Follow us

In this regular post, we round-up FinTech-related financial services regulatory developments for the week ending 22 March 2024.




HMT policy paper: Approach to designation of critical third parties to the financial sector

HM Treasury (HMT) has published a policy paper setting out its approach to designating critical third parties (CTPs) to the UK financial services sector.  The paper outlines the end-to-end process from receipt of a recommendation from the financial regulators through to engagement with the third party supplier, the financial regulators, and other relevant organisations, followed by the consideration of evidence before a designation decision. It also explains how HMT will communicate a decision to third party suppliers and outlines the Designation Regulations process.

The paper also describes the process of de-designating a CTP. [21 Mar 2024]

#Outsourcing #CriticalThirdParties

FCA: 2024/25 Business Plan

The FCA has published its Business Plan for 2024/25, setting out its programme of work for the final year of its 3-year strategy to achieve better outcomes for consumers and markets. Among the specific issues that the FCA will prioritise are supporting firms to invest, innovate and expand through its innovation services; the FCA will also continuing to automate more of its analytics tools to help it detect and respond to consumer harms faster and it will also work with firms on the safe deployment of artificial intelligence (AI).

The plan highlights specific activities which the FCA plans to commence or continue in 2024/25.  Among these are:

  • increasing investment to support use of intelligence and data more effectively in financial crime work;
  • supporting industry work on T+1 settlement;
  • working with the Bank of England on the digital securities sandbox which will open to applications in 2024;
  • work with the Treasury to launch an intermittent trading platform (Private intermittent Share and Capital Exchange Service (PISCES)) by the end of 2024;
  • support the asset management industry on tokenisation;
  • delivering a proportionate market abuse regime for cryptoassets and for the PISCES facility;
  • assessing the impact of AI on UK markets to better understand risk and benefits, and continuing with the FCA's pro-innovation and technology-agnostic approach;
  • publishing the outcome of the call for input on potential competition impacts from the data asymmetry between Big Techs and firms in financial services;
  • collaborating with the Competition and Markets Authority (CMA) on the new pro-competition regime for digital markets;
  • working within the Digital Regulatory Cooperation Forum (DRCF) to drive greater cooperation on digital issues, including piloting an AI & Digital Hub;
  • working with the Office of Communications (OFCOM) to implement the Online Safety Act; and
  • monitoring cryptoasset firms' financial promotions; and
  • investing to advance 'regulatory work to transition open banking towards a safe, commercially sustainable and scalable model'.  [19 Mar 2024]

#T+1 #AI #Sandbox #DigitalSecurities #Crypto #Tokenisation #OpenBanking #BigTech

EP: ECON members agree new retail investor measures

MEPs on ECON have voted to adopt new rules on retail investor protection which cover, among other things, the provision of investment advice, comparability of financial products, and the activities of 'finfluencers'. ECON members noted that younger investors are 'likely to be more vulnerable to mis-selling online amplified by influencers or social media'. For this reason, the committee determined that firms which use 'finfluencers' should have written agreements with those individuals, and have their contact details and 'control over their activities'.  Additionally, ECON members decided that competent authorities in EU Member States should take measures to prevent the offer of unauthorised investment services, including with respect to cryptoassets.

The new rules will be implemented via changes to several directives. The texts, which constitute the EP's negotiating mandates, will be tabled for approval during the first plenary session in April. The file will be followed up by the new Parliament after the 6-9 June European elections. [21 Mar 2024]

#Crypto #Finfluencers

ESMA: Feedback to CfE on shortening the settlement cycle

ESMA has published the feedback received to its Call for Evidence (CfE) on shortening the settlement cycle. The feedback includes the following:

  • Many operational impacts beyond adaptations of post-trade processes are identified as resulting from a reduction of the securities settlement cycle in the EU.
  • Respondents identified a wide range of both potential costs and benefits of a shortened cycle, with some responses supporting a thorough impact assessment before deciding.
  • Respondents provided suggestions around how and when a shorter settlement cycle could be achieved, with a strong demand for a clear signal from the regulatory front at the start of the work and clear coordination between regulators and the industry.
  • Stakeholders made clear the need for a proactive approach to adapt their own processes to the transition to T+1 in other jurisdictions. Some responses warned about potential infringements due to the misalignment of the EU and North American settlement cycles.

