Global Regulator & Central Bank News Roundup
Volume 36/2023 (September 18 – September 24)
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
- Cyber & operational resilience
- Conduct & consumer protection
- Fintech & ecosystem innovation
- Payments & currency
- Other transversal themes
- Leadership changes
Prudential & financial stability
FSB Initiates Consultation on Toolbox for the Resolution of Central Counterparties
The Financial Stability Board (FSB) has launched a consultation on plans for a range of new financial resources and tools to support the resolution of central counterparties (CCPs). The report puts forward a proposal for a toolbox approach as a global standard for CCP financial resources and tools for resolution. Under this approach, home resolution authorities for systemically important CCPs should have access to a combination of complementary resolution-specific resources and tools to meet the objectives for financial resources to support CCPs in resolution, complementing their recovery resources and tools. To that end, the report presents a qualitative analysis of seven specific resources and tools for resolution, namely: (i) bail-in bonds; (ii) resolution funds; (iii) resolution-specific insurance; (iv) resolution-specific third-party contractual support; (v) resolution cash calls; (vi) statutory or contractual variation margin gains haircutting; and (vii) equity in a first-loss position. Feedback to the consultation can be provided until 20 November 2023. A summary of the consultation document can be accessed here.
MAS Releases Framework for Designating Domestic Systemically Important Insurers
The Monetary Authority of Singapore (MAS) has published a new framework for designating domestic systemically important insurers (D-SIIs). The new framework, which is set to come into force on 1 January 2024 and is aligned with the International Association of Insurance Supervisors’ Holistic Framework for Systemic Risk in the Insurance Sector and the and the Financial Stability Board’s Key Attributes of Effective Resolution Regimes for Financial Institutions, is intended to facilitate the annual impact assessment of insurers based on their size, interconnectedness, substitutability and complexity. Policy measures that apply to insurers deemed domestic systemically important include a 25% capital add-on and elevated requirements for recovery and resolution planning. As part of the framework’s release, the Authority has announced the designation of four insurers as D-SIIs. These include: AIA Singapore Private Limited, Income Insurance Limited, Prudential Assurance Company Singapore (Pte) Limited, and The Great Eastern Life Assurance Company Limited.
Cyber & operational resilience
EIOPA Initiates Comprehensive Survey to Assess SMEs’ Access to and Understanding of Cyber Insurance Policies
The European Insurance and Occupational Pensions Authority (EIOPA) has initiated a new survey focused on the availability and adoption of cyber insurance policies among Small and Medium Enterprises (SMEs). The primary objective of the survey is to investigate the prevailing hurdles encountered by small businesses in managing cyber risks and to assess the level of access to cyber insurance. The survey will seek insights into the size and nature of the SMEs, their cyber risk awareness, the availability and comprehension of cyber insurance offerings, as well as the experiences relating to cyber insurance, including whether they have considered purchasing a policy, the factors that influenced their decision (not) to purchase coverage, and the potential barriers to acces. The survey is open until 20 March 2024.
SAMA Initiates Cyber Anti-Fraud Program, Partners with International Entities for Global Best Practices Alignment
The Saudi Arabian Monetary Authority (SAMA) has introduced the initial iteration of its Cyber Anti-Fraud Program (CAFP), a three-month initiative that seeks to equip a group of trainees from SAMA and local banks with comprehensive cyber fraud education and on-the-job training. In an effort align with global best practices, the CAFP has partnered with a prominent British university and other global entities common in the field of cyber fraud prevention and detection.
Conduct & consumer protection
Bank of Italy to Implement Mystery Shopping Pilot Initiative
The Bank of Italy has announced a forthcoming pilot initiative involving mystery shopping. Under this exercise, specifically trained employees will conduct undercover visits to bank branches to assess real-life dealings between customers and financial intermediaries. The objective of this exercise is to enhance the Bank of Italy’s supervisory approach. The findings gathered through these visits may impact supervisory measures, although they will not themselves trigger sanction proceedings.
