Global Regulator & Central Bank News Roundup
Volume 43/2023 (November 6 – November 12)
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
- Prudential & financial stability
- AML & CFT
- Cyber & operational resilience
- Conduct & consumer protection
- Fintech & ecosystem innovation
- Other transversal themes
- International cooperation
Prudential & financial stability
New FSB Paper Highlights Practices on Identifying Critical Functions of Insurers
The Financial Stability Board (FSB) has published a Practice Paper on the resolution planning of insurers, focusing on the identification of critical functions within the insurance sector across various jurisdictions. The paper highlights the efforts and approaches of Australia, China, France, and the Netherlands in identifying these critical functions within their respective insurance sectors. It explores the similarities and differences among these jurisdictions in terms of background, scope, methodology, and review processes used for identification. Additionally, the paper details the primary critical functions recognized in each jurisdiction and discusses the rationale behind their identification, providing specific examples. This Practice Paper represents an essential step in the FSB’s ongoing work to develop frameworks for insurer resolution planning and the identification of critical functions, reflecting an international effort to enhance financial stability and prevent systemic risks in the insurance industry.
AML and CFT
FATF Report Highlights Growing Threat of Cyber-Enabled Fraud and Calls for Global Cooperation
The Financial Action Task Force (FATF), in collaboration with the Egmont Group and INTERPOL, released a report highlighting the alarming growth and global reach of cyber-enabled fraud. The report emphasizes the urgent need for more coordinated action to address cyber-enabled fraud, identifying three priority areas for action: improved domestic coordination across public and private sectors, bolstered international collaboration, and strengthened detection and prevention measures. Additionally, the report suggests the implementation of risk indicators and anti-fraud requirements to aid in detecting and mitigating cyber-enabled fraud and its associated money laundering activities. This comprehensive approach is crucial in addressing the evolving complexity and scale of such crimes, especially as they exploit new technological vulnerabilities.
FinCEN Organizes Public-Private Discussion Focused on Combating Cyber-Related Terrorism Financing
The Financial Crimes Enforcement Network (FinCEN) in early November hosted a FinCEN Exchange, focusing on the dangers of convertible virtual currency misuse, particularly in relation to funding Hamas’ terrorist activities in Israel. The event brought together U.S. financial institutions, technology, and social media companies to discuss ways to detect and counter terrorism financing as part of the Government’s broader strategy to thwart Hamas’ ability to finance terrorism globally. The discussions centered on information sharing mechanisms and the critical role of financial institutions in this fight. To strengthen these efforts, FinCEN issued an alert on October 20, guiding financial institutions in identifying and reporting suspicious activities related to Hamas financing. Moreover, FinCEN urged financial institutions to register under USA PATRIOT Act Section 314(b) for enhanced information sharing, noting that over 7,600 institutions had already registered in fiscal year 2023, facilitating extensive network analysis to identify and disrupt illicit financial networks.
Cyber and operational resilience
Bank of England Announces Latest Phase of System-Wide Exploratory Scenario Exercise
The Bank of England has launched the latest phase of the System-wide Exploratory Scenario (SWES), involving over 50 financial market participants, including banks, insurers, and pension funds. This phase introduces a hypothetical stress scenario, designed to be more severe, rapid, and comprehensive than recent market disturbances like the March 2020 ‘dash for cash’ and the September/October 2022 LDI episode. The scenario simulates a ten-day market shock, featuring significant rises in UK government and corporate borrowing costs, along with abrupt increases in sovereign yields globally, echoing some of the largest movements seen since 2000. The primary objective of this exercise is to deepen the understanding of the behavior of banks and non-bank financial institutions under stressed conditions and how these behaviors can amplify market shocks, potentially threatening UK financial stability. Notably, the exercise is not aimed at testing individual firms’ resilience but rather at understanding systemic responses and consequences. SWES participants are currently assessing this scenario’s implications and will submit their responses in January 2024. A second round of the scenario, reflecting the actions taken in the first round, is scheduled for Q2 2024. The Bank of England, collaborating with the Financial Conduct Authority and The Pensions Regulator, anticipates publishing a comprehensive report on the SWES by the end of 2024.
