Global Regulator & Central Bank News Roundup

Volume 45/2023 (November 20 – November 26)

 

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 generative AI-powered financial regulatory intelligence platform. Sign up here to receive the roundup via email.
 


Themes covered in this edition
 

 


Prudential & financial stability
 
EBA Publishes Final Regulatory Technical Standards for Assessing New Market Risk Internal Models Under FRTB Rules
The European Banking Authority (EBA) has released the final draft of the Regulatory Technical Standards (RTS) on the assessment methodology for institutions’ compliance with requirements for internal models under the Fundamental Review of the Trading Book (FRTB) rules. The RTS are a key part of phase 4 of the EBA roadmap focusing on market risk and counterparty credit risk. They aim to clarify procedures for competent authorities to grant an internal model approval under the FRTB regulations. The assessment’s focus points are governance, internal risk-measurement model, the stress scenario risk measure, and the internal default risk model. The RTS have been drafted per Article 325az(8)(b) of Regulation (EU) No 575/2013 (Capital Requirements Regulation – CRR), under which the EBA is mandated to define the assessment methodology for verifying an institution’s compliance with internal model requirements.

 


AML & CFT
 
FATF and OECD Publish Joint Report on Misuse of Citizenship and Residency by Investment Programmes
The Financial Action Task Force (FATF) and the Organisation for Economic Co-operation and Development (OECD) have jointly released a report scrutinizing the risks of Citizenship and Residency by Investment (CBI/RBI) programs. These schemes, which offer citizenship or residency to foreign investors, have been identified as potential channels for money laundering and other criminal activities. The report, responding to a 2022 FATF Ministers’ call for greater focus on corruption, highlights the dual nature of these programs: their economic benefits and their vulnerability to misuse. In particular, the report emphasizes the vulnerabilities of these programs, including using intermediaries, involvement of multiple government agencies, misuse by professional enablers, and weak governance and against this backdrop proposes a range of mitigative measures, including a detailed analysis of criminal exploitation possibilities, multi-layered due diligence, and clearly defining the roles and responsibilities of all parties to detect fraudulent activities.

 

EBA Launches Public Consultation on Travel Rule Guidelines
The European Banking Authority (EBA) has initiated a public consultation on new Guidelines aimed at preventing the misuse of funds and certain crypto-asset transfers for money laundering and terrorist financing. The Guidelines, outline the steps that Payment Service Providers (PSPs), Intermediary PSPs (IPSPs), crypto-asset service providers (CASPs), and Intermediary CASPs (ICASPs) should follow to identify missing or insufficient information accompanying the transfer of funds or crypto-assets. They also detail the protocols these providers should implement to manage transfers lacking the required information. The consultation process is open until 26 February 2024, inviting stakeholders to send in their remarks. The EBA will hold a virtual public hearing on the consultation paper on 17 January 2024.

 


Conduct & consumer protection
 
French AMF Experiment Examines Impact of “Gamification” on Investment Risk-Taking
Commissioned by the French Autorité des marchés financiers (AMF), a lab experiment led by the University of Strasbourg’s Laboratory of Experimental Economics, has demonstrated how gamification in investing influences risk behavior. Conducted with 366 students across multiple disciplines, the research examined the effect of different “gamification” triggers, such as trophies or virtual confetti, on financial decisions. Results from the study indicate that virtual trophies increased risk-taking when recognizing risky investments, whereas risk aversion was present when trophies were awarded for risk-free savings. Meanwhile, the presence of congratulatory messages or confetti had negligible impact on investment behavior. The study furthermore revealed gender-specific differences, demonstrating that women show less reactivity to gamification yet a greater tendency towards imitation, i.e. copy trading.

