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In this regular post, we round-up FinTech-related financial services regulatory developments for the week ending 15 March 2024.




BIS: Insights from Markets Committee on FX

The Bank for International Settlements (BIS) has published the insights from a Markets Committee workshop in which foreign exchange (FX) markets and lessons for FX interventions were discussed. Among other things, the insights included an overview of structural developments, including:

  • The 'electronification' of the FX derivatives market is expected to increase: While dealers are increasingly pricing and executing with clients electronically, they are still hedging in the inter-dealer market by voice due to various challenges such as credit limits and collateral use.  Market participants expect these markets to become automated as technology improves. FX options trading is also becoming more automated.
  • New peer-to-peer FX trading platforms: These match buy- and sell-side clients directly. Their use is a small, but growing part of the market.
  • 'Unification' of algorithmic platforms: Rather than having different algorithms and platforms for asset classes, dealers are consolidating these into unified platforms.  [14 Mar 2024]

#Algos #Electronification

BIS: Insights from FSI on regulating non-bank retail lenders in the digital era

The BIS has published an insights paper from the Financial Stability Institute (FSI) on regulating non-bank retail lenders in the digital era. The paper examines the regulatory requirements applied to non-bank financial intermediary (NBFI) retail lenders in 20 jurisdictions, including those that can accept deposits or their functional equivalent. To enhance prudential oversight, the paper proposes a holistic approach that includes:

  • developing a mix of broad-based and targeted policy measures aimed at NBFI retail lenders;
  • reviewing existing group-wide supervision frameworks to ensure they capture emerging financial and mixed activity groups that involve NBFI retail lenders; and
  • establishing suitable institutional arrangements to facilitate micro- and macroprudential supervision. [14 Mar 2024]



FCA Practitioner Panel responds to CP26/33 on CTPs

The FCA Practitioner Panel, one of the statutory panels, has responded to joint Bank of England (BoE) and FCA Consultation Paper 26/23 (CP26/23) on operational resilience and critical third parties (CTPs) to the UK financial sector. Overall, the panel expressed strong support for the proposals. Reflecting on the nature of the market and the UK regulators' new secondary competitiveness and growth objective, the panel has suggested adding ‘potential impact on the competitiveness of the UK’ to the proposed criteria which regulators will use to identify CTPs for recommended designation by HM Treasury (HMT). [15 Mar 2024]

#CTPs #Outsourcing

CMA: Annual Plan 2024 - 2025

The Competition and Markets Authority (CMA) has published its final Annual Plan. The Annual Plan updates the CMA’s near-term areas of focus for the next 12 months, as it takes on new responsibilities under the Digital Markets, Competition and Consumers Bill (expected to receive Royal Assent in April 2024). For 2024 to 2025, the CMA’s areas of focus include, among others:

  • enabling innovating businesses to access digital markets such as cloud services, e-commerce, and digital advertising;
  • encouraging effective competition and consumer protection in emergent markets, including the development and deployment of artificial intelligence (AI) foundation models;
  • acting in existing and emergent markets for sustainable products and services, including through broadening its green claims work, encouraging competitive markets for climate technology, and implementing its Green Agreements Guidance; and
  • identifying and acting in areas where it can influence the pro-competitive development of markets and have the most positive impact on innovation, growth and productivity, and promoting resilience through competition. [14 Mar 2024]

 #AI #GreenTech #Cloud

HMT: Draft SI – The Payment Services (Amendment) Regulations 2024

HM Treasury (HMT) has published the near-final version of its draft statutory instrument (SI) – The Payment Services (Amendment) Regulations 2024.

When made, the SI will amend the Payment Services Regulations 2017 to allow payment service providers (PSPs) to delay the execution of an outbound payment transaction by up to four business days from the time the order is received; such a delay is currently not permitted in legislation. The delay will be permissible only where there are reasonable grounds to suspect a payment order from a payer has been placed subsequent to fraud or dishonesty perpetrated by someone else (excluding the payer) and those grounds are established by no later than the end of the next business day following receipt of the payment order. The delay may also only be used where the payer’s PSP requires further time to contact the customer or a third party, such as law enforcement, to establish whether to execute the payment.