ESMA Elevates Cyber Risk and Digital Resilience as Union Strategic Supervisory Priority
The European Securities and Markets Authority (ESMA) is revising its Union Strategic Supervisory Priorities (USSPs) to emphasize cyber risk and digital resilience, in addition to ongoing efforts in ESG (Environmental, Social, and Governance) disclosures. This shift reflects ESMA’s commitment to adapting to market and technological advancements and managing the contagion effects of cyber attacks and disruptions including strengthening ICT risk management in firms and building new supervisory expertise. The revised USSP is set to take effect in 2025, coinciding with the Digital Operational Resilience Act – DORA, giving supervisors and firms adequate preparation time to adhere to the new rules. ESMA and national competent authorities (NCAs) will concurrently persevere with their second priority, ESG disclosures, to combat greenwashing and enhance investor comprehension. The fresh focus on cyber risk and digital resilience will replace the USSP on market data quality, even though ESMA and NCAs aim to sustain critical supervisory operations concerning data quality.
Conduct and consumer protection
EBA Opens Consultation on Complaints Handling Guidelines for Credit Servicers
The European Banking Authority (EBA) has officially initiated a public consultation process on its newly drafted guidelines pertaining to complaints handling by credit servicers. This action aligns with the requirements of the Credit Servicers Directive (CSD), enacted in December 2021, mandating EU Member States to incorporate its provisions by the end of December 2023. These draft guidelines are primarily directed at competent authorities and stipulate the obligations credit servicers must fulfill in establishing and maintaining robust and transparent procedures for addressing borrower complaints. Echoing the standards of the Joint Committee Guidelines on complaints handling, in place since 2014 and applicable across banking, investment, and insurance sectors, the EBA’s proposed guidelines encompass a comprehensive range of requirements. These include the development of a complaints management policy, establishing a functional complaints management system, registration, reporting, internal follow-up processes, provision of information, and delineating procedures for responding to complaints. Stakeholders are invited to submit their feedback and comments on these draft guidelines until February 9, 2024.
Fintech and ecosystem innovation
EBA Publishes Another Extensive MiCAR Consultation Package With Focus on Liquidity, Own Funds, Recovery Plans, Reporting Obligations and Supervisory Colleges
The European Banking Authority (EBA) is continuing its consultation efforts as part of its implementation of the Markets in Crypto-assets Regulation (MiCAR) with the release of several new technical standards focusing on liquidity and own fund requirements, recovery plans, reporting obligations as well as supervisory colleges.
In relation to liquidity requirements, the EBA proposes three draft Regulatory Technical Standards (RTS). The first RTS prescribes asset reserve liquidity requirements, including minimum liquid asset percentages and liquidity management techniques. It emphasizes the creditworthiness of institutions, deposit concentration limits, and strategies for asset collateralization. The second RTS identifies eligible highly liquid financial instruments for asset reserves, aiming to ensure the constant readiness of assets to meet redemption demands. The third RTS is concerned with the minimum content required for liquidity management policies and procedures, which will enable token issuers to effectively monitor and manage their liquidity status. The three RTS are complemented by Guidelines for liquidity stress testing.
The consultation on own fund requirements comprises of two RTS, which define the procedures for adjusting own funds requirements and stress testing for issuers of asset-referenced tokens (ARTs) and e-money tokens (EMTs) and the process and timescale for issuers of significant ARTs and EMTs to modify their own funds requirements.
Regarding recovery planning, the EBA’s draft Guidelines for ART and EMT issuers draw from existing financial sector legislation and supervisory experience. These Guidelines are designed to help issuers craft robust recovery plans, setting out the format, and content necessary to preemptively address adverse scenarios that could impact regulatory compliance. Furthermore, the EBA’s approach seeks to reduce regulatory burdens by coordinating recovery plans among multiple issuers and harmonizing the requirements with those of the Bank Recovery and Resolution Directive (BRRD).
The draft RTS and Implementing Technical Standards (ITS) focusing on reporting guidelines for ART and EMT issuers, particularly those dealing with non-EU currencies, aim to ensure effective monitoring of the risks related to monetary policy transmission and EU monetary sovereignty. They detail the methodology for reporting transactions and provide templates and instructions for issuers and crypto-asset service providers (CASPs) to meet their reporting obligations.
Finally, the EBA’s draft RTS on supervisory colleges delineate the structure and operational procedures for regulatory oversight of significant ART and EMT issuers. This includes the criteria for determining relevant entities and the operational procedures of supervisory colleges, which involve participation rules, voting processes, information exchange, and task delegation.
The consultation is open until February 2024 with public hearings set to take place at the end of January.
