Global Regulator & Central Bank News Roundup
Volume 38/2023 (October 2 – October 8)

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.

Prudential and financial stability

BIS Releases Comprehensive Report on 2023 Systemic Banking Stress
The Bank for International Settlements (BIS) has published a report on the 2023 banking turmoil. The turmoil, which is considered to be the most significant systemic banking stress since the Global Financial Crisis (GFC), involved multiple bank failures and resulted in reduced confidence in the resilience of financial markets and banking systems in several jurisdictions. In response, several jurisdictions implemented extensive public support measures. The new report offers a deep dive into the turmoil. Across three sections, the report provides an overview of what happened and the actions that were taken, discusses the initial lessons learned and key takeaways for supervision as well as for regulation. In a related statement, the BIS noted that the Basel Committee is looking to implement a series of targeted measures in response to the experience of the turmoil. These include efforts to strengthen supervisory effectiveness and identify issues that could merit additional guidance at a global level as well asl follow-up analytical work based on empirical evidence to assess whether specific features of the Basel Framework performed as intended during the turmoil, such as liquidity risk and interest rate risk in the banking book, and on the back of this evaluating the need for policy changes over the medium-term.

European Systemic Risk Board Shares Key Conclusions from Latest General Board Meeting
The European Systemic Risk Board (ESRB) has released a statement following its 51st general board meeting held on 28 September 2023. The board concluded that financial stability risks in the EU have remained broadly stable since its previous meeting in June 2023; however, several factors may impact the banking sector’s future prospects. Notably, the macroeconomic environment may strain asset quality, and increased bank funding costs might weigh on net interest income, while subdued growth prospects are expected to limit lending volumes. The board emphasized the need for supervisory bodies to continue monitoring the evolving macro-financial environment’s impact on financial stability and be prepared to employ micro- and macroprudential policy measures accordingly. Additionally, the ESRB shared its views on a proposal by the European Commission to apply active account requirements for domestic clearing growth, indicating that the effectiveness of such a step would rely on the qualifying trade types and applicable threshold conditions. However, the ESRB believes the active account requirement may not be sufficient to address the identified risks to financial stability and would necessitate stronger EU supervision. The Board also discussed the approach for the design of the adverse climate risk scenario analysis which will form the basis for the one-off climate risk scenario analysis to be carried out by the ESRB in cooperation with the European Supervisory Authorities and the European Central Bank to assess the EU’s financial system’s resilience as mandated by the European Commission.

Conduct and consumer protection

IOSCO Launches Seventh World Investor Week
The IOSCO has launched its seventh annual World Investor Week (WIW) to promote financial education and investor protection globally. This year’s edition is carried out under the three principal themes of investor resilience, crypto assets and sustainable finance and complemented by several other themes including fraud and scam prevention, basics of investing as well as technology and digital finance. Supported by 110+ national regulatory authorities and 10+ regional and global organizations, the WIW will take place throughout October and November. A stocktake of key local initiatives will be provided in a future newsletter edition.

HM Treasury Mandates New Regulations for Banks to Protect Customer Free Speech and Deter Discriminatory Account Closures
Her Majesty’s Treasury has announced the planned introduction of new rules for banks to address concerns of debanking and safeguard customers’ freedom of speech. Under the planned rules, banks will be obligated to demonstrate precisely how they are protecting customers’ free speech, emphasizing existing commitments against discrimination. The rule amendments were motivated by recent recent concerns about potential bank account closures based on political ideologies. Among other measures, banks are to extend the notice period for payment service terminations from two months to 90 days and offer customers clear and tailored explanations for account closures, subject to certain exceptions such as legality. A public consultation is planned to consult on the new rules.