 


Fintech & ecosystem innovation
 
MAS Consults on Final Set of Regulatory Measures for Digital Payment Token Services
The Monetary Authority of Singapore (MAS) has officially released its concluding responses to the feedback on its proposals for regulating Digital Payment Token (DPT) service providers in Singapore. This final set of regulations is aimed at enhancing consumer protection and ensuring robust technology and cyber risk management. Key aspects of these regulations include a comprehensive approach to business conduct, requiring DPT service providers to: (1) Identify, mitigate, and transparently disclose any potential or actual conflicts of interest; (2) Establish clear policies and criteria governing the listing of DPTs; (3) Develop effective mechanisms to address customer complaints and dispute resolutions; (4) To curb speculative behavior in cryptocurrency trading, MAS has outlined specific consumer access measures. These include assessing customers’ risk awareness, prohibiting trading incentives and financing options such as margin or leverage transactions, disallowing credit card payments for DPT services, and placing limits on the valuation of cryptocurrencies in customer net worth calculations. In terms of technology and cyber risk, MAS mandates DPT service providers to maintain high system availability and recovery capabilities, aligning these requirements with current standards set for financial institutions. The implementation of these regulatory measures will occur in phases starting from mid-2024, providing a transition period for DPT service providers to comply.

 

AFSA Releases New Rulebook to Regulate Digital Asset Activities in the AIFC
The Astana Financial Services Authority (AFSA) has introduced a new Rulebook on Digital Asset Activities, which is due to take effect from January 1, 2024. The Rulebook lays out a clear legal and regulatory framework for Digital Asset Service Providers and was established in partnership with market participants. It responds to a wide scope of risks, including cyber threats, illicit activities, and market abuse. Under the new regulations, requirements for Digital Asset Service Providers are expanded to include a wide range of entities, such as Digital Asset Trading Facility Operators, Brokerage firms, Fund and Investment Managers, and Custody firms, among others. The Rulebook consolidates policy and supervisory practices relating to Digital Assets in the Astana International Financial Centre (AIFC) and will later include a framework for issuing stablecoins. The updated digital asset rules are expected to enhance the AIFC’s competitiveness in global financial and technological markets and encourage innovation in the crypto-industry ecosystem within Kazakhstan and the region.

 

UK Technology Working Group Releases Blueprint for UK Fund Tokenization Implementation
The Technology Working Group (TWG), under the aegis of the UK’s Asset Management Taskforce, have published a new report titled “UK Fund Tokenisation – A Blueprint for Implementation” to mark the conclusion of Phase 1 of their work. This report represents a collaborative effort involving key industry stakeholders such as Fidelity International, Blackrock, and JP Morgan Asset Management, alongside the Financial Conduct Authority and HM Treasury. Initiated in April 2023 with the re-establishment of the Economic Secretary to the Treasury’s Asset Management Taskforce, the TWG’s mandate focused on examining the transformative effects of new technology on the asset management sector. The group’s first phase of work concentrated on developing a framework for implementing fund tokenization in the UK, a process which involves recording units on a distributed ledger rather than traditional systems of record-keeping. This approach aims to transition the operational infrastructure of investment funds onto a distributed ledger, thereby enhancing the sector’s efficiency, transparency, and competitiveness.

 

Investigation into Binance Concludes with Record Settlement
The multi-year long probe by U.S. authorities into the cryptocurrency exchange Binance including its CEO Changpeng Zhao, and former Chief Compliance Officer Samuel Lim, has come to a conclusion with the agreement of a record settlement. Authorities had accused Binance of evading federal law including by soliciting and taking orders for digital asset commodity derivatives products from US-based customers without CFTC registration and failing to implement adequate AML, KYC and customer identification programs. Under the terms of the settlement, Binance and the individual defendants have admitted liability for charges of evading U.S. regulations and oversight. As part of the settlement with the CFTC Binance has agreed to pay a total of $2.7 billion in penalties, with Zhao and Lim ordered to pay $150 million and $1.5 million, respectively. Furthermore, the consent order requires Binance to disgorge $1.35 billion of ill-gotten gains, matching the civil monetary penalty imposed on the entity. In addition to financial penalties, the settlement outlines several obligatory reforms to Binance’s operational framework. The exchange is required to improve its compliance program significantly, incorporating robust Know Your Customer (KYC) procedures and corporate governance reforms. This includes the installation of at least three independent members on its board of directors, with Zhao precluded from serving as a board member. Furthermore, Zhao stepped down from its position as CEO and is replaced by Richard Teng. In parallel to these charges, Binance has also entered into a USD 4.3 billion settlement agreement with the U.S. Treasury, composed of a USD 3.4 billion civil money penalty by the Financial Crimes Enforcement Network and a penalty of USD 968 million by the Office of Foreign Assets Control.

