Global Regulator & Central Bank News Roundup
Volume 46/2023 (November 27 – December 3)
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
- AML & CFT
- Conduct & consumer protection
- Fintech & ecosystem innovation
- Payments & currency
- Other transversal themes
- Cross-border cooperation
Prudential & financial stability
FSB Announces 2023 G-SIB List
The Financial Stability Board (FSB) has issued the 2023 list of global systemically important banks (G-SIBs), based on end-2022 data. Overall, this the list of G-SIBs decreased by one from 30 to 29. Key changes include the addition of the Bank of Communications (BoCom) to and the removal of Credit Suisse and UniCredit from the list. Concurrently with the release by the FSB, the Basel Committee on Banking Supervision (BCBS) released details on the identification methodology.
Bank of Mexico Launches Public Consultation on Proposed Permanent Liquidity Facility During Financial Crises
The Bank of Mexico is consulting on a new proposal for the establishment of a permanent liquidity facility. The proposal comes in response to the recent global and domestic financial crises due to Covid-19 and events in global banking systems in early 2023. The proposed framework seeks to allow credit institutions to carry on with their operations without substantial interruptions by enabling timely access to liquidity backed by a substantial pool of high-quality assets. Among other things, the facility would expedite the granting of resources and consider a broader set of guarantees. Access to the facility would be anchored in a clear set of conditions. The framework would replace Circular 10/2015 regarding the “Rules applicable to the exercise of Financing granted by the Bank of Mexico to cover ordinary additional liquidity needs.
AML & CFT
APG Publishes Paper on Illicit Financial Flows Stemming from Illegal Fishing Practices
The Asia/Pacific Group on Money Laundering (APG) launched a project in October 2021 examining illicit financial flows resulting from illegal, unreported, and unregulated (IUU) fishing. The resultant Issues Paper marks the end of the project by outlining the factors that impede an effective Anti-Money Laundering/Countering the Financing of Terrorism (AML/CFT) approach towards the proceeds from illegal fishing. The report also pinpoints how this illicit activity, currently undertaken mostly by transnational crime factions and valued between USD 10-23.5 billion yearly, is not just a fisheries issue but a systemic concern, intersecting numerous crimes like corruption, fraud, human trafficking, and wildlife crime. The financial aspects of illegal fishing present a significant law enforcement challenge due to a limited understanding of its transnational nature, weak international coordination on illicit profits of illegal fishing, and the lack of parallel financial investigations. The report emphasizes the potential for building knowledge on financial aspects unique to illegal fishing to develop effective financial investigations and recommends redefining illegal fishing as a predicate crime for money laundering to prompt effective AML/CFT responses.
EBA Expands Risk-based AML & CFT Supervision Guidelines to AML/CFT supervisors of Crypto-Asset Service Providers
The European Banking Authority (EBA) has completed the expansion of its risk-based anti-money laundering and countering the financing of terrorism (AML/CFT) supervision guidelines to encompass crypto-asset service providers (CASPs). The updated guidelines specify the procedures supervisors should employ to identify and manage money laundering and terrorism financing (ML/TF) risks associated with CASPs, thereby supporting greater harmonization and consistency in approach, especially in cases when multiple authorities are involved in the supervision of the same entity. The updated guidelines also offer direction on the sources of information authorities should consider when assessing ML/TF risks affiliated with CASPs. The new guidelines will apply from 30 December 2024.
Conduct & consumer protection
EFAMA Proposes Revised Solutions to Enhance Investor Benefits under the European Commission’s Retail Investment Strategy
EFAMA has released a new document titled “Retail Investment Strategy: positive elements for European investors and ones that should be reconsidered,” providing alternative solutions for the benefits of investors under the European Commission’s Retail Investment Strategy. The changes that EFAMA proposes include inter alia removing ‘value-for-money’ benchmarks in favor of a qualitative and quantitative assessment of value, discontinuing the ‘best interest’ test and instead maintaining the quality enhancement test meeting MiFID regulations, as well as not banning commissions on execution-only trades and instead applying the quality enhancement test to these trades to ensure that commissions are enhancing investor services. Furthermore, EFAMA also suggests not adding unclear dashboards to investor disclosure documents and applying the ‘suitability-light’ regime to safe and highly regulated investment products.