Fintech and ecosystem innovation

BIS Innovation Hub Collaborates with Dutch and German Central Banks for Project Atlas, Aiming to Evaluate the Macroeconomic Impact of Cryptoassets and DeFi
The Bank for International Settlements (BIS) Innovation Hub is partnering with De Nederlandsche Bank and the Deutsche Bundesbank to create a data platform, Project Atlas, that will provide insights into the macroeconomic impact of cryptoasset markets and decentralized finance (DeFi). The project combines both on- and off-chain information to offer a layered approach to data curation and create tailored statistics for central banks. The project’s initial proof of concept, which focused on international cryptoasset flows, used transactions between crypto exchanges in the Bitcoin network to proxy cross-border capital flows and mapped these flows out in a user-friendly format. Findings from this initial study suggest that while the identified flows between exchanges are relatively small compared to the total on-chain network traffic, they are still economically significant.

HK SFC and Police Force Form Joint Task Force to Boost Oversight and Investigations on Virtual Asset Trading Platforms
The Hong Kong Securities and Futures Commission (SFC) has formed a new joint working group with the Hong Kong Police Force (HKPF) with a view to enhancing collaboration in the monitoring and investigation of illegal activities linked to Virtual Asset Trading Platforms (VATPs). Comprised of representatives from the HKPF’s Commercial Crime Bureau, Cyber Security and Technology Crime Bureau and Financial Intelligence and Investigations Bureau and the SFC’s Enforcement Division and Intermediaries Division, the working group seeks to expedite the sharing of information, implement a risk assessment of suspicious VATPs as well as improve the overall coordination in VATPs-related investigations.

ESMA Announces Second Consultation Phase for Crypto-Asset Market Regulations
The European Securities and Markets Authority (ESMA) has issued a second consultation package as part of the Markets in Crypto-Assets Regulation (MiCA). The consultation covers proposed rules regarding sustainability indicators for distributed ledgers, insider information disclosures, technical requirements for white papers, trade transparency measures, and record-keeping mandates for crypto-asset service providers. Stakeholders have until December 14th, 2023, to provide their feedback, following which ESMA will finalize the report and submit the draft standards to the European Commission by June 30th, 2024. More consultations are also expected to be released in Q1 of 2024.

AFSA Publishes Two Digital Asset Consultation Papers
The Astana Financial Services Authority (AFSA) has announced the release of two digital asset related consultation papers. This comprises a consultation on the proposed rules and mechanisms of cooperation of unbacked digital asset exchanges Rules and/or the Centre participants authorized to carry out digital assets-related activities with second-tier bank of the Republic of Kazakhstan, covering aspects such as the opening procedures for accounts in commercial banks, client classifications, capital, admission of digital assets to trading, client asset segregation requests, AML and CFT requirements, and reporting requirements by second-tier banks to the National Bank. The second consultation paper outlines proposed rules for disclosure and reporting by crypto exchanges to the AFSA and the National Bank of financial and other performance data as well as the monthly submission of key data such as trading volumes, number of clients and volume of assets under custody.

Federal Reserve Banks and University of Massachusetts Examine Stablecoin Investor Behavior amid Unforeseen Events
The Federal Reserve Bank of Boston has released a joint working paper with the Federal Reserve Bank of New York and the University of Massachusetts Amherst that assesses investor behavior in stablecoins, a type of cryptocurrency, when faced with unexpected events. Titled “Runs and Flights to Safety: Are Stablecoins the New Money Market Funds?”, the research compared stablecoin investor reactions to those of money market fund investors during the 2008 financial crisis and the onset of the COVID-19 pandemic in 2020. The researchers discovered that stablecoin investors tend to “run” from more risk-prone stablecoins following negative shocks and instead direct their investments towards perceived “safer” alternatives, a similar response to money market fund investors. whereby the shifts tend to occur between stablecoins in the same blockchain, consistent with the observed shifts within money market fund “families,” or investment platforms. The study’s findings underscore the need to understand these dynamics as stablecoins’ scale increases, according to Christina Wang, a co-author of the paper and a senior economist and policy advisor in the Boston Fed’s Research department.