OSC Relaunches GetSmarterAboutMoney.ca, Features AI Tools and Enhanced Accessibility for Smart Investment Decisions
The Ontario Securities Commission (OSC) has relaunched its investor education website, GetSmarterAboutMoney.ca. The comprehensive upgrades includes advanced technology such as AI-powered content recommendations based on users’ reading history, a text-to-voice article reader to facilitate easy content consumption, an on-site voice search, new features to enhance accessibility, as well as several notable design improvements. Furthermore, the revamped website has also incorporated behavioral insights based on OSC and other international research to aid better decision making for individuals during the investment journey.
Fintech & ecosystem innovation
Hong Kong Insurance Authority and HKSTP Launch Open API Framework and Central Register, Aiming to Drive Insurtech Innovation and Foster Global Competitivenes
The Hong Kong Insurance Authority (IA) has introduced an Open Application Programming Interface (API) framework and a Central Register in collaboration with The Hong Kong Science and Technology Parks Corporation. In the face of the growing acceptance of Open APIs and their role in enhancing system interfaces and promoting data exchange, the open-source framework has been developed to direct participants in their Open API implementation journey. The framework covers, among other things, guidance on the adoption of Open API functions, third-party service provider (TSP) governance, risk management, and innovative use cases. The Central Register, co-developed with HKSTP, is designed to support Open API implementation by authorized insurers, licensed insurance intermediaries, and their TSP partners in introducing and managing their Open APIs and associated API data to the public. Among other things, the IA seeks to foster cross-sectoral collaboration and Insurtech development with the new framework.
Bank of France Selects Three Winners in Generative AI Call for Solutions, Plans to Enhance Operations with Winning Projects
In a new statement, the Bank of France has announced that it has concluded its call for contributions on generative AI. The Bank, through its Open Innovation center, the Lab, sought contributions on generative AI to discover beneficial use cases for its operations. The call drew significant interest, with the Bank receiving 25 applications, which were assessed by a jury of experts from the Bank. From the pool of applicants, three were announced as winners: Giskard, Illuin Technology, and Stellia. Giskard offers a quality control solution ensuring the optimal performance of Large Language Models (LLMs) in generative AI. Illuin Technology specializes in deploying LLMs through its robust multi-modal generative AI platform, nAIxt, which handles text, voice, images, and documents. Stellia provides a responsible generative AI assistant aimed at enhancing access to knowledge and skills for learners and business collaborators. The winning projects will be incorporated into Bank of France’s work plan on generative AI.
CFPB Releases New Guidelines for Lenders Utilizing AI, Stresses Need for Specific Reasons in Credit Denials
The Consumer Financial Protection Bureau (CFPB) has released new guidelines mandating lenders utilizing artificial intelligence (AI) and advanced algorithms in credit underwriting to offer clear and accurate explanations for credit denials to consumers. This directive enhances the legal provisions in the Equal Credit Opportunity Act, emphasizing that creditors can’t solely rely on CFPB sample adverse action forms if they don’t truly represent the grounds for credit refusals or modifications in credit conditions. The advent of AI in lending decisions has expanded the data considered, necessitating clarity on the various potential reasons for credit denial. The CFPB insists that creditors need to furnish precise reasons for credit rejections, as there are no exclusive allowances for AI-based decisions. The agency highlighted that vague or overly generalized explanations, such as broad categorizations of consumer behavior, are inadequate. This clarification follows the previous year’s circular that required detailed disclosure of adverse actions and asserted that compliance isn’t met by merely choosing the nearest reasons from sample checklists if they don’t genuinely reflect the actual reasons behind the decisions. This is crucial for protecting consumers from potential illegal discrimination and improving their future credit chances by understanding the specific rationale behind credit denials, even those rooted in complex, black-box credit models.
New York DFS Unveils Enhanced Virtual Currency Oversight Measures Under Transformational Initiative Led by Superintendent Adrienne A. Harris
New York State Department of Financial Services (DFS) Superintendent Adrienne A. Harris has announced key advancements in the ongoing VOLT initiative, aimed at bolstering the Department’s role in virtual currency oversight. This includes the introduction of proposed guidance for coin-listing and delisting procedures updated guidance on the framework for designating coins or tokens to the DFS Greenlist. The expanded guidance seeks to clarify the DFS’ expectations for coin listing and delisting policies by elevating standards for DFS-regulated entities’ risk assessment for coin-listing policies and tailoring requirements for retail consumer-facing businesses as well as by requiring entities to develop and submit to the DFS for approval a coin-delisting policy that is compliant with the requirements set out in the new guidance. The guidance furthermore introduces an update to the DFS Greenlist, i.e. the list of coins and tokens approved for all licensees to list or custody, and the associated Greenlist process. Feedback to the guidance can be provided until October 20, 2023.
