Global Regulator & Central Bank News Roundup
Volume 44/2023 (November 13 – November 19)
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
- Payments & currency
- Other transversal themes
- International cooperation
- Leadership changes
Prudential & financial stability
FSB Plenary Meets in Basel to Discuss Global Financial Stability and Emerging Risk Areas
The Financial Stability Board (FSB) has held its latest Plenary meeting in Basel. The meeting focused on the global financial stability outlook with the Plenary noting that while the banking system has demonstrated resilience, critical vulnerabilities remain including those brought about by the shift towards a higher interest rate environment, causing private and public sector debt to be high in many countries. Additionally, it stressed the risks associated with the growing significance of non-bank financial intermediation including in relation to leverage and liquidity mismatches. With a view to emerging and developing economies, the Plenary highlighted high debt levels as a critical concern, with tightened financing conditions and the sovereign-bank nexus potentially accelerating shock transmission. Besides this, the FSB also discussed the forthcoming work programme for 2024. Topics in focus for the year ahead include: (1) enhancing the resilience of the NBFI sector, (2) advancing work on the global regulatory and supervisory framework for crypto-asset markets and activities; (3) addressing financial risks from climate change, (4) enhancing cross-border payments; (5) strengthening cyber and operational resilience, and (6) financial innovation.
European Council Adopts Mandate to Begin Negotiations on Daisy Chains
The Council of the EU has adopted a mandate to commence negotiations with the European Parliament on the proposed amendment known as ‘Daisy Chains’. This proposal aims to modify the Bank Recovery and Resolution Directive (BRRD) and the Single Resolution Mechanism Regulation (SRMR) in order to address concerns tied to ‘internal MREL’ within banking resolution groups. ‘Internal MREL’ pertains to the minimum requirement for own funds and eligible liabilities that a subsidiary issued within a banking group must meet to ensure an effective bail-in tool application. The Daisy Chains proposal’s goal is to allow resolution authorities to set internal MREL on a consolidated basis, sparing subsidiaries from individual MREL deduction obligations. This measure seeks to prevent the potential disproportionately negative impact of the current internal MREL rule on banking groups operating under a parent holding company. The amendment would also introduce a specific MREL treatment for ‘liquidation entities’ in a banking group. As a norm, these entities would not have to fulfill MREL requirements exceeding their own fund rules unless directed otherwise by the resolution authority on an individual basis with a view to financial stability protection.
AML and CFT
AUSTRAC and Pacific FIUs Convene in Cook Islands to Strengthen Regional Partnership
The Cook Islands hosted a meeting of Financial Intelligence Units (FIUs) from across the Pacific to strengthen regional partnerships to combat serious financial crime. The plenary of the Pacific Financial Intelligence Community (PFIC) identified paths for future collaboration in detecting and disrupting financial crime. Attendees signed a Statement of Intent indicating a desire to broaden sharing of financial intelligence and collaborative efforts against financial crime. The PFIC meeting, co-hosted by AUSTRAC and the Cook Islands Financial Intelligence Unit (CIFIU), explored initiatives such as joint operations, capacity building, and technological improvements. AUSTRAC has furthermore equipped the Cook Islands FIU with a new data analytics system, the TAIPAN system, that will facilitate the detection of money laundering and criminal threats by identifying suspicious financial patterns. Representatives from Australia, Fiji, Kiribati, Nauru, New Zealand, Niue, Palau, Papua New Guinea, Marshall Islands, Samoa, Solomon Islands, Tonga, and Tuvalu attended the PFIC Conference.
Cyber and operational resilience
ESMA and EU CCPs Conduct Global Fire-Drill to Strengthen Financial Stability
The European Securities and Markets Authority (ESMA), the EU’s primary financial markets regulator, is leading a global fire-drill involving the majority of EU Central Counterparty Clearing Houses (CCPs). Organised in collaboration with multiple EU and non-EU authorities, CCPs, and industry associations, the drill that begins the week of 13 November 2023 will see over 30 CCPs running a simulation of their default management processes simultaneously. In the course of the simulation, the CCPs will imagine the failure of a shared defaulting clearing member, identifying possible operational challenges in their processes. The cooperative nature of the test also allows the sharing of best practices among CCPs to enhance financial stability.
