Global Regulator & Central Bank News Roundup
Volume 35/2023 (September 11 – September 17)
Your weekly summary of key regulatory updates in an objective bite-size format, drawing on official news and press releases from 700+ financial services regulators, central banks as well as global and regional standard setters. For more current updates, visit Regxplora, Regxelerator’s end-to-end automated and generative AI-powered financial regulatory intelligence platform. Sign up here to receive the roundup via email.
Themes covered in this edition
- Prudential & financial stability
- Fintech & ecosystem innovation
- Payments & currency
- Other transversal themes
- Leadership changes
- Cross-border cooperation
Prudential & financial stability
GHOS Endorses Initiatives Based Following Recent Banking Turmoil
In a recent meeting on 11 September, the Group of Central Bank Governors and Heads of Supervision (GHOS) evaluated the repercussions and insights garnered from the banking turmoil that spanned from March to May 2023. This disturbance, marked as the most severe banking stress since the Great Financial Crisis, compelled a comprehensive review of the broader banking system’s resilience. Thanks to swift interventions by public authorities and the enhanced fortitude of the global banking system post-GFC, the turmoil’s fallout was mitigated. The GHOS has acknowledged and endorsed the Committee’s evaluation which highlighted three key lessons: (1) The primacy of banks’ risk management and governance as pillars of financial and operational resilience; (2) The necessity for proactive and competent supervisory measures to ensure banking institutions’ stability and safety; (3) The imperative for a cautious yet robust regulatory framework to uphold financial stability. In light of these findings, the GHOS have agreed to release the Committee’s comprehensive report to the public. Additionally, the GHOS have approved several subsequent measures aimed at strengthening supervisory efficiency and conducting in-depth empirical analyses of the Basel Framework’s performance during the turmoil.
Fintech & ecosystem
Singapore Regulatory Authority Bans Three Arrows Capital CEO Zhu Su and Chairman Kyle Livingston Davies for Nine Years Following Security Act Breaches
The Monetary Authority of Singapore (MAS) has announced the issuance of nine-year prohibition orders (POs) against Mr. Zhu Su, the Chief Executive Officer Three Arrows Capital Pte Ltd, and Mr. Kyle Livingston Davies, the Chairman, as a result of their involvement in several breaches of the Securities and Futures Act 2001 (SFA) and the Securities and Futures (Licensing and Conduct of Business) Regulations (SFR). The POs, which became effective from September 13, 2023, will preclude Mr. Zhu and Mr. Davies from engaging in any regulated activity and from participating in the management of, acting as a director, or becoming a significant shareholder in any capital market services organization under the SFA.The measures follow an earlier censure of Three Arrows Capital Pte Ltd by the MAS in June 2022, and a subsequent investigation. During the latest probe, MAS outlined additional wrongdoings by Three Arrows Capital Pte Ltd, which include failure to report the appointment of a representative in a timely manner, provision of false information to MAS, and absence of a suitable risk management framework to address the risks associated with its cryptocurrency and digital asset investments. Under their roles as directors, both Mr. Zhu and Mr. Davies were held accountable for these violations, signifying MAS’ commitment to ensuring the compliance of senior management with regulatory obligations.
Thai SEC and Nine Other Agencies Collaborate to Launch “Capital Market Datathon”, Encouraging Innovation Through Open Data Access
The Thai Securities and Exchange Commission (SEC) has partnered with nine agencies, including the Digital Government Development Agency, the Big Data Institute, the Association Artificial Intelligence of Thailand, and the Federation of Thai Capital Market Businesses, to create the “Capital Market Datathon” project. The initiative aims to fosterand expand the use of SEC Open Data. Competitors, including students and the general public, are welcome to participate and stand a chance to win prizes valued at over 390,000 baht. The project encompasses various educational activities to enable first-hand experience and is accepting applications until September 30th, 2023.
MFSA and Financial Intelligence Analysis Unit to Host MiCA Regulation Conference
The Malta Financial Services Authority (MFSA), in collaboration with the Financial Intelligence Analysis Unit, is hosting the Markets in Crypto-Assets (MiCA) Regulation conference. Scheduled for November 16, 2023, the event is intended to support collaboration and knowledge sharing among regulatory authorities, industry players and academics . The conference will discuss MiCA through the lens of include investor protection, supervisory convergence, and the influence on traditional financial services. In addition to several local and international speakers, it will feature a keynote address by Verena Ross, Chair of the European Securities and Markets Authority (ESMA).