CSA Announces Interim Directives for Trading Value-Referenced Cryptocurrencies in Canada
The Canadian Securities Administrators (CSA) has issued a statement regarding new directives and conditions for crypto asset trading platforms concerning trading of value-referenced cryptocurrencies, including stablecoins. In February, the CSA stated that such crypto assets, which aim to maintain a stable value in relation to a reference asset, could be classified as securities and/or derivatives and would thus normally not be permitted for trading on crypto asset platforms. CSA has now amended its view and specified that platforms may allow the trading of certain value-referenced crypto assets that are referenced to the value of a single fiat currency under certain terms and conditions and to that end issued an interim set of provisions. These include inter alia that the issuer of the value-referenced crypto asset must maintain an appropriate reserve of assets with a qualified custodian that is held for the benefit of the crypto asset holder and that the issuer of the value-referenced crypto asset and crypto asset trading platform offering them is obligated to publicly disclose certain information in relation to governance, operations and reserve of assets.

Payments and currency

BIS Innovation Hub Collaborates with Central Banks in Korea, Singapore, Australia and Malaysia for Project Mandala
The Bank for International Settlements – Innovation Hub (BISIH), in collaboration with the Bank of Korea, the Monetary Authority of Singapore, the Reserve Bank of Australia and Bank Negara Malaysia have launched Project Mandala. Project Mandala seeks to alleviate the challenges of policy and regulatory compliance that impede efficient cross-border payments by encoding jurisdiction-specific policy and regulatory requirements into a common protocol, which in turn enables automating compliance procedures as well as providing real-time transaction monitoring and increasing transparency around country-specific policies. The outcomes of Project Mandala could be applied to the transfer of digital assets, including CBDCs, and cater to both legacy and emerging payment systems.

ESG

NGFS Publishes Conceptual Note Detailing Short-term Climate Scenarios
The Network for Greening the Financial System (NGFS) has released a Conceptual Note on Short-term Climate Scenarios as part of its ongoing commitment to assist in the identification and management of climate risks. The new scenarios will focus on a three-to-five-year timeline, addressing the current limitations in the analysis of macroeconomic and financial risk resulting solely from the analysis of climate-economy relationships over the medium to long term. The new scenarios encompass three transition risks-driven scenarios that correspond to systematic, accelerated, and delayed mitigation efforts, respectively; a scenario with high physical risks in the near term; and a scenario marked by no-low mitigation and high physical risk in the short term, thereby capturing climate change and transition risks in an integrated manner in climate scenarios. Further operational details of the NGFS short-term scenario project will be published in due course. The note provides additional details on the rationale and objectives underlying the new scenarios, the key components and drivers, the role and use cases of scenario analysis, and a roadmap for the further development of the NGFS’ work on short-term climate scenarios.

New Zealand FMA Releases Final Guidelines for Climate Reporting Entities
The New Zealand Financial Markets Authority (FMA) has issued its final guidance for Climate Reporting Entities (CREs) on meeting their climate reporting record-keeping obligations. Under the Climate Related Disclosures (CRD) regime, CREs are inter alia required to prepare an annual climate statement in line with the climate standards set by the External Reporting Board (XRB), obtain independent assurance about the part of the climate statement that relates to the disclosure of greenhouse gas emissions as well as comply with certain record-keeping requirements. The newly released guidance details principles and expectations for CREs in creating, keeping, and maintaining proper records, which would serve as evidence of compliance. It was finalized following public input, with 13 submissions received.