Conduct and consumer protection
BCBS Issues Discussion Paper Addressing Digital Fraud Vulnerabilities in Banking Sector
The Basel Committee on Banking Supervision (BCBS) has released a new discussion paper on digital fraud in banking, addressing its impact on financial stability and supervision. The paper acknowledges the dual nature of technological advancements in banking: while offering efficiency, convenience, and financial inclusion, they also significantly elevate risks, particularly digital fraud. The Committee emphasizes that digital fraud, intensified during the Covid-19 pandemic, now involves sophisticated cybercriminal ecosystems and techniques bypassing traditional security measures. Against this backdrop, the paper seeks to provide an assessment of digital fraud’s defining features, its effects on banks and financial stability, and the current initiatives at domestic, regional, and global levels to mitigate these risks. Stakeholders are invited to provide feedback until February 16, 2024.
Financial Markets Authority (FMA) Launches Consultation on Proposed Fair Outcomes for Consumers and Markets
The New Zealand Financial Markets Authority (FMA) has issued for consultation a proposed guide for outcomes-focused regulation in the financial sector. The guide is a strategic initiative by the FMA to orient the financial market’s operational focus towards delivering concrete, fair, and positive results for consumers, by setting clear expectations for fairness in consumer and market dealings. Among other things, the seven outcomes advocate that consumers have access to suitable financial products and services, are provided with useful information for informed decision-making, receive value for money, and can trust that providers are acting in their best interests. Additionally, the outcomes aim to guarantee ongoing quality care for consumers, uphold the integrity and transparency of the markets, and foster an environment conducive to sustainable innovation and growth. This consultation is open until 1 March 2024.
Fintech and ecosystem innovation
IOSCO Issues Final Policy Recommendations for the Regulation of Crypto and Digital Asset Markets
The IOSCO has released the final set of policy recommendations for crypto and digital assets markets. The recommendations, which aim to support greater harmonization of regulatory approaches to crypto-asset service providers (CASPs) and mitigation of the risks to investor protection and market integrity, cover six areas that regulatory authorities should consider in their regulatory response: (1) Conflicts of interest arising from vertical integration of activities and functions with recommendations underscoring the necessity for effective governance within CASPs to prevent conflicts of interest, particularly in vertically integrated entities, including the legal segregation of various functions and transparent disclosure of roles and responsibilities. (2) Market manipulation, insider trading and fraud with IOSCO advocating for the establishment of robust systems to prevent manipulative and fraudulent practices, including market surveillance to combat insider trading and market manipulation. (3) Custody and client asset protection whereby IOSCO calls for stringent controls and the segregation of client funds, ensuring that custody practices for crypto-assets meet the high standards observed in traditional finance. (4) Cross-Border risks and regulatory cooperation with recommendations emphasizing collaborative enforcement and supervision, fostering international cooperation among regulators. (5) Operational and Technological Risk Management including the requirement to manage the risks associated with distributed ledger technology and smart contracts, and addressing the specific operational complexities of the crypto space. (6) Retail Distribution and Risk Disclosure with IOSCO stressing the importance of suitability assessments for retail investors and comprehensive risk disclosures, considering the volatile and complex nature of crypto-assets. The recommendations have been formulated in accordance with the principle of “same activities, same risks, same regulation/regulatory outcomes”.
FSI Research Paper Recommends Oversight Framework for Critical Cloud Service Providers in the Financial Sector
The Bank for International Settlements Financial Stability Institute (BIS FSI) has published a new insights paper discussing oversight frameworks for critical cloud service providers (CSPs) in the financial sector. The authors note that as financial firms increasingly rely on CSPs for critical operations, the risk of systemic disruptions becomes a major concern, especially given the market’s concentration in a few global CSPs. This reliance poses significant threats, including data security, system availability, and operational continuity, which existing regulatory practices, focused on individual firms managing third-party risks, inadequately address. To that end, the paper advocates for direct oversight frameworks for crucial CSPs, acknowledging their systemic importance and cross-sectoral, cross-border operations. Proposed strategies include leveraging existing ICT and cybersecurity regulations, closely coordinating with non-financial authorities, and ensuring consistent enforcement of requirements. Among other things, regulatory authorities should consider imposing higher risk management and resilience standards on critical CSPs, along with rigorous resilience testing and incident response exercises. The paper also underscores the necessity of cross-border oversight arrangements to manage the global nature of CSP risks, suggesting both informal and formal approaches, including collective cross-border oversight bodies.
