Follow us

In this regular post, we round-up FinTech-related financial services regulatory developments for the week ending 23 February 2024.



PSR: Letter to Pay.UK

The Payment Systems Regulator (PSR) has written a letter to Pay.UK setting out the approach that it will take when deciding whether to approve the Pay.UK monitoring proposals. This includes the use of a number of ‘confidence objectives’, whereby Pay.UK must demonstrate how the PSR can have confidence in Pay.UK's compliance with Specific Direction 19. In terms of next steps, Pay.UK is required to provide its proposals to the PSR by 5 April 2024. [23 Feb 2024]


Law Commission: CfE on digital assets in international law and consultation on digital assets as personal property

The Law Commission has launched a call for evidence (CfE) to inform its project on private international law in the context of digital assets and electronic trade documents (ETDs). The CfE aims to help the Law Commission gain a better understanding of the most challenging and prevalent issues that digitisation, the internet, and distributed ledger technologies pose for private international law.  There is a particular focus on crypto-tokens and ETDs as these assets are prevalent in market practice. They also pose novel theoretical challenges to the traditional methods of private international law.

Responses are requested by 16 May 2024.

Additionally, the Law Commission has launched a short consultation on draft legislation to confirm the existence of a third category of personal property into which crypto-tokens and other assets could fall.

Responses are requested by 22 March 2024. [22 Feb 2024]

#DigitalAssets #DLT #Crypto

FCA Chair discusses importance of global regulatory collaboration

The FCA has published a speech by its Chair, Ashley Alder, delivered at the UK Mission to the EU, on open markets and international cooperation between regulators.

Key takeaways from the speech include:

  • global cooperation amongst regulators is vital for cross-border risks;
  • the FCA’s three primary statutory objectives are fully aligned with an open markets philosophy;
  • the FCA is committed to finding consistent international responses to challenges that increasingly give rise to cross-border risks, including ESG, fintech and non-bank financial intermediation (NBFI); and
  • the 2023 UK-EU memorandum of understanding on regulatory cooperation on financial services will enable the FCA to deepen relationships with its EU counterparts as similar reforms are pursued. [21 Feb 2024]


TSC: HMG responds to Edinburgh Reforms report

The Treasury Committee (TSC) has published HM Government's (HMG's) response to its second report on the Edinburgh Reforms which questioned HMG's conclusion that 21 of the 31 reforms had been completed in the first 12 months.

In its response, HMG updated the TSC on four further areas of progress since the report’s publication. These include further steps to legislate for changes to the Digital Securities Sandbox Regulations and the publication of new rules for a UK consolidated tape for bonds by the FCA. [21 Feb 2024]



ECB: Letter from AMI-SeCo Chair to ESMA Chair regarding T+0, atomic settlement

The European Central Bank (ECB) has published a letter from Ulrich Bindseil, Chair of the Advisory Group on Market Infrastructures for Securities and Collateral (AMI-SeCo), to Verena Ross, European Securities and Markets Authority (ESMA) Chair, regarding the AMI-SeCo’s views on the potential impact of shortening the standard settlement cycle.

The main focus of the letter is the AMI-SeCo's view that migration to T+0 is not currently a plausible scenario across the whole environment in the foreseeable future. The letter explains that T+0 and, in particular, ‘atomic’ trade settlement could have a fundamental impact on the structure of the wider ecosystem of trading, clearing and settlement of financial markets.

However, AMI-SeCo does support analysing the business case in Europe of a potential shortening of the standard settlement cycle to T+1. [23 Feb 2024]


EC adopts delegated acts for DORA and MiCAR

The EC has announced that it has adopted two delegated acts under the Regulation on Operational Resilience (DORA) and four delegated acts under the Regulation on Markets in Crypto-Assets (MiCAR).

In terms of next steps, the EP and Council will scrutinise the delegated acts and have a period of three months to raise objections, which can be extended for another three months. The acts will start applying after the period elapses and no objection is raised. [23 Feb 2024]

#DORA #MiCAR #Cryptoassets

ECB blog comments on SEC bitcoin ETF approval

The European Central Bank (ECB) has published a blog discussing the approval of spot exchange-traded funds (ETFs) for bitcoin by the US Securities and Exchange Commission (SEC). The blog comments on the implications of the SEC's approval for confidence in bitcoin. [22 Feb 2024]


ECB: Supervision newsletter – February 2024

The ECB has published the latest edition of its supervision newsletter. This edition includes an article on the need to manage outsourcing risks and an article on information and communication technology (ICT) and security risks stemming from the digitalisation of banking services.  [21 Feb 2024]


EPC consults on VoP scheme rulebook

The European Payments Council (EPC) has published a consultation on its proposed verification of payee (VoP) scheme rulebook and its recommendations for the matching processes under the VoP scheme rulebook.

Responses to the consultation are requested by 19 May 2024. The EPC aims to have the formal version 1.0 of the VoP scheme rulebook, the related VoP scheme Inter-PSP application programming interface (API) specifications, and the EPC recommendations for the matching processes under the VoP scheme rulebook ready by the end of September 2024.

The 2024 VoP scheme rulebook would then enter into force in time to fulfil the EU Instant Payments Regulation (IPR) regulatory obligations, whose relevant deadline is currently foreseen for September or October 2025. [20 Feb 2024]


Hong Kong

Hong Kong green fintech map to be launched at 1 March 2024 event

The Secretary for Financial Services and the Treasury has indicated In a blog post that the green fintech map for Hong Kong will be launched on 1 March 2024, at an event organised by the Green and Sustainable Finance Cross-Agency Steering Group (co-chaired by the SFC and the HKMA) in conjunction with Cyberport and Invest Hong Kong.