In terms of next steps, ESMA will continue assessing the responses received, including the calls for regulatory guidance. ESMA aims at including lessons learnt from the North American move to T+1 as well as any further feedback received from stakeholders. ESMA intends to deliver its final assessment to the European Parliament (EP) and Council before 17 January 2025. [21 Mar 2024]


EBA: CfP on boundaries of banking regulation

The EBA has issued a Call for Papers (CfP) for its 2024 EBA Policy Research Workshop, which focuses on the boundaries of banking regulation. The event will discuss and explore policies that can ensure innovation in a context of competition and risk arbitrage, while ensuring financial stability. The EBA has set out a number of topics on which it would particularly welcome submissions, including on:

  • the interlinkage between non-supervised and supervised financial entities and the potential financial stability implications of failures of non-bank financial firms; and
  • the development of digital technologies, regulatory challenges and responses.

Submissions are requested by 5 July 2024. Contributors will be notified by mid-September 2024 whether they have been selected. [20 Mar 2024]


EP Research Service: AMLA briefing

The European Parliament (EP) Research Service has published an updated briefing on the progress of the legislation to establish the new EU anti-money-laundering authority (AMLA), first proposed in July 2021. The briefing explains: the existing EU AML framework; the current approach to supervision of AML in Member States; the preparation of the AMLA proposal; and (at a high level) the changes which will be introduced by the passage of the proposal. The briefing covers how the new AMLA legislation is expected to apply to cryptoassets and cryptoasset service providers (CASPs)

Following the February 2024 vote on the seat for AMLA, the legislation has been submitted to Plenary. The next steps will be the Plenary vote, followed by adoption of the legislation. [20 Mar 2024]


OJ: Regulation amending SEPA, Cross-Border Payments Regulation, SFD, and PSD2

Regulation (EU) 2024/886 amending the Single Euro Payments Area (SEPA) Regulation, Cross-Border Payments Regulation, the Settlement Finality Directive (SFD), and the revised Payment Services Directive (PSD2), as regards instant credit transfers in euro, has been published to the Official Journal of the EU (OJ).

This Regulation shall enter into force on the twentieth day following that of its publication in the OJ. Member States are required to adopt, publish and apply, by 9 April 2025, the laws, regulations and administrative provisions necessary to comply with Articles 3 and 4. [19 Mar 2024]


ECB: Creation of seven additional workstreams of the digital euro Rulebook Development Group

The ECB has announced that it has is establishing seven new workstreams to develop the digital euro rulebook and has issued calls for candidates for each, inviting leading experts in payments infrastructure and architecture, technical specifications and scheme management to apply. Each applicant will need to be nominated by a member of the Rulebook Development Group (RDG). Applications are invited for positions in the following workstreams:

  • minimum user experience (UX) standards;
  • certification and approval framework;
  • risk management workstream;
  • implementation specifications workstream, with four sub-workstreams focusing on: interactions between payment and acceptance solutions of individual and business users; interactions between individual users and their intermediaries; interactions between business users and their intermediaries; and interactions between Digital Euro Service Platform and intermediaries.