Payments & currency
Bank of Israel Hosts International Conference Discussing Project Sela’s Innovations for Central Bank Digital Currency and New Payment Models
The Bank for International Settlements (BIS) has published the final research paper for Project Sela. Project Sela is a joint retail CBDC experiment by the BIS Innovation Hub Hong Kong Centre, the Bank of Israel (BoI) as well as the Hong Kong Monetary Authority (HKMA) that involves the review of technological solutions for an accessible, cyber-secure two-tier retail CBDC architecture that allows intermediaries to provide CBDCs to users without the related financial exposure. The Sela PoC introduced an rCBDC ecosystem where responsibilities related to rCBDC accounts are unbundled and redistributed among four groups of participants: (1) The central bank, which handles the issuance, redemption, and ledger operation for rCBDC transactions, provides semi-anonymous rCBDC accounts for users, and operates the real-time gross settlement (RTGS) system; (2) Funding institutions, responsible for managing users’ private money deposit accounts and ATMs, and overseeing the conversion between rCBDC, bank deposits, and cash; (3) Access enablers, a novel intermediary role, which manage customer-related rCBDC services such as onboarding, KYC and KYB checks, user system access, payment request routing, compliance duties, and enforcing rCBDC platform rules, all without “holding” end users’ rCBDC or needing to hold liquidity on its own balance sheet; and (4) end users which maintain control over their rCBDC funds via wallet apps on devices like smartphones, securing their assets using cryptographic private keys. Objectives of this ecosystem design was among other things to maximize access for end- users and service providers by reduing the barriers of entry for intermediaries as well as to preserve key attributes of cash including the absence of credit risk, wide accessibility and a high degree of privacy for end-users.
The research report summarizes details of Sela’s architecture with deep dives into each of the project’s workstreams: policy, legal, cyber and technology. It was launched at a dedicated conference hosted by the Bank of Israel in Tel Aviv, which gathered senior representatives from the participating central banks and the BIS Innovation Hub as well as select private sector participants. Besides the report launch and a demo of the major operations that can be performed in the experimental CBDC system, the conference featured insights on the BoI’s and the HKMA’s work on their respective CBDCs, the digital shekel and the e-HKD, as well as an overview of the CBDC efforts under the umbrella of the BIS Innovation Hub more broadly.
Central Bank of Brazil Advances CBDC Efforts with Drex Pilot Platform
The Central Bank of Brazil has published a progress update regarding its CBDC project Drex. Since launch of the test platform in March 2023 and the formal initiation of the Drex Pilot in July 2023 with the onboarding of 16 pilot participants, various types of retail and wholesale operations have been simulated, including creating wallets, issuing and destroying Drex, transfer operations between banks and customers. In total more than 500 operations have to date been completed successfully, the Central Bank noted in its latest statement. Most recently, on September 11, this included the simulation of the first issuance and subsequent buying and selling of federal public bonds via the platform. The first phase of the Drex Pilot is expected to be completed by mid-2024.
ISSB Announces 17-Member Transition Implementation Group For IFRS S1 And S2
The International Sustainability Standards Board (ISSB) has shared details of the 17 members of its Transition Implementation Group on IFRS S1 and IFRS S2. The members, who include 13 preparers, four assurance providers, and official observers, aim to aid in the implementation of the ISSB’s first two IFRS Sustainability Disclosure Standards, which were released on 26 June 2023. The Transition Implementation Group was formed to assist with the implementation of IFRS S1 and IFRS S2, aiming to offer stakeholders a platform to discuss implementation queries with the ISSB. These dialogues assist the ISSB in identifying necessary actions to tackle these questions, which may involve producing webinars, case studies, and related educational resources.
World Federation of Exchanges Releases New Guidance Note on its Global Green Equity Principles Framework for Consultation
The World Federation of Exchanges (WFE) has issued for consultation a new guidance note on its Green Equity Principles. The voluntary Principles, which were released in March this year, provide for a global framework that individual exchanges can use to establish a ‘green’ offering for listed equities with a view to enhancing the the flow of funding towards the financing of more sustainable economies. Specifically, the Principles define “green” criteria for equities including IPOs on the basis of a five pillar framework that considers: (1) The amoung of a company’s revenues/investments derived from green activities; (2) the use of a specified taxonomy to determine green revenues or investments, (3) governance, (4) annual assessment of compliance by issuers with the classification standards, and (5) disclosure around the processese and reviews related to the green clasification. Equities meeting the green criteria are awarded the “WFE Green Equity Classification”. The newly published guidance note supplements the Principles by providing practical recommendations for exchanges for their application, covering aspects such as designation of responsibilities, processes for classification including revocation, development of a classification mark, and criteria for assessing reviewers’ appropriateness. Feedback to the consultation can be provided until mid-January 2024.
CBUAE, BIS, EIF, and COP28 Presidency Launch Global TechSprint
Ahead of this year’s COP28 event hosted by the United Arab Emirates, the Central Bank of the UAE (CBUAE), the Bank for International Settlements (BIS), the Emirates Institute of Finance (EIF), and the COP28 Presidency have partnered to launch the COP28 UAE TechSprint. The global techsprint, which is aimed at at driving innovation to scale sustainable finance and combat climate change, calls for solutions to three problem statements. These include (1) artificial intelligence powered solution automate and increase adoption of standards in sustainable finance, (2) blockchain-enabled solutions to strengthen data integrity in sustainable finance by enhancing transparency, traceability, and accountability, and (3) solutions employing Internet-of-Things and sensor technologies to enhance data collection in sustainable finance with a view to improving accuracy and ensure informed assessments of impact, risk and compliance. The sprint is open for technology and financial innovators to participate. Shortlisted teams will receive a stipend and the opportunity to further develop their solutions. An independent panel of experts will select winners for each problem statement, who will receive an award at COP 28 in Dubai in December 2023.