FCA and Bank of England Seek Feedback on Proposals for Regulating Stablecoins
The Financial Conduct Authority (FCA) and the Bank of England are inviting public and industry feedback on their proposed regulatory framework for stablecoins with the issuance of two new discussion papers. The FCA’s Discussion Paper focuses on regulations regarding the issuance and holding of stablecoins, particularly those pegged to fiat currencies. Meanwhile, the Bank’s Discussion Paper addresses how it would regulate systemic payment systems using stablecoins, including stablecoin issuers and wallet providers, to mitigate potential financial stability risks. In addition to these two papers, a cross-authority roadmap paper on payments and monetary innovation has been released outlining the interaction between current and proposed regulatory regimes for digital money issuers. Despite the efforts to formalize the regulation of stablecoins and being supportive of their potential benefits, the FCA maintains a conservative stance, cautioning that cryptoassets including stablecoins carry significant risks. Feedback to the discussion papers can be submitted until early February 2024.
CFTC Announces FY 2023 Enforcement Results with Record-Breaking Digital Asset Cases
The Commodity Futures Trading Commission (CFTC) has disclosed its Fiscal Year (FY) 2023 enforcement results, marking a notable year with a record number of digital asset cases. The Division of Enforcement (DOE) filed 96 actions, addressing fraud, manipulation, and other significant violations across various markets, resulting in over $4.3 billion in penalties, restitution, and disgorgement. CFTC Chairman Rostin Behnam commended the DOE for its impactful work in the digital asset space, contributing to a record number of cases and maintaining vigilance in protecting the U.S. commodity markets during turbulent times. Key highlights from FY 2023 include a significant focus on digital assets, with the CFTC filing 47 actions related to digital asset commodities, accounting for over 49% of all actions. The enforcement actions also covered manipulative and deceptive conduct, spoofing, reporting, risk management, and misconduct involving confidential information. The CFTC’s Whistleblower Program granted seven awards totaling about $16 million for information leading to successful enforcement actions. Additionally, the DOE launched two new task forces focusing on Cybersecurity and Emerging Technologies, and Environmental Fraud, to address complex and emerging areas.
CFPB Proposes Federal Oversight for Digital Wallet and Payment App Providers
The Consumer Financial Protection Bureau (CFPB) is proposing a new rule to extend its supervisory authority to larger nonbank companies that offer digital wallets and payment apps. This move targets Big Tech and other major technology firms in the consumer finance market, ensuring they adhere to the same regulatory standards as traditional banks and credit unions. The rule specifically applies to nonbank financial companies managing more than 5 million transactions annually. CFPB Director Rohit Chopra emphasized the critical role of payment systems in the economy and the need for appropriate oversight of large technology firms and nonbank payment companies. The proposal aims to ensure these companies comply with federal consumer financial protection laws, including funds transfer and privacy laws, and maintain fair competition with depository institutions. The rule, if enacted, would enable the CFPB to conduct examinations of these companies, ensuring uniform enforcement of consumer financial laws. This initiative is part of the CFPB’s broader efforts to monitor Big Tech’s entry into financial markets, maintain competitive dynamics, and address risks associated with their financial products as well as complements the CFPB’s creation of the Office of Competition and Innovation and a supervision technology program. Comments on the proposed rule are open until January 8, 2024.
NGFS Releases Updated Long-Term Climate Scenarios and Guidance for Central Banks and Supervisors
The Network for Greening the Financial System (NGFS) has released its fourth iteration of long-term climate macro-financial scenarios. These updated scenarios, developed in collaboration with academias, reflect the latest GDP and population data, and incorporate recent country-level climate commitments as of March 2023. Key updates include acknowledging climate policy delays, the energy crisis post-Ukraine war, and enhanced modeling of acute physical risks such as droughts and heatwaves. Notably, NGFS introduces two new scenarios: the “Too-little-too-late” Fragmented World, illustrating the negative outcomes of delayed and divergent climate policies, and the “Orderly” Low Demand, depicting a Paris-aligned transition with behavioral changes to limit global warming to 1.5°C. The Divergent Net Zero scenario has been discontinued. Accompanying these scenarios are three new documents: an updated technical documentation, a data user guide, and a technical note on compound risks in physical climate risk analysis. These resources are designed to guide central banks and supervisors in better understanding and managing climate-related financial risks. Ravi Menon, Chair of NGFS, emphasizes the importance of these scenarios in establishing transparency over the the physical risks and macroeconomic effects of climate change and transition policies. The NGFS plans to further enhance these scenarios in 2024, focusing on sectoral disaggregation and possibly more adverse chronic physical risk damage functions.