Comments on the draft SI are requested by 12 April 2024. HM Government (HMG) intends to lay this legislation before Parliament in Summer 2024. [12 Mar 2024]


FCA updates position on cryptoasset ETNs for professional investors

The FCA has updated its position on cryptoasset Exchange Traded Notes (ETNs) for professional investors. It will not object to requests from Recognised Investment Exchanges (RIEs) to create a UK listed market segment for cryptoasset-backed ETNs (cETNs). These products would be available for professional investors, such as investment firms and credit institutions authorised or regulated to operate in financial markets only.The FCA reiterates its position that cETNs and crypto derivatives are ill-suited for retail consumers; as a result, the ban on the sale of these to retail consumers remains in place. [11 Mar 2024]


HMT consults on improving the effectiveness of the MLRs 

HMT has issued a consultation on improving the effectiveness of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). The consultation forms part of a wider programme of work aimed at reducing money laundering, which was set out in the Economic Crime Plan 2023-26. The consultation covers four core themes:

  • making customer due diligence more proportionate and effective;
  • strengthening system coordination;
  • providing clarity on scope of the MLRs; and
  • reforming registration requirements for the Trust Registration Service.

Chapter 3 covers scope and registration issues, including the scope of the 'fit and proper' registration regime for cryptoasset service providers (CASPs) which requires clarification following HMG's recent response to the consultation on the future regime for cryptoassets. The chapter includes a comparison exercise looking at the MLRs provisions and those set out in the Financial Services and Markets Act (FSMA) regarding authorisation/registration and change in control.

Responses are requested by 9 June 2024. Once the consultation has closed, HM Government (HMG) will consider all responses and, in due course, publish a response outlining the next steps, including draft legislation if appropriate.

In parallel with this consultation, HMT is running a survey on the cost of compliance with the MLRs.  Responses to this survey are also requested by 9 June 2024. [11 Mar 2024]

#Crypto #MLRs


ESMA: Q&A on SVPs within the ECSPR

ESMA has published a Q&A regarding when an entity should be considered a special purpose vehicle (SPV) within the meaning of point (q) of Article 2(1) of the European Crowdfunding Service Providers Regulation (ECSPR). ESMA explains that when an entity (i) created for the purpose or used for the purpose of the transaction (i.e. financing of the project) and (ii) separated from the project owner, is (iii) interposed between the crowdfunding project and investors and (iv) this entity receives, directly or indirectly, from the project owner a transfer of legal title or beneficial interest over the crowdfunding project, this entity should be regarded as a SPV within the meaning of point (q) of Article 2(1) of the ECSPR. [15 Mar 2024]


ESMA: Q&A on authorisation and supervision of CSPs

ESMA has published a Q&A regarding the proofs of own funds that existing undertakings can provide to the relevant authorising authority when applying for the authorisation as a crowdfunding service provider (CSP).  ESMA notes that documentation should be provided showing how the applicant calculated the amount of the prudential safeguards in accordance with Article 11 of the ECSPR, and an 'audited account statement or public register certifying the amount of own funds of the applicant'. ESMA is of the view that, for the purpose of the authorisation as CSP of an existing entity, when a public register is not available and when full annual financial statements of the existing entity are not audited, the relevant authorising authority may accept a certification made by an independent auditor, of the existence and full availability of the own funds based on the accounts provided by the applicant. [15 Mar 2024]


EP adopts ADR and ODR proposals

The European Parliament (EP) has adopted its first reading position on the alternative dispute resolution (ADR) proposal, which allow consumers to, submit complaints against traders to entities offering independent, fast and affordable consumer redress. The updated rules aim to increase overall consumer awareness and encourage the participation of more businesses in out-of-court dispute solutions.

A second proposal on the discontinuation of the online dispute resolution (ODR) platform was also adopted. To avoid disrupting consumer services after the phase-out of the ODR platform, an interactive digital tool will continue to provide information on ADR procedures. [14 Mar 2024]

#ODR #DigitalADR

EBA: Final report – draft RTS under Article 31 of MiCAR

The European Banking Authority (EBA) has published a final report on draft Regulatory Technical Standards (RTS) to specify the requirements, templates and procedures for handling complaints received by issuers of asset reference tokens (ARTs), under Article 31 of the Markets in Cryptoassets Regulation (MiCAR).

In the final draft RTS, following feedback received in response to its earlier consultation, the EBA has made a small number of targeted amendments with the aim of providing greater clarity and further aligning the RTS with ESMA, in relation to requirements on languages, data protection and procedure for submitting an electronic complaint.

