Global Regulator & Central Bank News Roundup
Volume 37/2023 (September 25 – October 1)

Your weekly summary of key regulatory updates in an objective bite-size format, drawing on official news and press releases from 400+ 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 AI-powered financial regulatory intelligence platform.

Cyber & operational risk

ESAs Issue Advice on Critical ICT Provider Regulations and Oversight Fees under Digital Operational Resilience Act and Conduct Inaugural Data Collection on ICT Third-Party Providers

The European Supervisory Authorities (ESAs) have jointly released a response to the European Commission’s request for advice on two delegated acts under the Digital Operational Resilience Act. The response includes proposals on further criticality criteria for third-party providers of information and communication technology (ICT) services, as well as suggestions for determining oversight fees for these providers. In relation to criticality criteria, the ESAs have suggested 11 quantitative and qualitative indicators for measuring the criticality of such providers and set out minimum relevance thresholds for quantitative indicators. In regard to oversight fees, the ESAs propose the determination of fee amounts, the mechanism for payment, covering the types of estimated expenses, the calculation basis, the available data for determining CTPP’s turnover (the basis of fee calculation), and the fee calculation method.

In addition to the regulatory response, the ESAs have also completed their first ever data collection exercise to map out third-party providers provisions of information and communication (ICT) services for financial institutions in the European Union. The data for this examination was collected from 300 organizations contracted with ICT TTPs across the entirety of the financial sector. Findings from the exercise indicate a presence of about 15,000 ICT TTPs serving financial sector entities in the EU, many of which support critical or important functions for their clients in various service domains – with most of such critical services being classified as non-substitutable by financial institutions. While still in the early stages, the report concludes that the data highlights the importance of unique identifiers in data and illustrates the need for the development of an appropriate ICT services taxonomy.

Conduct & consumer protection

European Commission and OECD Unveil Joint Financial Competence Framework to Foster Financial Literacy among Children and Youth
The European Commission, in collaboration with the Organisation for Economic Co-operation and Development (OECD), has released a joint financial competence framework for children and youth to enhance their financial literacy and decision-making skills. The goal of the framework is to create a common understanding among Member States and stakeholders of the essential financial literacy skills necessary for young individuals. With this shared understanding, the framework can serve as a foundation for the development of financial literacy policies, programs, and teaching resources by various stakeholders. Following the framework’s launch, the Commission and OECD will actively foster the application of the framework by national authorities and practitioners, as its efficacy depends on the widespread adoption and engagement of financial literacy initiatives. A launch event is scheduled in Brussels on 2 October.

Fintech & ecosystem innovation

WFE Recommends Six Regulatory Principles for Crypto Trading Platforms to Boost Market Trust and Stability
The World Federation of Exchanges (WFE) has issued six recommendations for improving crypto trading in a new report titled “Promoting Sound Marketplaces – DeFi/CeFi, Crypto Platforms & Exchanges”. The six principles highlight the importance of segregating market infrastructure functions within Crypto Trading Platforms (CTPs), operating orderly markets, holding sufficient financial resources, facilitating compliance with best execution requirements, increasing listing standards’ robustness, and insisting on appropriate governance and management requirements. In addition, CTPs are requested to clearly disclose their regulatory status and not market themselves as exchanges until they meet the recommended standards. The WFE believes that adherence to these principles will foster more stable and trustworthy markets as well as promote their growth.

BIS, MAS and Central Banks of France and Switzerland Achieve Success in Cross-Border Trading Test Using wCBDCs and DeFi Technologies in Project Mariana
The Bank for International Settlements (BIS) Innovation Hub, in collaboration with the Monetary Authority of Singapore (MAS), the Swiss National Bank (SNB) and the Bank of France, has released an interim report on Project Mariana. Project Mariana aimed to test the cross-border trading and settlement of wholesale central bank digital currencies (wCBDCs) using decentralized finance (DeFi) technology on a public blockchain. Key elements of the project included a common technical token standard to facilitate exchange and interoperability between different currencies, bridges for the seamless transfer of wCBDCs between various networks, and the use of an Automated Market Maker (AMM) for spot FX transaction trading and settlement. The success of Project Mariana suggests that these technologies could be adopted by the next generation of financial market infrastructures, helping to enhance cross-border trading and settlement efficiency. The MAS and its partners plan to continue exploring the benefits and challenges of tokenization and DeFi technologies based on relevant use cases as they are still nascent.