Canadian Securities Regulators Propose Binding Regime for Investment Disputes, Seeking Feedback on Proposed Framework
The Canadian Securities Administrators (CSA) have put forth a proposal for a regulatory framework that would strengthen dispute resolution in the investment industry. The proposed changes will transform the Ombudsman for Banking Services and Investments (OBSI), currently an independent body that resolves disputes without binding authority, into an entity with the power to make final decisions that firms must comply with. The initiative is driven by CSA’s experience with OBSI, international best practices, and the need for a fair, accessible, and effective redress system for retail clients. The CSA observed that in Canada, while most client complaints are resolved by firms, there have been instances of refusal to pay or settlements for less than OBSI’s recommendations, which undermines complainant confidence and fair resolution. Granting OBSI binding authority aligns with international trends where financial ombudservices have similar powers. The proposed framework reflects the efficiency and fairness of OBSI’s dispute resolution as an alternative to litigation, which is often complex and costly. It incorporates OBSI’s existing processes, adds a review stage, and culminates in a final decision binding on firms and, in specific circumstances, on complainants. The CSA is seeking feedback on the structural elements of the proposal, with a 90-day comment period ending on February 28, 2024.
Brazil CVM Launches Consultation on Impact of Digital Influencers in the Capital Market
The Brazilian Securities and Exchange Commission (CVM) has initiated a new public consultation concerning the role and impact of digital influencers within the capital market The consultation aims to gather public input on possible regulatory measures, focusing on obligations and responsibilities of regulated agents when influencers are hired or act as representatives within the market, as well as how they disseminate information via various platforms and social networks. Among other things, the consultation addresses questions regarding the contractual arrangements and transparency between market participants and influencers. It also discusses issues related to the language and promotional tactics used by regulated agents themselves on media platforms and social networks.Earlier this year, the CVM released a study proposing potential regulations regarding the commercial relationship between influencers and regulated market participants including a rule under which influencers hired by a CVM regulated party would be mandated to disclose the contractrual relationship when offering sponsored content regarding securities.
Fintech & ecosystem innovation
FSB Releases Report on Risks Posed by Multi-Function Crypto-Asset Intermediaries
The Financial Stability Board (FSB) has released a report exploring the financial stability implications of multi-function crypto-asset intermediaries (MCIs). MCIs refer to individual or affiliated firms which often operate a broad array of crypto-asset services and, in some cases, are involved in the issuance, promotion, and distribution of crypto-assets, including stablecoins. The financial upheaval in the crypto-asset market during May/June 2022, coupled with the collapse of FTX in November 2022, underscored the significance of MCIs in the crypto ecosystem as well as the increased structural risks they pose. The report finds that MCIs expose the global financial system to vulnerabilities similar to those in traditional finance: leverage, liquidity mismatch, and technology and operational vulnerabilities. Certain combinations of functions could exacerbate these risks, leading, for instance, to higher leverage and liquidity mismatch. While the current threat to global financial stability seems limited, the FSB warns of potential risks from MCIs’ increasing interconnectedness with the traditional financial ecosystem. The report pinpoints areas for FSB attention in cooperation with standard-setting bodies, including addressing potential amplification risks from MCI function combinations and a lack of proper governance. Efforts should also focus on enhancing cross-border cooperation and information sharing and addressing information gaps identified in the report.
OSC Survey Reveals Declining Crypto Asset Ownership and Waning Interest Among Canadians
The Ontario Securities Commission (OSC) has published a follow-up survey on investor knowledge and perspectives on crypto assets. The 2023 survey revealed a 23% decrease in Canadian crypto asset ownership over the past year, with interest in crypto also waning. Specifically, the survey insights suggest that more crypto investors have regretted their purchase and reported their assets’ worth as less than the purchase amount. Additionally, the belief in crypto playing a vital role in the economy is declining, with fewer Canadians planning to purchase crypto in the next 12 months. The survey found the reasons for purchasing crypto assets to be varied, including earning higher returns than a savings account or using it as a long-term speculative investment. However, financial risks, volatility, lack of government-backed guarantees, and potential fraud deterred some from purchasing.