Candidates who meet the eligibility criteria detailed in the calls for applications should submit the requisite documents by 5 April 2024. [18 Mar 2024]

#CBDC #DigitalEuro

ECB article explores digital divide in payments

The ECB has published an article exploring whether there is a digital divide in payments and why cash remains important for many. By assessing payment patterns in the euro area using detailed survey data, the results presented in the article challenge two prevailing assumptions: first, it contests the idea that cash is only used by people who are less connected to the digital world, by illustrating high cash usage across people with access to digital payment tools; and, second, it revisits the notion that the digitalisation of payments is a uniform process, by showing that people with more limited access to digital payment tools have diverse sociodemographic profiles. [18 Mar 2024]


ASIC Commissioner's address on crypto and digital assets: policy, regulation and innovation

ASIC Commissioner Alan Kirkland addressed 'The Brief – Open Forum' as part of Blockchain APAC’s Policy Week. Key points of the address include:

  • ASIC seeks to promote the growth of responsible financial innovation by balancing its approach to enabling innovation with consumer protection and market integrity outcomes.
  • ASIC acknowledges the potential benefits of novel financial products and services, or new ways of offering existing products and services – as long as they are developed and distributed with appropriate regard for consumers, investors, and market integrity.
  • In ASIC’s view, regulation and enforcement help to foster trust – and trust is essential to every part of the financial system – crypto and decentralised finance included. [20 Mar 2024]

#Crypto #DeFi

Hong Kong
SFC's head of enforcement discusses enforcement strategies to combat financial crime

The SFC's Executive Director of Enforcement, Mr Christopher Wilson, delivered a speech at the ALB Pan Asian Regulatory and Anti-Corruption Compliance Summit 2024, discussing the SFC's enforcement strategies to combat financial crime and misconduct. Mr Wilson commented that financial crimes have grown in terms of both quantity and complexity.  In 2023, the SFC’s complaint team handled more than 400 fraud-related complaints, an increase of 60% from 2022.  Ramp and dump schemes have evolved through multiple iterations into highly organised and sophisticated cross-border operations.

  • As the methods and tools available to fraudsters are continuously upgraded with each new wave of technological disruption, the SFC must adapt its strategies to the new threats.  The SFC has adopted a robust data strategy, using data generated from trading activities and investigatory processes and data collected by its proprietary intelligence database.  It is also consolidating risk data across its divisions that cover major players in the Hong Kong securities market.  In addition, it is using artificial intelligence (AI) to monitor social media platforms and flag potential risk content, and to automate repetitive tasks so that staff can focus on developing strategies in higher-impact cases.
  • Investor engagement and education are crucial in preventing financial crimes.  The SFC's subsidiary, Investor and Financial Education Council, conducts annual retail investor studies to understand investors' mindset and habits.  The SFC has implemented measures and campaigns to reinforce information dissemination and investor education on virtual asset-related activities, as well as a TV drama to illustrate prevalent investment scams and other forms of market misconduct.
  • Collaboration with other regulatory authorities and law enforcement agencies is key to combating financial misconduct.  The SFC has executed joint operations and investigations with other local agencies and maintains effective enforcement cooperation with regulators in the Mainland as well as worldwide.
  • Mr Wilson also highlighted several significant enforcement actions taken by the SFC, including those involving insider dealing, corporate fraud, and sophisticated ramp and dump syndicates.  [19 Mar 2024]

#Crypto #VirtualAssets #SupTech #AI

HKMA head of enforcement and AML discusses risk-based regulation and initiatives for managing financial crime risk

The HKMA's Executive Director of Enforcement and AML, Ms Carmen Chu, delivered a speech at the ALB Pan Asian Regulatory and Anti-Corruption Compliance Summit 2024, discussing risk-based regulation and initiatives for managing financial crime risk.