U.S. Committee on Banking, Housing, and Urban Affairs Holds Hearing on Artificial Intelligence in Financial Services
The U.S. Committee on Banking, Housing, and Urban Affairs has conducted a hearing on “Artificial Intelligence (AI) in Financial Services” with a view to examining the risks and opportunities associated with the application of AI by financial institutions and the potential implications for consumers. The hearing was chaired by Senator Sherrod Brown and included as witnesses Ms. Melissa Koide, Director and CEO, FinRegLab, former Deputy Assistant Secretary for Consumer Policy, U.S. Department of the Treasury; Mr. Daniel Gorfine, Founder & CEO, Gattaca Horizons, LLC, Adjunct Professor of Law, Georgetown University, former Chief Innovation Officer, Commodity Futures Trading Commission; and Professor Michael Wellman, University of Michigan, Computer Science & Engineering. In his introductory remarks, Senator Brown advocated for robust policies and safeguards to underpin the application of AI, stressing that “Without guardrails and consumer protections, AI could just be a new tool for Wall Street and Silicon Valley to swindle Americans out of their savings, trap them in debt, and strip them of their financial security.” Gorfine, as part of his testimony, supported the need for balancing innovation with appropriate regulation and put forward several principles and recommendations inter alia the recommendation for greater clarity and updates to existing model risk management and third-party risk management guidance in an AI context and the establishment of a federal data privacy and security framework. He further urged to avoid “hasty and speculative” regulation with the potential to undermine responsible AI innovation and suggested carefully monitoring AI developments, particularly those related to Gen AI, to inform policy considerations. Melisa Koide, on her part, called among other things for considering ways to facilitate greater engagement by smaller financial services providers, historically underserved communities and their advocates, civil society and academic organizations, and government agencies to support sustainable and fair adoption of ML/AI applications. The detailed testimonies can be accessed under the link.
Payments & currency
Central Bank Digital Currency’s Role in Promoting Financial Inclusion
The International Monetary Fund has released a new Fintech Note discussing the role of CBDCs in promoting financial inclusion. The authors argue that CBDCs, as a form of digital payments, can serve as an entry point to the broader formal financial system. To support this, CBCDs should be designed to offer cash-like properties such as wide accessibility, low or no transaction fees, privacy, as well as a high level of privacy protection and trust and security. Furthermore, CBDCs should be designed to support further access to other financial services such as savings, credit, and insurance. The proper design of CBDCs is, however, not sufficient. Given that the financially excluded are often digitally excluded, complementary policies addressing digital literacy, electricity infrastructure, mobile phone access, and digital identification are essential accompanying policy measures to support financial inclusion, the authors stress. In addition to these considerations, the Note also presents a step-by-step framework for assessing Central Bank Digital Currency’s (CBDC) potential for boosting financial inclusion in a specific country. Under the framework, the appropriateness of a CBDC for addressing financial inclusion in a specific country must be anchored in a thorough understanding of the country’s exclusion causes. Likewise, CBDC design should be country-specific and consider a wide range of dimensions including inter alia the regulatory environment, the legal framework, central bank credibility as well as technological readiness and infrastructure resiliency.