 

OSFI Launches Consultation on Disclosure of Crypto-Asset Exposures for FRFIs
The Office of the Superintendent of Financial Institutions (OSFI) in Canada has launched a new consultation focused on the public disclosure of crypto-asset exposures by federally regulated financial institutions (FRFIs) in Canada. The consultation is intended to complement the Basel Committee on Banking Supervision (BCBS) own consultation on the disclosure of cryptoassets exposures, with the OSFI looking to harmonize its won guidelines with the BCBS’ proposals while tailoring them to the Canadian context. To that end, the OSFI is inviting stakeholder feedback on technical aspects of the BCBS disclosure tables and templates that should be amended for banks and insurers in the Canadian context as well as other considerations including those in relation to proportionality that should be borne in mind when finalizing the disclosure requirements. Stakeholders can submit their input until the end of January 2024. The draft guidelines for the public disclosures are planned to be released by the OSFI in fall 2024, followed by the final guidelines in winter 2025 and a target implementation set for Q4 2025.

 

CVM and FinanceLab Partner to Launch CRIA, a Center to Promote Innovation in Capital Markets
The Brazilian Securities and Exchange Commission (CVM) is collaborating with the Brazilian Institute of Digital Finance (FinanceLab) to launch the Center for Regulation and Applied Innovation (CRIA). The center aims to find collective solutions to the challenges faced by the sector’s regulation, using studies, research, and discussions on innovative subjects related to the Capital Market. The launch event will take place on December 4th at CVM’s headquarters in Rio de Janeiro. The event, open to the public, will feature four discussion panels focusing on topics like CRIA and Tokenization in the Brazilian Capital Market, and Self-Regulation and Regulatory Innovation. CRIA was initially approved by the CVM Board in October 2023 and aims to encourage studies and discussions surrounding innovation and digital transformation in the capital market, understand international regulations regarding new technologies, and aid CVM in creating a regulatory framework compatible with new technologies. CRIA’s launch is part of CVM’s initiative, Open Capital Markets, aimed at speeding up Brazilians’ autonomy over their financial lives and further developing the capital market.

 


Payments & currency
 
HM Treasury Releases Future of Payments Review 2023
The HM Treasury has published its Future of Payments Review report. The report follows the launch of the Future of Payments Review earlier this year in July and discusses the anticipated evolution of payments and makes to ensure a robust retail payments. The paper posits that the UK’s payments landscape, while strong today, lacks a cohesive and clear vision for the future, which is essential for maintaining confidence in the system’s coherence in the next 5-10 years. Against this backdrop, it makes then specific recommendations for the future of the UK’s payments landscape in relation to consumer experience, open banking as well as regulatory oversight and alignment: (1-2) The consumer shopping experience should be enhanced by strong customer authentication requirements from detailed technical standards to an outcomes-based approach by the Financial Conduct Authority (FCA); (3) HM Treasury and the FCA should regularly evaluate if digital exclusion results in financial exclusion; (4) For payments made via Open Banking, consumer protection should be bolstered with the introduction of a minimum form of dispute resolution; (5) Open Banking should be used to improve the person-to-person bank transfer payments journey; (6) An Open Banking alternative payment journey should be developed for retailers, providing them with a choice beyond card schemes; (7) Agreement on a commercial model for Open Banking should be prioritized by the Government and the Joint Regulatory Oversight Committee (JROC) to ensure investment in infrastructure and consumer protection. (8) The PSR should review the new Authorized Push Payment (APP) fraud rules after 12 months of implementation, and the Government should set a more ambitious fraud crime reduction target beyond 2024; (9) HM Treasury alongside other regulators should ensure that regulatory requirements are applied to Fintechs in a clear and appropriate manner to support their growth; (10) HM Treasury and other relevant regulators should take actions for better regulatory alignment.