MAS and Industry Partners Collaborate on GenAI Risk Framework for Financial Sector
The Monetary Authority of Singapore (MAS) has completed the first phase of Project MindForge, aimed at establishing a risk framework for the application of Generative Artificial Intelligence (GenAI) in the financial industry. The project—backed by DBS Bank, OCBC Bank, United Overseas Bank Ltd, Standard Chartered Bank, Citi Singapore, HSBC, Google Cloud, Microsoft, MAS, Accenture, and the Association of Banks in Singapore—resulted in a detailed GenAI risk framework with seven risk areas: Accountability and Governance, Monitoring and Stability, Transparency and Explainability, Fairness and Bias, Legal and Regulatory, Ethics and Impact, and Cyber and Data Security. The consortium will expand in the project’s next phase to include financial institutions from the insurance and asset management industries, with plans to explore the use of GenAI in areas like anti-money laundering, sustainability, and cybersecurity. The project aims not only to guide the responsible use of GenAI in the financial sector but also to harness its potential for improving efficiency and customer experiences, and generating product and service ideas.
MAS Collaborates with Financial Sector to Expand Asset Tokenisation Initiatives
The Monetary Authority of Singapore (MAS) is teaming up with the financial sector to broaden asset tokenization initiatives and develop capabilities to scale up tokenized markets under Project Guardian. The project aims to catalyze institutional adoption of digital assets, release liquidity, and create more investment opportunities while improving the efficiency of financial markets. Five more industry pilots have been initiated to test promising use cases. Institutions, including Citi, T.Rowe Price Associates, Franklin Templeton, J.P. Morgan, Apollo, and others, are testing various mechanisms, ranging from pricing bilateral digital asset trades, real-time post-trade reporting, enhancing treasury liquidity management, or issuing a tokenized money market fund, to seamless investment and management of discretionary portfolios. In light of the strong interest from the funds industry, MAS is initiating a funds workstream to address tax, policy, and legal considerations and widen the distribution channels for asset managers.
Simultaneously, it is collaborating with international policymakers and financial institutes like BNY Mellon, DBS, JP Morgan, and MUFG on an initiative named Global Layer One (GL1). GL1 aims to design an open, digital infrastructure for hosting tokenized financial assets and applications, enabling seamless cross-border transactions and the trade of tokenized assets across global liquidity pools.
MAS has also partnered with the financial industry to develop an Interlinked Network Model (INM) for exchanging digital assets across independent networks, allowing financial institutions to transact without being on the same network.
ADGM FSRA and MBZUAI Establish Strategic Collaboration to Advance AI in Regulatory Compliance
The Financial Services Regulatory Authority (FSRA) of the Abu Dhabi Global Market (ADGM) and Mohamed bin Zayed University of Artificial Intelligence (MBZUAI) have signed a Memorandum of Understanding (MoU) to promote artificial intelligence (AI) in achieving better regulatory compliance within the financial services industry. The partnership aims to create advanced regulatory technology (regtech) and supervisory technology (suptech).
Joint Manifesto by Leading Blockchain Advocacy Groups Urges EU to Embrace Technology for Economic Growth and Policy Harmonization
Four major blockchain advocacy groups in the European Union (EU) – the European Crypto Initiative, INATBA, Blockchain for Europe, and the European Blockchain Association – have jointly released a manifesto to promote blockchain technology. Released at the Blockchain for Industry Conference, the document underlines values such as decentralization, privacy, security, transparency, sustainability, and legal/regulatory compliance. It is aimed at preempting political changes in Europe in 2024. The groups warn the EU is at risk of falling behind North America and Asia in the digital economy race and highlight the crucial role blockchain will play. The manifesto calls for the EU to increase focus on policy harmonization, to use blockchain to improve trade transparency and cybersecurity, to consolidate its data economy, and to allocate funds for blockchain application development. The groups believe in the potential of blockchain to reinvent business models and economic incentive structures while maintaining EU identity rights and values.
