Global Regulator & Central Bank News Roundup
Volume 42/2023 (October 30 – November 5)
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 AI-powered financial regulatory intelligence platform.
Themes covered in this edition
- AML & CFT
- Cyber & operational resilience
- Conduct & consumer protection
- Fintech & ecosystem innovation
- Payments & currency
- Other transversal themes
AML and CFT
FATF Seeks Stakeholder Input on Updated Risk-Based Guidance for Recommendation 25
The Financial Action Task Force (FATF) invites feedback on its revised Risk-Based Guidance related to Recommendation 25, which focuses on the Beneficial Ownership and Transparency of Legal Arrangements. The FATF seeks input from relevant stakeholders on a number of core aspects including express trusts’ purposes, beneficiary scenarios for inclusion, definitions of trust administration, mechanisms for accessing trust beneficial ownership information, and approaches for identifying and mitigating money laundering and terrorist financing (ML/TF) risks associated with various legal arrangements. Furthermore, insight is sought on the use of non-professional trustees, the types of trusts they administer, and how countries can more effectively fulfill obligations regarding these trustees. Comments to the consultation can be submitted until December 8.
House Financial Services Committee to Hold Review of Sanctions Regime and Counter-Terrorist Financing Efforts
The Chairman of the House Financial Services Committee, Patrick McHenry, has called a full committee hearing to review the sanctions regime and counter-terrorist financing efforts. Set for November 8, 2023, at 10:00 AM ET, the aim of the hearing is to analyze and evaluate the effectiveness of current financial sanctions and counter-terrorism financing measures. The hearing will occur in a classified setting. Details on the witness list along with the committee memo are yet to be released.
Cyber and operational resilience
FINRA Report Explores Potential Impact of Quantum Computing on Securities Industry
The U.S. Financial Indusry Regulatory Authority (FINRA), under the leadership of its Office of Financial Innovation, has published a new report called ‘Quantum Computing and the Implications for the Securities Industry’, to discuss the potential implications of quantum computing on the securities industry. While quantum computing remains an emerging technology, the report posits that its ability to undertake complex calculations could significantly alter the future of the securities industry, identifying three specific areas where it could likely have significant impact, namely: (1) optimization systems for trade execution, trade settlement and portfolio management, (2) performance of simulation systems such as for the purpose of market risk assessments, and (3) acceleration of AI with quantum AI expected to enhance capabilities for processing and analyzing large data sets. Besides the impact evaluation, the report also sets out regulatory considerations with a focus on cybersecurity, third-party vendor outsourcing, data governance, and supervisory controls. However, it does not establish new legal regulations. Comments on the research report can be submitted until March 2024.
Conduct and consumer protection
SFC Supports Development of Integrated Platform for Retail Fund Distribution in Hong Kong
The Hong Kong Securities and Futures Commission (SFC) has expressed its support for a plan to develop an integrated platform for retail fund distribution in Hong Kong, which forms part of the Hong Kong government’s initiatives to advancethe co-development of fintech and the real economy. The platform, to be developed and managed by the Hong Kong Exchanges and Clearing Limited (HKEX), will encompass three key components: (1) a communication hub connecting different parties in the fund distribution ecosystem, (2) a business platform covering functionalities such as fund order routing, subscriptions and redemptions, payments and settlements and various optional nominee services; and (3) an information portal intended to offer to the public convenient access to information and transparency on fund investment options. Executive Director of Investment Products at the SFC, Christina Choi, in the SFC’s statement highlighted that the platform will enhance product transparency and choice for investors, in addition to fostering diversification in the retail fund market.
OSC Launches Interactive Investing Academy on ‘Get Smarter About Money’ Website for Financial Literacy Month
The Ontario Securities Commission (OSC) has announced a new interactive feature on their recently relaunched ‘Get Smarter About Money’ investor education website. Titled Investing Academy, the feature involves free courses are designed to help individuals to take action to ensure a secure financial future. Initially, the Academy offers three modules, namely ‘Investing 101’, ‘Managing Your Money 101’, and ‘Planning for the Future’, each about 1h in length and containing various learning activities, quizzes, tips and videos.