 


ESG
 
NGFS Launches Online Guide for Capacity Building on Climate-Related and Environmental Risks for Central Banks and Financial Supervisors
The Network for Greening the Financial System (NGFS) has launched the Sustainability Training Reference Guide (STaR Guide), an online interactive guide offering guidance to central banks and financial supervisors on developing a capacity-building program on climate-related and environmental knowledge. The STaR Guide, available on the Climate Training Alliance (CTA) Portal, is a supplement to the existing NGFS Sustainability Knowledge and Information Learning Library (SKILL). It reflects the accumulated experience and best practices of NGFS Members and other stakeholders for establishing an effective training framework on climate-related and environmental risks.

 

NGFS and Toronto Centre Jointly Release Key Points from Workshop on Climate and Biodiversity Loss Risks
In a joint statement, the Network for Greening the Financial System (NGFS) and the Toronto Centre have published a summary of the proceedings from their joint senior mangement workshop on climate and diodiversity loss risks, which was held from October 3-5 this year with attendance by senior management of central banks and supervisory authorities worldwide. Discussions during the workshop focused on the potential implications of climate and biodiversity loss risks for supervisory authorities and their prudential and conduct mandates as well as central banks with respect to regulation, supervision and macroprudential policy. Furthermore, the meeting explored necessary capacity-building as well as aspects related to the data required for assess climate and biodiversity-related risks.

 

Basel Committee Explores Challenges and Progress in Implementing Principles for Climate-Related Financial Risk Management
The Basel Committee has issued a newsletter detailing its discussions on the implementation of the Principles for the effective management and supervision of climate-related financial risks. The Principles, published in June 2022, have seen some progress in implementation but require further effort. This includes improving data quality and availability, and incorporating the use of proxies and assumptions where reliable climate-related data is missing. The Basel Committee, stressing the need for immediate implementation, continues to monitor the implementation process and promote awareness and harmonization across various jurisdictions.

Within 12 months of publication, the Committee facilitated experience sharing and identified key implementation challenges. Though some Principles, like corporate governance and risk management processes, have been partly implemented, supervisors noted that banks lacked the capacity to fully implement all Principles. The issue was particularly pronounced in the quantification of climate-related financial risks and infusing those risks into capital and liquidity assessments.

Banks and supervisors identified the key challenge as a lack of data. Efforts have been initiated to address this issue, with banks seeking multimedia data and automating climate data capture, while supervisors are aiming to collect and organize the data across platforms. In-house capability building in banks and expertise development have also been advised to minimize reliance on external sources. Climate scenario analysis is also being used by banks for various purposes, despite methodological and data limitations. Thus, the evolution of climate-related financial risk management needs to continue, with data quality, capability building, and simulation analysis remaining primary focus areas.

 

New BIS FSI Paper Examines Role of Insurance Pricing and Underwriting in Mitigating Climate-Related Financial Risk
New research by the Bank for International Settlements’ Financial Stability Institute (BIS FSI) titled “Too Hot to Insure – Avoiding the Insurability Tipping Point” explores the critical intersection of insurance practices and climate change. Grounded in a survey of insurance supervisors and insurers, the paper reviews how climate-related risks are being integrated into insurance product pricing and underwriting. The authors underscore the urgent need for an orderly transition to net zero greenhouse gas emissions to avert economic disruptions and financial instability. They note that while many insurers are revising their policies to support climate risk mitigation, there is a tangible trend towards increasing premiums and reducing coverage, partly due to heightened risk concentrations in vulnerable regions. This trend raises concerns about the future affordability and availability of insurance for climate-related risks. In addition, the authors also explore the complex role of insurance supervisors. They argue for a balanced approach where supervisors ensure sound underwriting and pricing while acknowledging their limited direct role in promoting climate risk mitigation. In conclusion, the paper calls for a collective response involving insurers, regulators, governments, and the public to prevent the reduction in the availability and affordability of insurance against climate risks, stressing that this is necessary to avoid reaching an insurability tipping point, which would result in significant losses for all stakeholders involved.