The event is part of the Hong Kong Green Week, which is taking place from 26 February to 2 March 2024.  [23 Feb 2024]


HKMA issues guidance regarding provision of custodial services for digital assets

The HKMA has issued a circular to provide guidance to authorised institutions (AIs) on the provision of custodial services for digital assets to clients.

The HKMA considers it necessary to provide such guidance to ensure that client digital assets held by AIs in custody are adequately safeguarded and that the risks involved are properly managed.  The guidance takes into account international standards and practices, and incorporates flexibility for AIs to put in place operational arrangements that are commensurate with the nature, features and risks of the digital assets under custody.

AIs should apply these standards in safeguarding client digital assets, whether the assets are received in the course of conducting virtual asset related activities as an intermediary, distributing tokenised products, or providing standalone custodial services.  AIs are reminded to also comply with all the applicable legal and regulatory requirements when providing digital asset custodial services.

The guidance applies to AIs and subsidiaries of locally incorporated AIs that conduct digital asset custodial activities.

  • Those that intend to provide digital asset custodial services should discuss with the HKMA in advance and demonstrate that they meet the expected standards and requirements in the guidance.
  • Those that are already engaging in digital asset custodial activities should review and revise their systems and controls as necessary, and notify the HKMA and confirm that they meet the guidance within six months from 20 February 2024.

The areas covered by the guidance include:

  • Governance and risk management;
  • Segregation of client digital assets;
  • Safeguarding of client digital assets;
  • Delegation and outsourcing;
  • Disclosure to clients;
  • Record keeping and reconciliation of client digital assets;
  • Anti-money laundering and counter-financing of terrorism; and
  • Ongoing monitoring.  [20 Feb 2024]


HKMA sets out supervisory standards on sale and distribution of tokenised products

The HKMA has issued a circular to set out the supervisory standards expected of authorised institutions (AIs) in the sale and distribution of tokenised products to their customers.

This circular covers tokenised products, but does not apply to those regulated under the Securities and Futures Ordinance and governed by the relevant requirements issued by the SFC and the HKMA.    Before engaging in tokenised product-related activities, AIs should implement adequate policies, procedures, systems and controls to ensure compliance with the requirements under the circular and other applicable requirements, and discuss with the HKMA in advance.

As a general principle, the prevailing supervisory requirements and consumer/investor protection measures for the sale and distribution of a product are also applicable to its tokenised form, as it has terms, features and risks (other than any risks arising from tokenisation itself) similar to those of the underlying product.

While some tokenised products are essentially traditional products with a tokenisation wrapper, there could be situations where the nature, features and risks of a tokenised product are altered by how the product is structured and arranged in the tokenisation process.  AIs should therefore ensure that they evaluate and understand the terms, features and risks of each tokenised product, and should exercise professional judgment to ascertain the applicable legal and regulatory requirements.

The circular sets out specific consumer/investor protection measures in respect of due diligence, disclosure and risk management for tokenised products which the HKMA expects AIs to implement.  AIs that are also providing custodial services of tokenised products should meet the expected standards on digital asset custody as issued by the HKMA from time to time.  [20 Feb 2024]

#DigitalAssets #Tokenisation


OCC: Acting Comptroller discusses consolidated supervision of cryptoasset intermediaries at FSB working group

The Office of the Comptroller of the Currency (OCC) has published the remarks delivered by Acting Comptroller Michael J. Hsu to the Financial Stability Board’s (FSB's) Crypto Working Group. Mr. Hsu shared his perspective on the importance of coordination and collaboration on the supervision of global institutions, particularly regarding cryptoasset activities. He also discussed the relationship between crypto and tokenization.  [22 Feb 2024]

#Cryptoasset #Tokenisation

New 'FED Notes' staff paper: Potential implications of a U.S. CBDC

The Board of Governors of the Federal Reserve (FRB) has published a new article in its series 'FED Notes'. FEDS Notes are articles in which Fed staff offer their own views and present analysis on a range of topics in economics and finance.  The article analyses the increasing trend of central bank digital currencies (CBDCs) around the world and the potential implications if the U.S. were to develop such a system. The note highlights that the value of cross-border payments in 2022 around the world was an estimated $156 trillion – over five times the value of globally traded goods and services. However, cross-border payments are expensive and slow. Given the role of the U.S. dollar internationally, a U.S. CBDC might increase efficiency. The article proceeds to cover CBDC design and policy considerations, including access policy, interoperability, privacy standards and anti-money laundering (AML) policy, and account limits and remuneration.  It then moves on to factors outside the control of the U.S., including non-CBDC initiatives, private-sector developments, official sector developments, and other jurisdictions' CBDCs.

The note concludes that although a CBDC is unlikely to harm the international role of the dollar or worsen cross-border payments, the improvements that could come from a CBDC could also be realized by improvements to non-CBDC payment systems that are already underway.  However, it also acknowledges that depending on other CBDCs or stablecoins there is some potential for erosion of the dollar's role as a medium for exchange if the U.S. does not issue a CBDC or issues one with an unattractive design.  [16 Feb 2024]

#CBDC #Stablecoin



Cat Dankos photo

Cat Dankos

Regulatory Consultant, London

Cat Dankos

Key contacts

Cat Dankos photo

Cat Dankos

Regulatory Consultant, London

Cat Dankos
Rashid Ahmed photo

Rashid Ahmed

FSR & CCI Professional Support Paralegal, London

Vasuki Balasubramaniam photo

Vasuki Balasubramaniam

FSR & CCI Professional Support Paralegal, London

Cat Dankos