EBA Outlines Guidance on Significance Criteria and Supervisory Fees Under MiCAR
The European Banking Authority (EBA) has released a response to the European Commission’s (EC) request for guidance on two EC delegated acts relating to the significance determination criteria for asset-referenced tokens (ARTs) and electronic money tokens (EMTs) and fees chargeable to significant ARTs and EMTs issuers. As for the significance determination criteria, the EBA’s proposal includes a set of core and ancillary indicators for each significance criterion. These address aspects of interconnectedness, such as between ART and EMT issuers and the financial system or between the token and the financial system, as well as international scale. In relation to the supervisory fees, the EBA has suggested criteria for cost allocation among issuers to ensure full cost recovery for the EBA in the performance of its supervision activities including in relation to supervisory colleges and costs arising from the delegation of activities to national competent authorities.

Payments & currency

FSB Reveals Data Discrepancies Impacting Cross-Border Payment Improvements
The Financial Stability Board (FSB) has conducted a stocktake of international data standards relevant to cross-border payments. The stocktake, which is in response to a key action item under the G20 Cross-border Payments Roadmap, focuses on national and regional data frameworks relevant to the functioning, regulation, and oversight of cross-border payment systems. The objective of the project was to identify friction in data frameworks that challenge efforts to improve the cost, speed, transparency, and accessibility of cross-border payments. Specifically, the stocktake found that inconsistent obligations within different data frameworks and the flow of data restricted across borders impede advancements in the effectiveness of AML/CFT operations, fraud detection and prevention, compliance with regulations, and enterprise risk management.On the basis of the findings, the FSB is working towards a set of recommendations to foster alignment and interoperability across data frameworks by early 2024 and has invited case studies from stakeholders from industry, data privacy experts, financial regulators and data protection agencies to inform this process.

BIS Report Examines Retail CBDC Adoption Impact on Euro Area Monetary Policy and Bank Funding
The Bank for International Settlements (BIS) has published a report that investigates the potential impact of retail central bank digital currency (CBDC) adoption in the euro area on the implementation of monetary policy. The paper analyses the implications of the introduction of CBDC for the operational framework of monetary policy and for the macroeconomy as a whole and for that purpose presents a tractable New Keynesian model with heterogeneous banks, an interbank market, and central bank standing facilities, which is calibrated to fit the monetary and financial aggregates in the eurozone. Their analysis predicts that the introduction of a CBDC would lead to a similar reduction in bank deposit funding. However, this reduced funding would only have a minimal effect on bank lending, aggregate investment, and GDP. This is due to the parallel impact of the CBDC on the central bank’s operational framework. The authors suggest that for modest CBDC uptake, the reduced deposits would be offset by a corresponding decrease in reserves at the central bank, thus transitioning to a corridor system from the existing floor system. However, if the adoption is more pronounced, the loss in bank deposits is anticipated to be matched by an increased reliance on central bank credit, which necessitates a shift to a ceiling system given the scarcity of reserves.

ESG

MAS and McKinsey Propose the Use of High-Integrity Carbon Credits to Expedite Decommissioning of Asian Coal-Fired Power Plants
The Monetary Authority of Singapore (MAS) and McKinsey & Company have jointly released a working paper that suggests the use of high-integrity carbon credits as a supplementary financing instrument for facilitating the early retirement of coal-fired power plants (CFPPs). To that end, the paper proposes the generation of so-called “transition credits” that arise from the emissions reduced through retiring a CFPP early to bridge the economic gap that arises from retiring CFPPs early. By leveraging revenues from the sale of such credits, this approach improves the economic viability of such transactions while scaling the deployment of private capital in the low-carbon energy sector. The working paper specifies the conditions for generating and developing a high-quality market for such carbon credits. To facilitate the market implementation of this approach, MAS and McKinsey have further shared a detailed transaction template, alongside a call for interested parties to join a partnership to validate the transaction approach and identify potential pilot CFPPs. The two organizations aim to work closely with global partners – including, but not limited to, asset owners, financial institutions, carbon credit buyers, multilateral development banks, credit methodology developers, and international standard setters – to bring the solution to market.