Payments and currency
BIS Survey Experiment Reveals the Influence of Privacy in Adoption of CBDCs
A new working paper by the Bank for International Settlements has explored the role of privacy in the design of CBDCs. Using a randomized survey experiment with over 3,500 participants from Korea, the study reviewed how privacy protection and data governance influence public willingness to adopt CBDCs under different CBDC designs. Findings highlight that privacy is a pivotal factor in deciding to use CBDCs, especially for transactions involving sensitive personal information. Specifically, the study indicates that public willingness to adopt CBDCs significantly increases when they are informed about the privacy benefits, demonstrating a clear preference for privacy-preserving features in digital currency design. The study also highlights that the public’s trust in institutions and their demographic characteristics influence their willingness to use CBDCs.
MAS, BNM and BI Expand Payment Connectivity with New Real-time Payment Systems Linkage and Cross-board Payment Linkage
The Monetary Authority of Singapore (MAS), in collaboration with both Bank Negara Malaysia (BNM) and Bank Indonesia (BI) is further advancing the ASEAN Payment Connectivity Initiative with two critical milestones. The MAS and BNM have jointly launched a real-time payment systems linkage between Singapore’s PayNow and Malaysia’s DuitNow, enabling peer-to-peer (P2P) transactions via mobile phone numbers or Virtual Payment Addresses (VPAs). This follows the earlier QR payment linkage and includes the engagement of non-bank financial institutions, allowing users to transact up to S$1,000 or MYR3,000 daily. The service is set to fully launch in Malaysia by December 2023, as part of a phased approach to foster user adaptation.
Simultaneously, the MAS and BI have established a cross-border quick response (QR) payment linkage between Indonesia and Singapore, engaging major financial institutions like OCBC, UOB, and DBS, along with various Indonesian banks. This system facilitates seamless retail payments across borders, promoting the integration of the digital economy and financial ecosystems between the two countries. In conjunction with this, a Letter of Intent (LOI) has been signed to pave the way for a local currency settlement framework by 2024, aiming to reduce exchange rate risks and transaction costs.
IFSB and CBUAE to Organize Global Forum on Climate Risks and Sustainable Finance
The Islamic Financial Services Board (IFSB) is set to host a High-level Global Forum on Sustainability-related Risks, Opportunities, and Policy Initiatives, in partnership with the Central Bank of the United Arab Emirates (CBUAE). The event, scheduled for 27 November 2023, ahead of COP 28, seeks to shape Islamic finance’s regulatory and policy response to climate objectives. Focus points of the forum include inter alia the discussion on . The event will bring together over 100 public and private sector stakeholders to discuss the case for standard-setting initiatives within the Islamic Financial Services Industry (IFSI) and innovative strategies for promoting sustainable finance, as well as to brainstorm on ways to develop unified unified regulatory frameworks, legal documentation, and reporting guidelines for climate or sustainability impacts.
MAS Introduces Gprnt, a Digital Platform for Effortless ESG Data Collection and Access
The Monetary Authority of Singapore (MAS) has launched Gprnt (Greenprint), a new digital platform aimed at transforming the collection and accessibility of Environmental, Social, and Governance (ESG) data. A product of MAS’s Project Greenprint, Gprnt is designed to simplify ESG reporting for businesses of all sizes, from SMEs to multinational corporations, automating the ESG reporting process by integrating various business systems like utilities, payroll, and AIoT sensors, enabling efficient data collection and computation. It also features AI tools for crafting sustainability disclosures and aligns with global reporting standards, easing the reporting burden for businesses operating across multiple geographies. The platform, which will be managed by a newly-created entity, Greenprint Technologies Pte Ltd., with the support of strategic partners including HSBC, KPMG in Singapore, MAS, Microsoft and MUFG Bank, is currently undergoing live testing with select banks and SMEs and set to fully deploy from Q1 2024.