  • The HKMA is committed to strengthening Hong Kong’s position as a global leader in relation to risk-based regulation and supervision.  It has implemented structural reforms in its approach to managing financial crime risk, which involve a stronger focus on effectiveness and outcomes, rather than a tick-box approach to compliance.
  • Delivering impactful reforms in financial crime risk management is dependent on executing the risk-based approach correctly.  The banking industry has historically found the risk-based approach challenging to execute.  A risk-based approach to anti-money laundering (AML) and counter-financing of terrorism should be premised on an up-to-date understanding of evolving risks, by making the best possible use of data.  The international standards on which the Hong Kong regime is based do not expect 'zero failure' in preventing, detecting or deterring possible abuse of bank accounts for money laundering or other financial crimes.  In addition to issuing guidance, the HKMA has engaged the industry through its on-site examinations, often focusing on effectiveness rather than technical compliance.
  • To further promote effective execution of the risk-based approach, the HKMA is currently preparing further practical guidance on how to apply such approach on politically exposed persons (PEPs), particularly around local PEPs and former PEPs.  It is working with an external consultant to make sure the new guidance is consistent with international standards and best practices.
  • In Hong Kong, the public and private sectors have been sharing information on cases through the Fraud and Money Laundering Intelligence Taskforce since 2017.   In January 2024, the HKMA launched a consultation on its proposal to allow authorised institutions to share information on customer accounts for the purposes of preventing and detecting financial crime (see our previous update).
  • Criminal syndicates are not bound by any rules, boundaries or borders or restricted to any one modus operandi.  They innovate and use technology to attack at scale anywhere and at any time.  While the HKMA has witnessed significant innovation, including regtech adoption under the eco-system approach, it is important to keep innovating in order to combat the evolving nature of financial crime.  Artificial intelligence (AI) can help detect fraud more quickly but at the same time may involve additional risks.  In the coming weeks, the HKMA will be providing AML-focused guidance around the use of AI to make sure the right guardrails are in place, which adds to its thematic guidance on banks’ transaction monitoring systems.
  • Looking forward, the initiatives to combat financial crime should stay true to the principles on which they were designed: Agile in addressing new threats; Manage risks and customer experience in a balanced manner; and Led by innovation and new capabilities.  [19 Mar 2024]

#SupTech #AI

SFC warns public of unlicensed purported VATP and suspicious websites impersonating a licensed corporation and engaging in virtual asset-related fraud

The SFC has issued warnings to the public on the following:

  • purported virtual asset trading platform (VATP) known as 'MEXC' which is actively promoting its services to Hong Kong investors.  It is not licensed by the SFC and has not applied to the SFC for a licence to operate a VATP in Hong Kong.
  • Suspicious websites operating under the name of 'KKR Global' and suspected virtual asset-related fraud.  The websites impersonate the SFC-licensed corporation, KKR Capital Markets Asia Limited, and are suspected of fraudulent activities involving virtual assets.  'KKR Global' also claimed to be headquartered in Hong Kong.  Victims stated that they were solicited via instant messaging apps to invest in cryptocurrency products on these websites.  They subsequently experienced difficulties in withdrawing funds from the websites, and were asked to pay exorbitant 'fees' to 'verify their wallets'.

The above entities and websites were posted on the SFC’s Suspicious Virtual Asset Trading Platforms Alert List on 15 and 19 March 2024.  While the suspicious websites are now inaccessible, the public should beware of other websites with similar domain names which may be continuously created.

The SFC warns investors to be wary of online investment scams as well as the risks of trading virtual assets on an unregulated VATP.  It reminds the public to make use of the list of licensed VATPs for up-to-date information on licensed entities and their official websites.  [15 & 19 Mar 2024]

#Crypto #VirtualAssets

MAS Assistant MD and CSO on shaping the future of investments

MAS has published the speech delivered by Ms Gillian Tan, Assistant Managing Director (MD), Development & International, and Chief Sustainability Officer (CSO), at the Alternatives Investment Management Association (AIMA) Singapore Annual Forum 2024. The speech highlighted three forces that are shaping the future of investments: the net zero transition; digitalisation; and generative artificial intelligence (Gen AI).