ESMA Examines Influence of ‘Greenium’ on ESG-Labelled Debt Pricing and ESG-Related Terminology in EU Investment Fund Names and Documents
The European Securities and Markets Authority (ESMA) has released an article examining the presence of an Environmental, Social and Governance (ESG) related pricing effect, commonly referred to as the ‘Greenium’, across various forms of ESG-labelled debt instruments in the European sustainable debt market. The analysis, which was carried out on a dataset of 8,696 bonds with a cumulative face value of EUR 3.7tn, found that while no consistent pricing advantage for ESG-labelled debt types could be determined as of March 2023, previous research has shown that issuers of ESG bonds did benefit from statistically significant pricing in the past driven by their issuer-level ESG credentials. The analysis comes amid a significant upturn of the sustainable debt market, with the issuance of sustainable debt rising by 28% in the first half of 2023 and by 663% since the first half of 2018. To further discuss the article and its findings, ESMA will be holding a webinar on 18 October. Interested parties must register by 16 October.

In a further article on ESG, ESMA has also explored the use of language connected to environmental, social, and governance (ESG) factors in both EU investment fund names as well as accompanying documentation. The article presents that the percentage of EU UCITS investment funds with ESG words in their names has witnessed an increase from less than 3% in 2013 to 14% in 2023. Furthermore, it has been observed that fund managers tend to employ generic language like “sustainable” and “ESG” rather than more specific words, which can pose difficulties for investors to authenticate the fund’s portfolio vis-à-vis its name. To conduct this study, ESMA has employed natural language processing to scrutinize over 100,000 fund documents.

Other transversal themes

APRA and ASIC Jointly Publish Information Package for Launch Financial Accountability Regime
The Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) have jointly released an information package supporting financial institutions to support the implementation of the Financial Accountability Regime (FAR). The FAR was introduced to establish a stronger framework for responsibility and accountability for APRA-regulated entities. It replaces the prior Banking Executive Accountability Regime (BEAR) to encompass a broader array of financial service providers, including insurance companies, superannuation trustees, authorised deposit-taking institutions (ADIs), and licensed non-operating holding companies. Consequently, APRA and ASIC will administer the FAR and jointly enforce the conduct-related prescriptive obligations. The new regime will apply to the banking industry from 15 March 2024 and to the superannuation and insurance sectors from 15 March 2025. The newly released information package encompasses the joint administration agreement between APRA and ASIC, which specifies the modus operandi for the joint administration of the Regime, and a joint information paper with guidance for ADIs on transitioning from the BEAR to the FAR.

European Financial Authorities Release 2024 Work Programme
The European Supervisory Authorities have published their work programme under the Joint Committee for 2024. Looking ahead, the Committee will prioritize work in four areas, namely in relation to (1) consumer and investor protection, (2) operational resilience, (3) financial conglomerates, and (4) securitization. Additionally, given the challenging market environment, a strong focus will remain on the monitoring and assessment of emerging key cross-sectoral risks and vulnerabilities for financial stability. In parallel to the release of the Joint Committee priorities, the European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) have also released their respective work programmes for the next year. As for EBA, focus will be on the implementation of the EU’s banking package, strengthening monitoring of financial stability and sustainability amid continued high interest rates and uncertainty, developing a robust data infrastructure, and bolstering oversight and supervisory capabilities for the Digital Operational Resilience Act and the Markets in Crypto Assets Regulation. As for EIOPA, key objectives include inter alia integrating sustainable finance across all work domains, providing support for consumers and the supervisory community in their digital transformations, and enhancing the quality and effectiveness of supervision, particularly in view of increased cross-border business.

Canadian Securities Regulators Report Progress in Female Representation on Boards in Annual Review
The Canadian Securities Regulators have released the results of their ninth annual review on the representation of women in both executive officer positions and on boards. The review covered 602 non-venture issuers. Key findings from this year’s review overall highlight further progress. Data points confirm that 27% of board seats were held by women, a 3% increase since last year. Although the percentage of board vacancies filled by women dropped by 2% from last year to 43, 89% of issuers have at least one woman board member, an increase of 2% from last year, and 36% of issuers have at least three women on their board, a 6% increase from last year. About 8% of issuers have a female board chair, which also represents an increase of 1% from 2022. The underlying data is based on public information filed with SEDAR+ by the 602 issuers.