Malaysia’s Joint Committee on Climate Change Holds 11th Meeting, Establishes New Working Groups and Announces Upcoming Journey to Zero Conference
The Joint Committee on Climate Change (JC3) of Malaysia has held its eleventh meeting. During the meeting, the committee established two new Working Groups on Physical Risk and Transition Risk to assist financial institutions in implementing the Policy Document on Climate Risk Management and Scenario Analysis (CRMSA) issued by Bank Negara Malaysia. Furthermore, the JC3 is working on standardizing reporting and minimizing challenges for financial institutions, such as improving consistency of the Climate Change and Principle-based Taxonomy (CCPT) reports and developing standardized minimum due diligence questionnaires. A Small and Medium Enterprise (SME) Focus Group has also been created to provide specialized guidance for SMEs, including enhancing awareness, facilitating green certifications of SMEs and supporting better disclosures. Additionally, the committee announced that it will be hosting the JC3 Journey to Zero Conference from 23 to 25 October 2023, open to all interested participants.

UAE Sustainable Finance Working Group Initiates Public Consultation for New Sustainability Disclosure Principles
The UAE Sustainable Finance Working Group – comprised of the Dubai Financial Services Authority (DFSA), in collaboration with the Central Bank of the UAE (CBUAE), the Securities and Commodities Authority (SCA), and the Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM) – has announced a public consultation on a new set of principles for sustainability disclosures. The proposed Principles for Sustainability-Related Disclosures (Disclosure Principles) comprise four minimum standards for the disclosure of sustainability-related information. The aim of these principles is to enhance transparency by providing investors and other stakeholders with reliable information to make informed decisions and to gain insights into the sustainability, resiliency, performance, risk exposures, and risk management strategies of reporting entities. The Disclosure Principles have been informed by ‘internationally accepted standards as well as industry best practices’. The authorities are seeking stakeholder feedback on the proposed principles until 20 October 2023, with the final Principles expected to be issued at the end of November.

FCA Announces Winners of GFIN Greenwashing TechSprint Showcase
The Financial Conduct Authority (FCA) has unveiled the winners of the inaugural Global Financial Innovation Network (GFIN) Greenwashing TechSprint event, a collaborative endeavor involving 13 firms and 15 international regulatory bodies, aimed at combating greenwashing in financial services. Focused on Environment, Social, and Governance (ESG) standards, this event, leveraging FCA’s Digital Sandbox, showcased innovative solutions with a focus on two problem statements. These included the question of how novel technology can enable regulators and supervisors to verify that ESG-related product claims to retail consumers are accurate and complete and how technology can help monitor, collate and identify cases of greenwashing from financial services firms’ websites, social media platforms and other documentation. Winning solutions included among other things an AI powered tool to detect potential greenwashing in the products of financial services companies by Impact Scope (Estonia), an internationally validated, standardised and taxonomised methodology by ICAG Partners (UK) that can be used to independently assess and verify all major green finance programmes across the globe against potential greenwashing riskand a solution by FiData (UK) using algorithms and web technology to identify and correct wrong or exaggerated impact statements and impact reports for green or sustainable bonds and loans.

FIN-FSA Unveils Thematic Review Highlighting Need for Improvement in Climate and Environmental Risk Management by Credit Institutions
The Finnish Financial Supervisory Authority (FIN-FSA) has released a thematic review on the management of climate and environmental risks by credit institutions. The review was conducted from May to September 2023 and examined the current state and development plans of seven credit institutions under FIN-FSA’s direct supervision. Guided by the European Central Bank (ECB) guide on climate and environmental risks, the review identified several areas for improvement, including materiality assessment, the integration of risks in the strategy process, governance and risk appetite, risk management, and disclosures. The review found that there was significant room for improvement in these areas as not all credit institutions had conducted a comprehensive and documented assessment of the materiality of climate and environmental risk, nor did they have a plan to develop risk management in these areas. The FIN-FSA expects the financial institutions to take immediate measures to address these gaps and outlines a series of steps they need to take to achieve this.