Ms Tan highlighted the following:

  • MAS is collaborating with the asset management industry through Project Guardian to pilot asset tokenisation initiatives using Singapore fund structures - pilots such as this are helpful as MAS seeks to 'enhance operational efficiency, lower costs and expand investor bases'.
  • MAS has launched the Global Layer One initiative which seeks to establish a foundational digital infrastructure across multiple distributed ledger technology (DLT) networks, to facilitate seamless cross-border transactions and enable tokenised assets to be traded across global liquidity pools within relevant regulatory requirements.
  • On Gen AI, it is imperative that asset managers be mindful of its risks, such as when used in complex investment and compliance tasks - AI hallucinations can result in inaccurate and misleading outcomes which could lead to poor investment decision-making.
  • If the training data used to create the Gen AI model is biased, this bias can potentially be amplified in the generated data, thereby increasing the risks of less-than-desirable compliance outcomes. MAS is working with the industry to study this further under Project MindForge which is developing a Gen AI risk framework for the financial sector.
  • MAS and the Institute of Banking and Finance Singapore (IBF) will jointly conduct a study to identify core Gen AI use cases. The study will also cover how Gen AI will be adopted and scaled in financial services, its corresponding impact on jobs and the skills required. This will inform how the financial sector workforce can be upskilled and reskilled to ensure that the industry can capitalise on the transformative potential of Gen AI while facilitating job transitions and new career pathways.  [20 Mar 2024]

#GenAI #Tokenisation #DLT

RBI: Financial literacy ideathon

The Reserve Bank of India (RBI) has announced that it is extending the deadline for its Financial Literacy Ideathon for post graduate students to 15 April 2024. The Financial Literacy Ideathon underscores the RBI's commitment to fostering financial literacy and innovation among young people. Students are encouraged to propose creative solutions to address financial literacy challenges.  [21 Mar 2024]


SEBI: Beta version of T+0 rolling settlement cycle

The Securities and Exchange Board of India (SEBI) has issued a circular regarding a new framework for the introduction of a beta version of T+0 rolling settlement cycle on an optional basis in the equity cash market for a limited set of 25 scrips and with a limited number of brokers. This would be in addition to the existing T+1 settlement cycle.  [21 Mar 2024]

#T+0 #T+1

BSP releases Manual of Regulations for Payment Systems

The Bangko Sentral ng Pilipinas (BSP) has released its first Manual of Regulations for Payment Systems (MORPS). The MORPS is a readily available reference for National Payment System (NPS) participants and the public on the rules and regulations governing the operations of the NPS, including the services, processes, procedures, and responsibilities of the participants.  [22 Mar 2024]


SEC: $21m civil penalty in crypto asset lending program case

The SEC has announced that a company agreed to a final judgment ordering it to pay a $21 million civil penalty and imposing a permanent injunction to settle charges that it engaged in the unregistered offer and sale of securities through a crypto asset lending program.

The SEC’s complaint charged the company with violating Sections 5(a) and 5(c) of the Securities Act of 1933. The complaint alleged that, in November 2022, the company announced that it would not allow investors to withdraw their crypto assets because it lacked sufficient liquid assets to meet withdrawal requests following volatility in the crypto asset market. Subsequently, the company and two affiliates filed voluntary Chapter 11 petitions in a U.S. bankruptcy court, and investors have been unable to access or withdraw the crypto assets they invested with the company.  [19 Mar 2024]


SEC charges two investment advisers with making false and misleading statements about AI

The SEC has announced settled charges against two investment advisers for making false and misleading statements about their purported use of artificial intelligence (AI). The firms agreed to settle the SEC’s charges and pay $400,000 in total civil penalties. According to the SEC’s orders, the firms made false and leading statements including in SEC filings, press release, website, and social media. For example, one firm allegedly claimed that it, 'put[s] collective data to work to make our artificial intelligence smarter so it can predict which companies and trends are about to make it big and invest in them before everyone else'. The other firm allegedly falsely misrepresented that its platform provided '[e]xpert AI-driven forecasts'.

SEC Chair Gary Gensler commented: '[the SEC has] seen time and again that when new technologies come along, they can create buzz from investors as well as false claims by those purporting to use those new technologies. Investment advisers should not mislead the public by saying they are using an AI model when they are not. Such AI washing hurts investors.'  [18 Mar 2024]



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