Fintech and ecosystem innovation
MAS Collaborates with Policymakers in Japan, Switzerland, and the UK to Drive Responsible Digital Asset Innovation
The Monetary Authority of Singapore (MAS) is collaborating with the Financial Services Agency of Japan, the Swiss Financial Market Supervisory Authority, and the United Kingdom’s Financial Conduct Authority to promote digital asset innovations in fixed income, foreign exchange, and asset management products under the umbrella of its Project Guardian, it highlighted in a new statement. The collaboration announcement comes in response to the growing complexity of Project Guardian, necessitating the creation of a dedicated policymaker group. As part of the collaboration, the group will among other things focus on issues such as the legal and policy treatment of digital assets, the identification of risks and policy gaps, the development of common standards, the promotion of interoperability, the facilitation of industry pilots, and the sharing of knowledge.
Mauritius FSC of Issues Consultation Paper on the Impact pf the Metaverse
The Mauritius Financial Services Commission (FSC) in Mauritius has issued a Consultation Paper on the potential impact and strategic developments of the metaverse on Mauritius’ financial services industry. The paper provides an overview of aspects of the metaverse, discusses benefits and challenges as well as offers benchmarking on what initiatives with the private sector that other jurisdictions have been implementing to advance the development of the metaverse with a particular emphasis on the role of partnership models. Against this backdrop, it formulates a range of policy and regulatory considerations for Mauritius specifically, addressing aspects such as consumer and data protection, intellectual property rights, digital identification, taxation and the ethical use of AI. The consultation on the paper will run until end of November.
HM Treasury Advances Regulation of Cryptoassets and Stablecoins
The HM Treasury has published several critical updates to advance the development of the frameworks for cryptoassets and stablecoins. This includes the final proposals for cryptoasset regulation in the UK with the release of its response to the consultation and call for evidence published earlier this year in February and April, respectively. As a reminder, the UK seeks to expand the regulatory framework for cryptoassets through a two-phased approach, with Phase 1 – which is already underway – covering the regulation of fiat-backed stablecoins used for payments and the regulation of promotions of cryptoassets while Phase 2 will address the regulation of the broader cryptoassets ecosystem with a focus on activities that pose a higher degree risks to consumers and markets and present opportunities to advance the UK’s growth agenda. Under the proposal, these activities include: cryptoassets issuance activities; exchange activities (excl. post-trade activities); certain investment and risk management activities; lending, borrowing and leverage activities; and custody activities beyond those covered in Phase 1 for stablecoins. Complementary to the consultation response document, the HM Treasury also published an update on its plans for the regulation of fiat-backed stablecoins, which among other things further clarifies the specific roles of the Financial Conduct Authority and the Bank of England under the planned regime.
Government officials and leaders in AI convene in the UK for first global AI safety summit
The AI Safety Summit chaired by the United Kingdom and held over the course of two days convened a diverse group of international stakeholders, including government officials, AI industry leaders, civil society representatives, and academics, to deliberate on the future of AI, addressing the various challenges and opportunities presented by frontier AI technologies. On the first day, discussions led by experts such as Canada’s François-Philippe Champagne and the Chinese Academy of Sciences’ Yi Zeng focused on the misuse of frontier AI like GPT-4 for cyberattacks or creating weapons, and the unpredictability of AI development. The need for cross-sector collaboration on safety measures and careful integration of AI into society to avoid negative consequences was emphasized. Singapore’s Josephine Teo highlighted the risk of AI systems operating beyond human control, advocating for proactive measures to mitigate this risk. On the second day, the UK’s Deputy Prime Minister Oliver Dowden and Secretary of State for Science, Innovation and Technology Michelle Donelan led strategic discussions on AI’s potential for societal benefits and the importance of ethical AI use, skills development, and global cooperation. They highlighted AI’s impact on public services, healthcare, and environmental challenges, stressing the need for quick, inclusive action to mitigate AI risks, especially in the context of disinformation and elections. Throughout the summit, there was a consensus on the need for responsible scaling policies for AI capabilities by companies, complemented by government regulation and enhanced cybersecurity measures. The importance of international collaboration to manage AI risks and share benefits equitably was a recurring theme. The participants agreed on the necessity of leveraging AI’s transformative power for global good, including advancing Sustainable Development Goals and improving global food supply chain efficiency. The summit concluded with a strong emphasis on collaborative efforts to harness AI for societal advancement while addressing the associated risks.