Other transversal themes
IOSCO Publishes Reports on Private Finance and Leveraged Loan Risks
The IOSCO has published two new reports to address evolving market risks. Titled “Leveraged Loans and CLOs Good Practices for Consideration”, the first report covers the leveraged loan (LL) and collateralized loan obligation ((CLO) markets. Both markets have demonstrated resilience, with historically low default rates, especially during the Global Financial Crisis (GFC). Post-GFC, these markets have witnessed significant growth due to an expanding economy and persistent low interest rates and notable evolutions in relation to both the characteristics of the borrowers and in the investor base. This includes a shift towards borrowers from the technology and healthcare sectors, and an overall deterioration in the credit quality of corporate borrowers. The investor landscape has shifted from banks to non-banks, prominently CLOs. This transition has led to new market practices. The IOSCO’s report provides details on these market developments, examines potential market vulnerabilities and proposes twelve good practices grouped into five themes. The second report, “Thematic Analysis: Emerging Risks in Private Finance”, focuses on the risks and challenges for regulators and market participants in relation to private finance markets. Global private finance has witnessed robust growth, with assets under management (AUM) reaching $12.8 trillion USD by June 2022, experiencing an annualized growth of almost 18% since 2017. Additionally, there are shifts towards new sources of capital including via retail investors. These developments introduce new vulnerabilities, such as in relation to investor protection and market integrity as well as systemic risk, into an inherently highly opaque market. IOSCO’s report reviews these risks with a focus on private equity and private credit. Summaries of the reports can be accessed here and here.
BIS Bulletin Explores Impact of Russian Invasion on European Energy Markets’ Liquidity and Margins in 2022
The Bank for International Settlements (BIS) has released a new bulletin examining the impact of the Russian invasion of Ukraine in 2022 on the European futures markets for natural gas and electricity. Supported by extensive empirical analysis, the study provides a recap of the disruptions that energy markets experienced as a result of the event with a focus on the impact of margin adjustments on liquidity conditions and hedging activity. Notably, in the wake of the invasion commodity prices, specifically natural gas and electricity, experienced significant increases and volatility, with wholesale electricity prices increasing fourfold and the European benchmark price for natural gas surging to levels 10 times higher than the previous decade. This led to disruptions in European derivatives markets, with both variation margins (VM) and initial margins (IM) reaching extraordinarily high levels and intraday margin calls becoming customary, leading to significant liquidity demands on market participants. The resulting funding strains prompted the establishment of official liquidity facilities in several countries. The study also reviews how the how the shocks to initial margins caused material and persistent reductions in open interest. On the back of their analyses, the authors conclude that while margins are a key mitigant of CCP default and contributor to financial stability, fluctuations in margins can impact liquidity conditions for market participants and lead to margin spirals as well as have spillover effects on related financial markets such as money markets. To mitigate these risks, the authors recommend the application of anti-procyclical measures on initial margins and increased transparency in margin models as potential measures.
The Bank for International Settlements (BIS) has announced several key new appointments. Eddie Yue, Chief Executive of the Hong Kong Monetary Authority (HKMA), has been appointed Chair of the major emerging market economies’ Governors meeting, following the retirement of the previous Chair, BIS Deputy General Manager Luiz Awazu Pereira da Silva. The term for Perry Warjiyo, Governor of Bank Indonesia, as Chair of the Asian Consultative Council, has been extended for one more year, and Fabio Panetta, Executive Board Member of the European Central Bank and future Governor of the Bank of Italy, has been appointed as the successor to Sir Jon Cunliffe as Chair of the BIS Committee on Payments and Market Infrastructures (CPMI), commencing on 1 November 2023 for a three-year term.
The European Central Bank’s Governing Council has nominated Claudia Buch, the current Vice-President of the Deutsche Bundesbank, as the next Chair of the Supervisory Board. The nomination comes after an informal hearing of two shortlisted candidates in front of the European Parliament’s Committee on Economic and Monetary Affairs. The nomination will be examined by the European Parliament and subsequently confirmed by the Council of the European Union. Buch is expected to assume the role on January 1, 2024.
The Bank for International Settlements (BIS) and the Inter-American Development Bank (IDB) have entered into a partnership to advance innovation and financial inclusion in Latin America and the Caribbean. Under a recent memorandum, the two authorities will collaborate in researching technologies for the region’s financial market infrastructures, with a focus on creating scalable settlement solutions for the market. This undertaking is part of BIS’ Association of the Bank for International Settlements Innovation Hub’s Project FuSSE. The project, in its earliest stage, will develop a proof-of-concept for a modular settlement mechanism. All the software developed will be made available on an open-source basis to the global central bank community. The present phase will benefit from planned consultation with regional central banks. The new partnership will also cover joint cooperation on technical support and training on the emerging technologies for national and regional entities.
The innovation centers of the Bank of France and the Bank of Italy have signed a MoU to deepen their cooperation on initiatives in financial innovation. The MoU is intended to help foster innovation while addressing the challenges posed by technological advancements. Under the agreement, the authorities will undertake joint activities such as joint events and outreach activities as well as exchanges of expertise and personnel.