IAIS Outlines Five Key Actions for Insurance Supervisors in Tackling Natural Catastrophe Protection Gaps
The International Association of Insurance Supervisors (IAIS) has released a report underscoring the pivotal role of insurance supervisors in addressing the expanding natural catastrophe (NatCat) protection gaps. These gaps, representing the uninsured economic losses from natural disasters, are anticipated to widen as climate change increases the frequency and intensity of such events. The report identifies five critical areas where insurance supervisors can contribute to narrowing these gaps. These areas include contributing to the assessment of protection gaps, enhancing consumer financial literacy and risk awareness, incentivizing risk prevention, fostering a regulatory environment conducive to insurance availability, and advising governments and industries on financial inclusion and societal resilience. The report is intended to set the stage for further collaboration among insurance supervisors, industry, consumers, policymakers, and stakeholders. Initial collaborations will involve the Access to Insurance Initiative (A2ii), the Global Shield against Climate Risks, the International Development Fund (IDF), and the Organisation for Economic Co-operation and Development (OECD) to tackle the challenges outlined in the report.
GRI Partners with IFRS Foundation to Establish Sustainability Innovation Lab
The Global Reporting Initiative (GRI) has announced the formation of the Sustainability Innovation Lab (SIL) in partnership with the IFRS Foundation. The SIL aims to support companies in fulfilling their sustainability reporting needs, providing professional development and fostering innovation. With 81% of Asia-Pacific listed companies using GRI standards and growing interest in International Sustainability Standards Board (ISSB) standards, the SIL will be strategically based in Singapore. The SIL’s mission is multifaceted: it will offer professional development, training, and innovative solutions to assist companies in meeting evolving sustainability disclosure requirements. By fostering collaboration between GRI, ISSB, and other stakeholders, SIL will focus on developing new sustainability disclosure topics, best practices, and data-driven solutions, particularly catering to supply chains facing new reporting challenges. Eelco van der Enden, CEO of GRI, highlights the lab’s role in addressing the sustainability expertise gap and streamlining reporting processes. Meanwhile, Emmanuel Faber, ISSB Chair, emphasizes the SIL’s contribution to harmonizing global reporting standards and facilitating dual standard use.
Other transversal themes
FINMA Releases 2023 Risk Monitor, Identifies New Risks in Financial Sector
The Swiss Financial Market Supervisory Authority (FINMA) has released its 2023 Risk Monitor, highlighting the primary risks confronting the financial sector. This year, FINMA has identified two new significant risks: those associated with liquidity and funding, and the challenges related to the outsourcing of business activities. These are in addition to the seven risks carried over from the previous year, including interest rate risks, various credit risks, cyberattack risks, money laundering risks, and risks due to increased barriers to cross-border market access. The report is influenced by the current sensitive macroeconomic environment, characterized by geopolitical tensions, slower economic growth, high inflation, rising interest rates, and increasing energy costs. The recent banking sector stress globally, including the collapse of various American regional banks and uncertainties around Credit Suisse, has also been factored into the risk assessment. Furthermore, the 2023 Risk Monitor delves into the growing use of artificial intelligence (AI) in the Swiss financial market. FINMA underscores the challenges related to AI, such as responsibility for AI decisions, reliability, transparency, and equal treatment of clients and notes that it expects supervised institutions to appropriately manage these risks and plans to review their use of AI, remain engaged with relevant stakeholders, and stay informed about international AI developments in the financial industry.
DIFC and Seoul Metropolitan Government Establish MoU to Promote Financial Services Innovation and Cross-Border Collaboration
Dubai International Financial Centre (DIFC) and Seoul Metropolitan Government (SMG) signed a Memorandum of Understanding (MoU) on 9 November 2023 in order to foster cross-border collaboration and financial services innovation between the financial centres of Dubai and Seoul. To that end, the MoU outlines a roadmap for sharing best practices in relation to finance’s future, international financial centres’ operations, and cross-border start-up programs’ development. It also offers provisions for exchanging start-up delegations for major regional events and business development opportunities for start-ups and scale-ups in both countries.
Ministry of Finance of Saudi Arabia and Egypt Sign MoU to Strengthen Financial Dialogue
A Memorandum of Understanding (MoU) was signed by His Excellency the Saudi Minister of Finance, Mr. Mohammed Aljadaan, and His Excellency the Egyptian Minister of Finance, Dr. Mohammed Maait, on November 9, 2023, during the Saudi-Arab-African Economic Conference in Riyadh. The MoU aims to establish a high-level financial dialogue between the Ministries of Finance in Saudi Arabia and Egypt with a view to fostering regular dialogue between the respective ministries, including discussions on recent financial developments globally and regionally, sharing experiences concerning national financial policies, and exploring potential technical collaboration.