Austrian Secretary of State for Digitalization Stresses Competence and Transparency as Essential in AI Development and Regulation
Austria’s Secretary of State for Digitalization, Florian Tursky, addressed the impact of artificial intelligence (AI), most notably ChatGPT, a year after its launch. ChatGPT embodied how AI has the capacity to significantly alter our daily lives and work patterns, Tursky highlighted, emphasizing the need for AI to align with a digitally responsible society and European values. Some of the challenges to AI include achieving global harmonization and formulating appropriate regulations, deemed necessary especially in areas of ethics, security, trust, acceptance, and innovation. Tursky is advancing his commitment to fulfilling the need for political action with the establishment of an AI service point before the year ends. Delineating the aims of the AI package, he said it seeks to create an AI authority at the national level, which would serve as a point of contact for companies and citizens. Furthermore, an AI labeling system will also be introduced to increase transparency and digital competence workshops will be held countrywide to equip the public with basic AI knowledge.
President Biden Issues Executive Order to Establish New Standards for AI
President Biden has issued an executive order instructing federal agencies to examine and potentially create fresh regulations for the deployment of artificial intelligence (AI) across various sectors, including financial services. The Order sets out actions in eight specific areas. As a core pillar, the Order prescribes specific standards for AI safety and security, mandating the developers of significant AI system to disclose safety test outcomes and relevant information with the Government and tasking the National Institute of Standards and Technology (NIST) with crafting standards and testing protocols for AI, including red-team testing for pre-release safety assessment. The order also entails the creation of an advanced cybersecurity program to develop AI tools aimed at identifying and rectifying vulnerabilities in crucial software. With respect to privacy, the Order calls for accelerating the development and use of privacy-preserving techniques as well as strengthen privacy-preserving research and technologies and the assessment of their effectiveness. Beyond these areas, the Order further outlines specific actions to preserve fairness and mitigate potential discrimination as well as evaluate the impact of AI on the workforce and develop corresponding principles and best practices.
Sam Bankman-Fried Found Guilty of All Charges
Following a month-long trial, Sam Bankman-Fried has been convicted of all charges brought against him.This includes two counts of wire fraud conspiracy, two counts of wire fraud, and one count of conspiracy to commit money laundering. The U.S. Attorney emphasized the historical prevalence of such corruption and assured a continued effort to eradicate financial market corruption, highlighting the swift action and dedication of prosecutors and FBI agents involved in the case. Bankman-Fried, aged 31, faces a maximum sentence of 20 years in prison for each count of wire fraud and money laundering conspiracy, and a maximum of five years for each count of commodities and securities fraud conspiracy. The actual sentencing will be determined at a later stage.
Payments and currency
HKMA Releases Phase 1 Report on e-HKD Pilot Programme, Highlighting Potential Advantages and Areas for Further Investigation
The Hong Kong Monetary Authority (HKMA) has released the “e-HKD Pilot Programme Phase 1 Report”, outlining the results and findings from the first phase of the e-HKD pilot programme. The pilot programme involved 14 pilots conducted by 16 participating companies. The evaluations conducted indicated that an e-HKD has the potential to be advantageous by providing distinctive value within three main areas: programmability, tokenization, and atomic settlement, thus leading to faster, cost-effective, and inclusive transactions. Despite these promising results, the HKMA emphasized that further investigation is needed to evaluate the feasibility of these benefits on a larger scale. Currently, no decision has been made regarding the official introduction of the e-HKD. Findings from the first phase of the program will serve as a resource to refine plans for potential future implementation. The next phase will involve a deep dive into the effective use-cases for an e-HKD.