The RTS shall enter into force on the twentieth day following that of its publication in the Official Journal of the European Union (OJ). [13 Mar 2024]

#MiCAR #Crypto

EPC: Guidelines on cryptographic algorithms usage and key management

The European Payments Council (EPC) has published its annual update of its Guidelines on cryptographic algorithms usage and key management. The latest version of the Guidelines includes updates related to authenticated encryption, homomorphic encryption and an overall review of referred standards and algorithms.  [13 Mar 2024]

#Crypto #Algos

EPC consults on SRTP scheme rulebook change requests

The European Payments Council (EPC) has launched a consultation on the Single Euro Payments Area (SEPA) Request-to-Pay (SRTP) scheme rulebook change requests. Change requests form part of the SRTP established change management process to ensure that the scheme is able to develop with an evolving payments market. The consultation sets out 18 major change requests and one minor change request. Major changes propose to alter the substance of the rulebook and the scheme. Minor changes are usually technical in nature and facilitate the comprehension and use of the rulebook. Responses are requested by 9 June 2024. [12 Mar 2024]



ASIC: Federal Court finds company did not provide unlicensed financial services in relation to cryptoassets, as product was not a financial product

An ASIC media release reports that the Federal Court has found that Finder Wallet Pty Ltd did not provide unlicensed financial services in relation to cryptoasset-related product Finder Earn. ASIC alleged that the Finder Earn product was a debenture. This is because customers deposited money with Finder Wallet on the understanding that their money would be repaid, together with a return for allowing Finder Wallet to use their capital. The Court rejected this contention and found the product was not a debenture. ASIC has not yet indicated whether it plans to appeal. [14 Mar 2024]


Hong Kong

SFC warns public against unlicensed VATP

The SFC has issued a warning regarding an unlicensed virtual asset trading platform (VATP) known as Bybit, which offers trading services in various crypto-related products in a number of jurisdictions.

The SFC states that no entity in the Bybit group is licensed by or registered with it to conduct regulated activity in Hong Kong, and is concerned that the products have been offered to Hong Kong investors.

The SFC posted Bybit on the Suspicious Virtual Asset Trading Platforms Alert List and its crypto-related products on the Suspicious Investment Products Alert List on 14 March 2024.

Under the Securities and Futures Ordinance, crypto-related products may constitute 'futures contracts' or 'securities' and if so, dealing in and/or marketing these products (whether in Hong Kong or targeting Hong Kong investors) constitutes a regulated activity and requires an SFC licence unless an exemption applies.  It is a criminal offence to carry out regulated activities without a licence.  It is also an offence to issue advertisements, invitations or documents relating to the above products to the Hong Kong public without the SFC’s authorisation.  The SFC has indicated that it will not hesitate to take enforcement action against unlicensed activities where appropriate.  [14 Mar 2024]

#Crypto #VirtualAssets #VATP

HKMA launches Phase 2 of e-HKD Pilot Programme to delve deeper into selected pilots from Phase 1 and explore new uses cases

The HKMA has announced the launch of Phase 2 of the e-HKD Pilot Programme, with a view to further exploring innovative use cases for an e-HKD in Hong Kong.  The HKMA completed Phase 1 of the e-HKD Pilot Programme in October 2023 (see our previous update) which studied domestic retail use cases in various areas such as programmable payments, settlement of tokenised assets, and offline payments.  Phase 2 will delve deeper into select pilots from Phase 1, namely programmability, tokenisation and atomic settlement, as well as explore new use cases.

Phase 2 will utilise an enhanced e-HKD sandbox to accelerate the prototyping, development and testing of use cases by pilot participants, and facilitate the study of interoperability and interbank settlement between e-HKD and other forms of tokenised money.  The enhanced sandbox will leverage on the wholesale central bank digital currency (CBDC) sandbox to be built under Project Ensemble (see our previous update).

The outcomes and insights gained from both phases of the e-HKD Pilot Programme and the research by the CBDC Expert Group will facilitate the HKMA’s study on the possible implementation of an e-HKD.  The HKMA will also continue to engage local and international stakeholders regarding the latest development of CBDCs.

Organisations interested in participating in Phase 2 of the e-HKD Pilot Programme should submit their applications by 17 May 2024.  Further details about the application process are set out on the HKMA's dedicated webpage on CBDCs.  [14 Mar 2024]

#eHKD #Tokenisation #CBDC #Sandbox

HKMA launches stablecoin issuer sandbox arrangement

When the HKMA and the Financial Services and the Treasury Bureau (FSTB) jointly launched a public consultation in December 2023 on the legislative proposal to regulate issuers of stablecoins (see our previous update), they indicated that the HKMA would launch a stablecoin issuer sandbox arrangement.