TNFD Publishes Final Recommendations for Nature-Related Risk Management and Disclosure
The Taskforce on Nature-related Financial Disclosures (TNFD) has released its final Recommendations after two years of open innovation process design and development. Developed by 40 Taskforce members representing over $20 trillion in assets, intend to steer global financial flows towards nature-positive outcomes, the Recommendations and the accompanying guidance offer a foundation for integrated assessment and corporate reporting related to nature, promoting better-informed decision-making by companies and capital providers. They furthermore align with the Task Force on Climate-related Financial Disclosures (TCFD), the International Sustainability Standards Board (ISSB), and the new European Sustainability Reporting Standards, providing a consistent, unified approach to nature-related guidance for reporting organizations across different jurisdictions. David Craig, Co-Chair of the TNFD, emphasized that the Recommendations offer businesses and financial institutions the essential tools to address their exposure to nature-related issues effectively, marking a significant advance in the capacity to identify, assess, and disclose such exposures cohesively with climate-related reporting.
UN Environment Programme Publishes New Paper Encouraging Policymakers to Overcome Political Barriers to Unlock $275 Trillion in Net-Zero Investment Opportunity
The United Nations Environment Programme Finance Initiative has published a new discussion paper in anticipation of the Net-Zero Asset Owner Alliance’s first Annual General Meeting (AGM). The paper, titled “Unlocking Investment in Net Zero,” calls for the elimination of the prevailing political hurdles preventing a move towards net-zero greenhouse gas emissions by 2050. It identifies significant economic potential in transitioning to a 1.5°C scenario, projecting up to $275 trillion worth of climate investment opportunities by 2050. At the same time, it warns of substantial risks if the transition is not achieved, including $4-6 trillion in annual GDP loss by 2050. The document notes that despite key decarbonisation technologies already being mature, cost-effective, and deployed on a large scale, a lack of investment in infrastructure, such as grid upgrades and public electric vehicle chargers, and inadequate regulatory frameworks are impeding the transition. Hence, the Alliance urges policymakers to remove these barriers, proposing solutions such as financial assistance to improve investment risk/return profiles, upgrade public infrastructure, increase sourcing capacity, and phase out government support for brown assets.
HKMA Invites Global Green Fintech Innovators to Compete for Fast-Track Development Opportunities in Climate Resilience Initiative
The Hong Kong Monetary Authority (HKMA) has announced the launch of the Green Fintech Competition. The competition, which is open to green fintech firms located both in Hong Kong and worldwide, is directed at encouraging the adoption of eco-friendly technologies for the Hong Kong banking industry. Specifically, fintech firms are invited to suggest novel, market-ready solutions in relation to four themes: (1) Net-zero Transition or Transition Planning, (2) Climate Risk Management, (3) Green and Sustainable Finance, and (4) Sustainability or Climate-related Disclosure and Reporting. Interested firms can submit their solutions until 20 October. Among other things, winners of the competition will be given the opportunity to skip the initial stages of the Cyberport Incubation Program to facilitate the development of their green fintech solutions.
Eesti Pank and Omniva Launch Environmental Initiative to Recirculate One Million Copper Euro Coin
The Central Bank of Estonia, Eesti Pank, in collaboration with Omniva, has launched a campaign to collect one million coins. The aim of the campaign is to return more small copper euro coins into circulation, allowing to reduce their production and therefore to reduce the environmental footprint of cash. Copper coins collected in the campaign can be exchanged for euro notes and coins of higher value. The pilot program will run until end of 2023, whereby the exchange of the coins will be free of charge until 22 October 2023; thereafter, a service fee of 5% will apply.
U.S. Treasury Publishes Principles for Net-Zero Financing & Investment
The U.S. Department of the Treasury has released the Principles for Net-Zero Financing and Investment to emphasize optimal practices for private sector financial institutions committing to net-zero. The voluntary Principles aim to foster consistency and credibility in executing such commitments, while also addressing the economic and physical ramifications of climate change. The nine Principles focus on financial institutions’ scope 3 financed and facilitated greenhouse gas (GHG) emissions, which are commonly the largest type of emissions for financial institutions. They define a financial institution’s net-zero commitment (commitment) as “declaration of intent to work toward the reduction of greenhouse gas emissions” and, among other things, call on financial institutions to establish credible metrics and targets and endeavor, over time, for all relevant financing, investment, and advisory services, to assess client and portfolio company alignment to their targets as well as to align engagement practices with clients, portfolio companies, and other stakeholders to their commitments. Alongside the Principles, philanthropic organizations have pledged $340 million to aid research, enhance data availability, and provide technical resources to help institutions formulate and implement robust net-zero commitments and facilitate transition planning in non-financial sectors.