MAS Launches SGQR+ Proof of Concept to Improve QR Payment Interoperability
The Monetary Authority of Singapore (MAS) has announced a Proof of Concept (POC) for the Singapore Quick Response Code Scheme (SGQR+) with the intention to enhance interoperability for QR payments. To be conducted throughout November2023, the POC aims to facilitate merchants in Singapore in accepting varied QR payments through a single financial institution. Widely adopted for digital payments, the existing SGQR combines multiple QR codes into a single label. However, its limitations such as requiring merchants to maintain commercial relationships with different financial institutions for accepting various payment schemes presented an opportunity for enhancing interoperability. SGQR+ allows merchants to accept various local and international payment methods by merely signing up with a single financial institution. The POC will be rolled out across over 1,000 merchant acceptance points in Singapore and with 23 payment schemes.
UK PSR Releases In-Depth Report on Performance of UK Banks and Payment Firms in Handling APP Fraud
The UK Payment Systems Regulator (PSR) has published detailed figures for 2022 that reveal the performance of banks and payment firms, including the top 14 banking groups in the UK, in handling Authorized Push Payment (APP) fraud. The report also details how these firms treated scam victims. The data covers three main areas: reimbursement for victims, the amount of money sent as a result of APP fraud, and money received as a result of APP fraud. As regards reimbursement for victims, TSB, Nationwide, and Barclays recorded the highest percentages of full reimbursement for APP fraud victims, at 94%, 91%, and 79% respectively. Monzo, Danske Bank, and AIB recorded the lowest figures, with full reimbursement for just 6%, 7%, and 12% of cases respectively. In terms of banks sending fraudulent payments, TSB, Santander, Metro, and Monzo had the highest fraud rates. For every £1 million sent by their customers in 2022, £348 was lost to APP fraud at TSB, £322 at Santander, and £280 at both Metro and Monzo. From a receiving standpoint, Metro Bank, Starling, TSB, and Monzo had the highest account receiving fraud rate. For every £1 million received at Metro Bank and TSB, £696 and £605 were lost to APP fraud respectively.
COP28 Presidency Introduces Net-Zero Transition Charter to Foster Private Sector Accountability and Mobilization
In advance of the COP28 conference, the COP28 Presidency has introduced a new charter called “Net-Zero Transition Charter: Accountability Mobilization for the Private Sector”. The charter is intended to encourage the private sector to take more robust action on climate change and enhance transparency in meeting their net-zero emissions targets. By signing the Net-Zero Transition Charter, organizations commit to setting publicly 1.5°C aligned, credible, and transparent net-zero emissions targets by 2050 and interim targets. Moreover, participating organizations must produce a credible net-zero transition plan within a year of COP28 and annually report their GHG emissions and progress on their net-zero commitment and transition plan. Organizations failing to meet the requirements of the Charter will be delisted from the COP28 website and the COP28 progress report.
Australian Government Launches Consultation on Sustainable Finance Strategy
Australia’s Department of Treasury has launched the country’s Sustainable Finance Strategy to underpin Australia’s transition to net zero emissions. The strategy provides an extensive framework to remove barriers to investments in sustainable activities. It is anchored in three core pillars – (1) Improving transparency on climate and sustainability, (2) enhancing the financial system’s capabilities, and (3) demonstrating government leadership and engagement – each outlining a set of proposed tools and policies to foster sustainable finance in the country. Consultation on the Strategy is open until 1st December 2023.
SFC Backs Industry-Led ESG Ratings Code to Enhance Transparency and Reliability
The Hong Kong Securities and Futures Commission (SFC) has announced its support and sponsorship for the development of a voluntary code of conduct (VCoC) for environmental, social, and governance (ESG) ratings and data products providers in Hong Kong. The International Capital Market Association (ICMA) will act as the Secretariat of the newly formed Hong Kong ESG Ratings and Data Products Providers VCoC Working Group, which includes representatives from local and international ESG ratings providers, as well as key users from the local financial industry. The proposed code will adhere to international best practices and expectations introduced in other significant jurisdictions. The initiative is designed to strengthen the transparency, quality, and reliability of ESG information used in investment decisions, thereby limiting the risk of greenwashing in investment products. The code will be open for sign-up by ESG ratings and data products providers on a voluntary basis.