The HKMA has now announced the launch of the sandbox arrangement, through which it aims to communicate its supervisory expectations to parties interested in issuing fiat-referenced stablecoins in Hong Kong, and allow participants to provide feedback on the proposed regulatory requirements.  The participants' proposed operations will be conducted in the sandbox within a limited scope in a risk-controlled environment.  To the extent appropriate, the HKMA will develop and promote good practices in key control areas (such as reserves management and stabilisation, governance, user protection, anti-money laundering and counter-financing of terrorism, and data transparency).

Details of the sandbox arrangement, including the objectives, factors for consideration in evaluating applications, application procedure, and other requirements, are set out in the annex to the press release.  An applicant should demonstrate:

  • A genuine interest in and a reasonable plan for issuing fiat-referenced stablecoins in Hong Kong;
  • A concrete plan for participation in the sandbox; and
  • A reasonable prospect of complying with the proposed regulatory requirements.

Participants are expected to comply with the terms and conditions of the sandbox.  In the event of non-compliance, the HKMA may terminate the participation.  The HKMA notes that successful admission as a sandbox participant does not imply that the institution is endorsed by it.  Sandbox participants that intend to apply for a licence are required to submit a separate application to the HKMA under the regulatory regime to be implemented.

A list of the participants of the sandbox arrangement will be published on the HKMA's dedicated webpage for stablecoin issuers.  [12 Mar 2024]

#Stablecoins #Crypto #Sandbox


SCM Chair discusses increasing pace of digitalisation

The Securities Commission Malaysia (SCM) has published the opening remarks delivered by its Chair, Dato’ Seri Dr. Awang Adek Hussin, at the SCxSC Views from the Top Digital Leaders Dialogue on Emerging Tech. The SCM highlights the following from the Chair's speech:

  • The COVID-19 pandemic served as a catalyst, accelerating the pace of digitalisation.
  • This has also given rise to new digital players, as well as forcing traditional incumbents to undergo transformation to stay relevant, and meet the demands of a rapidly evolving market.
  • Globally, the landscape of technology has evolved at an unprecedented pace, with blockchain and AI offering promises of reshaping the market and enhancing efficiency.
  • In view of deepening engagements with the industry and broader digital innovation ecosystem, the SCM will roll out various initiatives including the Innopolicy Roundtables, Pitch and Match sessions, and a fintech summit to further fintech development.
  • In recognising the importance of cybersecurity and technological risks, the SCM is also organising capacity building activities through its TechTrek programme.  [14 Mar 2024]

#Digitalisation #Blockchain #AI #Cyber


BSP directs banks to use the PhilID as valid IDs

The Bangko Sentral ng Pilipinas (BSP) has directed banks and other BSP-supervised financial institutions (BSFIs) to place the Philippine identification card (PhilID) at the top of the list of acceptable valid identifications.

The BSP said all BSFIs must adopt enhanced measures to ensure the broad acceptance of the PhilID, whether the physical card or the ePhilID, as a valid and sufficient proof of identity and age in all financial transactions, subject to authentication. BSFIs may use the PhilSys Check identity authentication tool to verify if the data stored in the QR code match the information printed on the face of the ID.  [13 Mar 2024]



FSOC announces AI and financial stability conference

The Financial Stability Oversight Council (FSOC) has announced that it will host a two-day conference on Artificial Intelligence (AI) and Financial Stability  in partnership with the Brookings Institution.  The conference is promoted as "an opportunity for the public and private sectors to convene to discuss potential systemic risks posed by AI in financial services, to explore the balance between encouraging innovation and mitigating risks, and to share insights on effective oversight of AI-related risks to financial stability."  The first day of the conference will be held at the U.S. Department of the Treasury on June 6, 2024, and the second day of the conference will be held at the Brookings Institution on June 7, 2024.  A live webcast of the conference will be available to the public.  [11 Mar 2024]

#AI #FinancialStability

Fed finalizes rule updates – Risk management requirements for FMUs

The Federal Reserve Board (Fed) has announced a final rule that updates risk management requirements for certain systemically important financial market utilities (FMUs) supervised by the Fed.  The final updates provide additional clarity and specificity to existing requirements in four key areas of operational risk management: incident management and notification; business continuity management and planning; third-party risk management; and review and testing of operational risk management measures. For example, the updates explicitly require FMUs to establish an incident management framework and emphasize the need for FMUs to continue to advance their cyber resilience capabilities.

FMUs subject to the rule must be in compliance with certain updates by 90 days and all updates by 180 days after publication in the Federal Register.  [8 Mar 2024]






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Cat Dankos

Regulatory Consultant, London

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Cat Dankos

Regulatory Consultant, London

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Rashid Ahmed

FSR & CCI Professional Support Paralegal, London

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FSR & CCI Professional Support Paralegal, London

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