 

IAIS Initiates Second Public Consultation on Climate Risk Supervisory Guidance with Focus on Market Conduct and Scenario Analysis
The International Association of Insurance Supervisors (IAIS) has launched its second public consultation focused on climate risk supervisory guidance, which forms part of its ongoing effort to establish a universally consistent supervisory framework addressing the financial risks climate change poses and features two comprehensive draft application papers. The first paper addresses market conduct issues and aims to aid supervisors in identifying and addressing potential consumer mistreatment in the context of natural catastrophe protection and sustainability-focused products. This includes tackling issues like misleading information or “greenwashing,” in alignment with the IAIS’s Conduct of Business and Countering Fraud in Insurance standards (ICP 19 and ICP 21, respectively). The second paper delves into the application of climate risk scenario analysis, a pivotal tool for both insurers and supervisors. It emphasizes the importance of this analysis in understanding insurance sector risks at both micro and macroprudential levels. The paper discusses the integration of this analysis with established standards in Enterprise Risk Management for Solvency Purposes and Macroprudential Supervision (ICP 16 and ICP 24). Feedback on the two papers can be provided until 23 February 2024. Additionally, the IAIS will host a webinar on 12 December to present the papers and engage with stakeholders.

 

ECCB Collaborates with AFD to Integrate Climate Risk Management into ECCU Financial System
The Eastern Caribbean Central Bank (ECCB) has entered into a MoU with the Agence Française de Développement (AFD) to incorporate climate-related financial risk management into the regulation and supervision of the Eastern Caribbean Currency Union’s (ECCU) financial system. Funded by the AFD and the European Union, the initiative will enhance the integration of these risk management measures into the supervision tools employed by the ECCB and ECCU’s national regulators. Additionally, the project aims to enhance green financing and green loan channels. The collaborative effort will also facilitate the adoption of adequate regulations by regional governments for tackling climate-related risks.

 


Other transversal themes
 
Saudi Capital Market Authority Launches Public Consultation on Proposed Regulations for Secondary Offerings in the Capital Market
The Saudi Arabia Capital Market Authority (CMA) has launched a public consultation on its Draft Regulatory Framework to regulate Secondary Offerings in the Saudi capital market. The draft mandates that shareholders intending to make a secondary offering must appoint a CMA-authorized financial advisor. This advisor is required to notify the CMA at least fifteen days before the proposed offering date. Additionally, the draft introduces a restriction period on the remaining shares of the selling shareholders in both Public secondary offerings and those in the Parallel Market. Furthermore, a significant feature of the proposed regulations is the implementation of a book-building process for determining the final offering price, share allocation, and a price stabilization mechanism. This mechanism is designed to maintain share price stability post-offering through additional allocation. The proposed regulatory framework is intended to enhance the attractiveness of the capital market by increasing the tradability of shares and diversifying the investor base. Feedback to the consultation can be provided until December 21.

 


Cross-border cooperation
 
HKMA and FADGM FSRA Deepen Cooperation on Cross-Border Trade and SME Financing
The Hong Kong Monetary Authority (HKMA) and the Abu Dhabi Global Market Financial Services Regulatory Authority (ADGM FSRA) have announced a MoU to intensify fintech cooperation, specifically in cross-border trade-related data exchange and business collaboration with a view to resolving challenges in cross-border banking services with a particular focus on SME account opening and financing. Under the arrangement the two parties will consider constructing joint proof of concept projects linking the HKMA’s Commercial Data Interchange to the ADGM’s SME Financing Platform as well as will jointly explore cross-border data exchange use cases.