytics (AIDA), and Regulation Technology (RegTech). Specifically, MAS will focus on promoting AIDA adoption in smaller financial firms and supporting the needs of less digitally mature firms looking to acquire RegTech solutions. Across tracks, applicants will also be required to devote resources to talent development in order to strengthen the Singaporean fintech talent pool.  [7 Aug 2023]

#FinTechInvestment #AIDA #RegTech



RBI: Statement on developmental and regulatory policies

The Reserve Bank of India (RBI) has published a statement setting out various developmental and regulatory policy measures relating to (i) financial markets; (ii) regulation and supervision; (iii) payment systems; and (iv) fintech.

With regard to payment systems, the statement sets out the RBI's intention to launch an innovative payment mode - Conversational Payments - on the unified payments interface (UPI), that will enable users to engage in a conversation with an AI-powered system to initiate and complete transactions in a safe and secure environment.

In relation to offline payments in UPI, the RBI plans to promote use of 'UPI-lite' (an on-device wallet launched in September 2022 to speed up small value transactions on the UPI) by facilitating off-line transactions using near field communication (NFC) technology.

On credit, the RBI Innovation Hub is developing a digital Public Tech Platform to enable delivery of frictionless credit by facilitating seamless flow of required digital information to lenders. The end-to-end digital platform will have an open architecture, open Application Programming Interfaces (APIs) and standards, to which all financial sector players can connect seamlessly in a ‘plug and play’ model. The Platform is intended to be rolled out as a pilot project in a calibrated fashion, both in terms of access to information providers and use cases. [10 Aug 2023]

#UPI #AI #API #Wallets #PublicTechPlatform



Federal Reserve outlines program to supervise novel activities at banks it oversees

The Federal Reserve Board (FRB) has provided additional information on its program to supervise novel activities in the banks it oversees. Novel activities include complex, technology-driven partnerships with non-banks to provide banking services to customers; and activities that involve crypto-assets and distributed ledger or "blockchain" technology. The announcement follows on from the FRB's January 2023 policy statement on ensuring a level playing field for banks with a federal supervisor regardless of deposit insurance status.

The FRB explains that the goal of this supervision program is to foster the benefits of financial innovation while recognizing and appropriately addressing risks to ensure the safety and soundness of the banking system. The program will be integrated into the FRB's existing supervisory processes, with program experts working alongside current supervisory teams to oversee banks engaged in novel activities.

The FRB also provided additional information on the process for a state bank supervised by the FRB to follow before engaging in certain dollar token or stablecoin activity, including demonstrating to its FRB supervisors that it has appropriate safeguards to conduct the activity safely and soundly.  [8 Aug 2023]

#Crypto #Blockchain

DOJ: Hacker and wife plead guilty to money laundering conspiracy involving billions in cryptocurrency

The Department of Justice (DOJ) has announced that a married couple from New York City pleaded guilty to money laundering conspiracies arising from the hack and theft of approximately 120,000 bitcoin from a global cryptocurrency exchange.

The defendants were arrested in February 2022 after the government seized approximately 95,000 of those stolen bitcoin from cryptocurrency wallets in the defendants’ control. At the time of the seizure, the recovered funds were valued at approximately $3.6 billion. Since their arrests, the government has seized another approximately $475 million tied to the hack.

According to court documents, one defendant used a number of advanced hacking tools and techniques to gain access to the exchange’s network. Once inside their systems, the defendant fraudulently authorized more than 2,000 transactions in which 119,754 bitcoin was transferred from the exchange to a cryptocurrency wallet in the defendant’s control. The defendant then took steps to cover his tracks by going back into the exchange’s network and deleting access credentials and other log files that may have given him away to law enforcement. Following the hack, the defendant enlisted the help of his wife in laundering the stolen funds. [3 Aug 2023]

#CryptoWallets #Bitcoin


Karen Anderson photo

Karen Anderson

Consultant, London

Karen Anderson
Cat Dankos photo

Cat Dankos

Regulatory Consultant, London

Cat Dankos

Key contacts

Karen Anderson photo

Karen Anderson

Consultant, London

Karen Anderson
Cat Dankos photo

Cat Dankos

Regulatory Consultant, London

Cat Dankos
Karen Anderson Cat Dankos