BMA Launches Consultation on Climate Change Risk Disclosure for Commercial Insurers
The Bermuda Monetary Authority (BMA) has released a new discussion paper on the “Disclosure of Climate Change Risks for Commercial Insurers,”. The discussion paper, which is aligned with the earlier work of the BMA in the area of climate risk,
including insights from climate change surveys, amendments to the Insurance Code of Conduct and the issuance of the Guidance Note entitled Management of Climate Risk for Commercial Insurers. explores the introduction of a climate disclosure framework aligning with the Task Force on Climate-related Financial Disclosures (TCFD)’s four pillars: governance, strategy, risk management, and metrics and targets, building upon its recent Climate Risk Guidance Note. Additionally, the paper seeks opinions on insurers’ annual public disclosure of climate risk exposure, mitigation, and monitoring activities, focusing predominantly on the financial impacts of climate risks and the ‘double materiality’ concept. The consultation period runs until 15 December 2023. On the basis of the feedback, the BMA has issued a consultation paper on the proposed climate risk disclosures for all commercial insurers using the proposed phased-in approach.

Other transversal themes

UNDP’s FC4S Network Unveils Gender Finance Charter in Partnership with UN Women to Bolster Gender Equality
The United Nations Development Programme’s (UNDP) Financial Centres for Sustainability (FC4S) Network has inaugurated a pioneering Gender Finance Charter. The announcement was made in Dublin on September 26, 2023, during its Annual General Meeting. The charter, supported by 21 financial centres, is committed to promoting gender equality in sustainable finance, with concrete actions set to unfold throughout 2024. Marcos Neto, Director of the UNDP Sustainable Finance Hub, accentuated the charter as a foundational instrument in the journey towards equitable and sustainable finance. The charter enlists ten core principles, acting as a practical framework, urging financial centres to embrace at least two principles through customized action plans in the coming year. The principles emphasize fostering gender equality, enhancing women’s access to finance, prioritizing transparency in gender performance, and advocating for the creation and acceptance of gender-responsive financial products and practices. In correlation with the charter, the UNDP’s FC4S Network, in collaboration with UN Women, is also developing a Gender Finance Booklet, a substantial resource providing essential tools and guidance for effective implementation of the charter’s principles. The progress and collective impact of endorsing financial centres will be evaluated through a comprehensive survey at the end of 2024 by UNDP’s FC4S Secretariat, and ongoing support will be provided to member entities for the adept implementation of the charter’s principles.

ESMA Publishes 2024 Work Programme
The European Securities and Markets Authority (ESMA), the EU’s financial market regulator and supervisor, has released its 2024 work programme. Critical focus points under the programme include inter alia the development of rules for sustainable finance as part of the new European Green Bond Regulation and delivery of its final report on greenwashing, the completion of technical standards for the European Single Access Point (ESAP) and the preparatory work for the requisite IT infrastructure, as well as the work on technical standards and guidelines under MiCAR and DORA and as an extension of these efforts will also focus on its supervisory readiness in this regard. Additionally, the ESMA will also provide its support in the finalization of the new Retail Investment Strategy. Beyond this, the ESMA will retain its focus on market and risk monitoring amid the continued challenging market and economic conditions.

FCA and PRA Introduce Proposals to Enhance Diversity, Inclusion, and Internal Governance in Financial Services Sector
The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have proposed new measures to increase diversity and inclusion within the financial services sector. The regulators assert that more diversity can lead to better internal governance, decision-making, and risk management. To support this, they aim to introduce new rules and guidance that clearly identify misconduct, such as bullying and sexual harassment, as threats to a healthy firm culture, thus enabling firms to take appropriate action against such behaviors. The proposals also call for diversity and inclusion strategies, the collection and public disclosure of data on certain characteristics, and targets to address under-representation. These requirements will apply mostly to larger firms. The FCA and PRA are welcoming feedback on the proposals until December 18, 2023, with final rules expected in 2024.