UNDP Launch Guide and Standards to Support SDGs in Thai Listed Companies in Cooperation with Thai SEC and Other Stakeholders
The United Nations Development Programme (UNDP), in collaboration with the Securities and Exchange Commission (SEC), Thai Listed Companies Association (TLCA), and Global Compact Network Association of Thailand (GCNT), has launched the “Sustainable Development Goals Guide for Listed Companies and the SDGs.” The goal is to encourage Thai listed companies to align their businesses to support the Sustainable Development Goals (SDGs). The businesses are encouraged to strategize and operate by integrating sustainable development concepts to have a positive social and environmental impact. The guide and the SDG impact standards highlight four key areas for implementation – strategy, management approach, transparency, and governance. It addresses diverse issues from greenhouse gas reduction and waste management to inclusion in workplaces. The guide also aims to help businesses transform their models to create innovative solutions, minimize risks, and seize opportunities that stem from the SDGs’ implementation.
Treasury’s Federal Insurance Office Initiates First Data Collection to Evaluate Climate-Related Financial Risk for Consumers
The U.S. Treasury’s Federal Insurance Office (FIO) has initiated a new data collection exercise to obtain data from insurers to assess climate-related financial risks to American consumers. Part of the Office’s efforts in response to President Biden’s Executive Order on Climate-related Financial Risk, the exercise aims to amass previously inaccessible insurance data at a ZIP Code level from the country’s largest homeowners insurance providers, which in aggregate underwrite ~70% of homeowners’ insurance premiums nationwide. The collected data seeks to offer insights into the impact of climate-related financial risks on individuals and families nationwide. The exercise comes amid recent notable insurer pullbacks and substantial premium hikes in several states and is intended to inform policy options for improving insurance availability and affordability for consumers.
Other transversal themes
Canadian Audit Quality Roundtable Discusses Emerging Risks and Reinforces Commitment to Financial Reporting Integrity
The fifth annual Canadian Audit Quality Roundtable, co-hosted by the Canadian Public Accountability Board (CPAB), the Office of the Superintendent of Financial Institutions (OSFI), and the Canadian Securities Administrators (CSA), took place in Toronto at the end of October. The event featured key stakeholders in the Canadian capital markets, regulators, standard-setters, and audit firms, discussing the latest developments in audit quality in Canada. Subjects included risks affecting external audits, governance within audit firms, the implementation of new Canadian auditing standards, and issues related to emerging technologies. The participants reaffirmed their commitment to supporting the integrity of financial reporting in Canada by fostering a robust financial system. High-quality audits were acknowledged as crucial to maintaining confidence in audited financial statements of Canadian reporting companies. In response to the ever-evolving fraud risk landscape, many firms are implementing new methodologies, including advanced use of technology and forensic specialists. While new technologies can bring about significant benefits, participants noted the associated risks must be appropriately understood and managed. The roundtable discussion also highlighted that audit firms have started to consider and address climate-related risks in their audit risk assessments of financial statements.
Senator Tim Scott Proposes Capital Markets Reform Framework
Senator Tim Scott (R-S.C.), Ranking Member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, has put forward a legislative proposal framework named the Empowering Main Street in America Act aimed at revitalizing the capital markets to bolster the US economy. The framework seeks to provide opportunities for all Americans to grow wealth and for small businesses to access funding, akin to large corporations. The Act intends to foster growth by streamlining access to funding through capital markets to boost innovation and accelerate economic growth. It plans to return the Securities and Exchange Commission to its focus on ensuring US capital markets fuel American growth instead of introducing limiting regulations. The Act also aims to boost capital formation for public and private markets, expand investment opportunities for everyday investors, foster confidence by ensuring market fairness and transparency, and increase SEC regulatory oversight for accountability.