Other transversal themes
FSB Releases 2023 Work Programme, Prioritizing Global Financial Stability Amid Unforeseen Challenges
The Financial Stability Board (FSB) has published its work programme for 2023, laying out the planned work and indicative timeframes for key publications this year. With a focus on global and cross-sectoral financial stability, the priorities for 2023 include strengthening global cooperation in financial stability, bolstering the resilience of non-bank financial intermediations while preserving their benefits, enhancing cross-border payments, managing the risks and leveraging the benefits of digital innovation, ddressing financial risks arising from climate change as well as cyber and operational resilience. As part of the work programme, the FSB also shared its indicative timeline for key publications. Key publications set to be published during the remainder of the year include progress reports on the implementation of the cross-border payments roadmap and in achieving consistent climate-related financial disclosures, a thematic review on money market fund policy reform measures and the Board’s final report on strengthening financial institutions’ ability to manage third-party risks and outsourcing.
BIS Publishes Quarterly Review
The Bank for International Settlements (BIS) has released its latest Quarterly Review for September 2023. The latest edition includes several special features including deep dives into bank positions in FX swaps, an examination of international banks’ deposit funding, interest rate risk management by emerging economy as well as a primer on commercial paper and certificates of deposits.
Autumn 2023 ESA Risk Report Stresses Persistent Economic Uncertainty and Calls for Increased Vigilance
The European Supervisory Authorities (ESAs) have published their Autumn 2023 Joint Committee Report on risks and vulnerabilities in the EU financial system. The report highlights the continued high economic uncertainty, calling for extreme vigilance from all financial market participants in the face of the resulting financial stability risks. Specifically, amid the continued uncertainty, the ESAs call on national competent authorities, financial institutions, and market participants to implement several key policy actions including continuing to closely monitor and consider from a risk management perspective the impacts of significant increases in policy interest rates, sudden rises in risk premia, and inflation as well as to prepare for a potential further deterioration in asset quality. The latter should involve a particular focus on real estate lending, unsecured lending to consumers, assets that benefitted from support measures related to the pandemic, and assets of sectors that are particularly vulnerable to rising inflation as well as to volatile energy and commodity prices. The ESAs also stressed the need for market participants to strengthen interest rate and liquidity risk management, drawing on the lessons learned from the recent banking turmoil in the United States and Switzerland.
Canadian Securities Administrators Seek Public Comment on Proposed Expedited Shelf Prospectus Regime for Well-Known Seasoned Issuers in Canada
The Canadian Securities Administrators (CSA) has put forth for public comment the proposal for the introduction of an expedited shelf prospectus regime for well-known seasoned issuers (WKSIs) in Canada. The proposed regime is designed to streamline and facilitate efficient capital raising for WKSIs, thus reducing their regulatory burden. Under the regime, qualifying issuers would among other things benefit from omitting certain disclosure requirements in the base shelf prospectus and receipt effectiveness for a period of 37 months from the date of its deemed issuance, subject to the issuer reassessing its qualification to use the WKSI regime annually. The proposal is open to public comments until December 20, 2023.
WFE Announces Election of Seven New Board Members at 62nd General Assembly
The World Federation of Exchanges (WFE) has announced the election of seven new board members, including a new Chairman, Vice-Chairman, and Working Committee Chairman, during its 62nd General Assembly. The new appointments consist of Mr. Boon Chye Loh, CEO of Singapore Exchange as Chairman, Mr. Jos Dijsselhof, CEO of SIX Group as Vice-Chairman, and Mr. John McKenzie, CEO of TMX Group Limited as the Working Committee Chairman. The other new Directors include Mr. Greg Wojciechowski, President & CEO of Bermuda Stock Exchange, Mr. Edward Tilly, Chairman & CEO of Cboe Global Markets, Mr. Hiromi Yamaji, Group CEO of Japan Exchange Group, and Mr. Byungdoo Sohn, Chairman & CEO of Korea Exchange. The appointments hold a term of three years, except for the Chairman, Vice-Chairman, and Working Committee Chairman posts, which are for two years.