UAE Sustainable Finance Working Group Introduces ‘Principles for Managing Climate-related Financial Risks’ in Commitment to Sustainable Growth
The UAE Sustainable Finance Working Group (SFWG), comprised of representatives from the Central Bank of the UAE (CBUAE), Abu Dhabi Global Market (ADGM), Securities and Commodities Authority (SCA), and Dubai International Financial Centre (DIFC), has launched the ‘Principles for the Effective Management of Climate-related Financial Risks’ following the country’s Year of Sustainability. The Principles, which were developed in anticipation of the UAE’s hosting of COP28, offer a common understanding among SFWG’s members about the minimum standards climate-related financial risk management should meet for all financial entities in the UAE. Specifically, they outline the governance expectations and risk management of climate-related financial risks for financial-sector entities operating in the UAE with a focus on the responsibilities and oversight of these risks for all licensed financial institutions and their integration into strategy-setting, risk management framework, capital and liquidity planning processes, and scenario analysis exercises. The Principles were informed by international standards, industry consultations, and key alignment areas with global policy priorities set by the G20 Sustainable Finance Roadmap.
Central Bank of Bahrain Launches New ESG Reporting Module
The Central Bank of Bahrain (CBB) has issued a dedicated new Environmental, Social, and Governance (ESG) requirements module. The module, which targets all listed companies, banks, financing companies, insurance firms, and certain investment firms, prescribes detailed guidelines for ESG reporting, emphasizing transparency, corporate governance, and alignment with social and climate goals. impacts. Specifically, it sets out expectations for the governance and process for ESG reporting, including the materiality assessment that should guide the prioritization of ESG issues, and provides a comprehensive list of key performance indicators, mapped to the different ESG dimensions. The module was developed drawing from global standards and integrating insights from the CBB’s 2022 ESG Reporting Survey and feedback from mid-2023 consultations. The new requirements will be effective from the year ending December 31, 2024.
EBA Publishes Final Templates for EU Banks’ Climate-Related Data Collection Exercise
The European Banking Authority (EBA) has released final templates for the collection of climate-related data from EU banks for the unique Fit-for-55 climate risk scenario analysis. The templates, complete with guidance on definitions and compilation rules, aim to capture comprehensive climate-related and financial data, including credit, market, and real estate risks, from 110 EU banks. The initiative, starting on 1 December 2023 and concluding on 12 March 2024, requires banks to submit both aggregated and counterparty level data as of December 2022. The data collected through the exercise will facilitate the evaluation of concentration risks and potential amplification mechanisms related to large climate exposures, offering a broader perspective on climate-related risks within the banking sector.
Panama Releases Sustainable Finance Taxonomy for Consultation
The Panama Supervisory Committee, comprising the Ministry of Economy and Finance, the Ministry of the Environment, and the Superintendencies of Banks, Securities Market, and Insurance and Reinsurance, has launched the public consultation of Panama’s Sustainable Finance Taxonomy. The new taxonomy defines environmentally sustainable investments and establishes a common understanding of economic activities that significantly contribute to the country’s environmental goals with a view to efficiently channel capital flows toward investments critical for the transition towards a sustainable economy. The consultation is open until mid-December.
Other transversal themes
Concerns Raised Over Workplace Culture at FDIC
The U.S. House Financial Services Committee Republicans, along with the U.S. Senate Committee on Banking, Housing and Urban Affairs, have called for an investigation into an alleged toxic work culture at the Federal Deposit Insurance Corporation (FDIC). In particular, stakeholders have expressed concerns over the potential impact of the work environment in recent bank failures and the extent to which the FDIC was able to effectively oversee the banking system due to these work-related problems. Amid the concerns raised, several members of the FDIC Board of Directors have reacted, supporting the step towards a comprehensive, independent investigation.
IFC, MAS, and the Forum Collaborate on Advancing Digital Inclusion in Emerging and Developing Markets
The International Finance Corporation (IFC), Monetary Authority of Singapore (MAS), and the World Economic Forum (the Forum) have signed a Memorandum of Understanding to promote digital inclusion through financial services. The aim of the partnership is to reduce inequalities in emerging and developing economies, focusing on making digital services more affordable for underprivileged communities and micro, small, and medium-sized enterprises (MSMEs).
VARA Announces Leadership Transition with Matthew White as New CEO
Matthew White has been appointed as the new CEO of Dubai’s Virtual Assets Regulatory Authority (VARA). White’s appointment is part of a planned transition from incumbent CEO Henson Orser, who will offer support and remain involved in a consulting role. White has previously led the Cybersecurity and Digital Trust team at PwC and co-founded two startups. He holds academic credentials from MIT Sloan School of Management and the University of Oxford.