Payments & currency
BIS Innovation Hub Swiss Centre Releases First Report Under Project Tourbillon
The Bank for International Settlements (BIS) Innovation Hub Swiss Centre has released the first report under its CBDC-focused Project Tourbillon. Project Tourbillon is a project which explores how to balance requirements for privacy, cyber resiliency, and scalability in a prototype CBDC. In relation to privacy, the project tested the concept of payer anonymity whereby the payer is afforded with cash-like anonymity to payers while the identity of the payee is shared with the payee’s bank and maintained confidentially in the bank’s system. Such a set-up would ensure that the central bank does not have line of sight into personal payment data yet would be to monitor CBDC circulation at an aggregate level. Security and scalability features were furthermore tested by implementing quantum-safe cryptography and by assessing the prototype’s ability to handle a growing number of transactions using payment data. To support these tests, the project involved the design of two distinct prototypes based on the so-called eCash design concept. While both prototypes validated the hypothesis that it is possible to achieve a CBDC design that can balance all three requirements, tests underscored the need to further investigate security features and their impact on performance.
HKMA Launches Faster Payment System Suspicious Proxy ID Alert
The Hong Kong Monetary Authority (HKMA) has announced the introduction of the Faster Payment System (FPS) Suspicious Proxy ID Alert to strengthen fraud prevention mechanisms within the region’s financial transaction systems. Developed in collaboration with the Hong Kong Police Force (HKPF), Hong Kong Interbank Clearing Limited, and other industry partners including 44 banks and stored value facility operators (SVFs), this alert system targets potential fraud risks associated with FPS proxy ID transactions. The new system utilizes Scameter, an anti-fraud search engine crafted by the HKPF, to identify FPS proxy IDs (encompassing mobile phone numbers, email addresses, and FPS Identifiers) marked as ‘High Risk’. Upon detection of such a risk, users receive a critical alert message, urging them to reassess the transaction and prompting careful verification of the payee’s identity and payment details. Although the alert advises prudence, it leaves the final transaction decision in the hands of the users, who are encouraged to proceed only if confident in the payee’s trustworthiness. The launch of this initiative marks a proactive step by HKMA and its partners in strengthening the security framework surrounding real-time fund transfers, thereby safeguarding users against the ever-evolving landscape of financial fraud.
European Payments Council Implements One-Leg Out Instant Credit Transfer Scheme
The European Payments Council (EPC) has launched the One-Leg Out Instant Credit Transfer (OCT Inst) scheme. The new scheme, a part of the EPC’s expansion beyond the Single Euro Payments Area (SEPA), is dedicated to facilitating international instant credit transfers. OCT Inst focuses on the Euro Leg of these transactions and is designed to provide interoperability among Payment Service Providers (PSPs) within SEPA. The scheme encompasses a set of rules, practices, and standards that enable PSPs in the Euro Leg to utilize existing SEPA payment infrastructure efficiently. This includes procedures, features, and standards that are already familiar to PSPs through the SEPA Instant Credit Transfer (SCT Inst) scheme. Specifically, OCT Inst allows PSPs in SEPA to process incoming and outgoing international instant credit transfers through automated funds transfer systems. Furthermore, OCT Inst offers PSPs the capability to enhance international payments with faster execution, more transparent cost and party involvement, and improved payment status traceability. This aligns with the European Commission’s Retail Payments Strategy and G20 objectives, fostering the international role of the euro and enhancing cross-border payment efficiency. Stakeholders are invited to submit change requests for the OCT Inst scheme rulebook by the end of 2023.
ECB Announces “European Culture” and “Rivers and Birds” as Potential Themes for Future Euro Banknotes
The European Central Bank (ECB) has selected “European culture” and “Rivers and birds” as the potential themes for future euro banknotes. The decision was reached following surveys conducted in summer 2023, as detailed in a report. In these surveys, “European culture” was the most popular theme among euro area citizens, followed by “Rivers: the waters of life in Europe” and “Birds: free, resilient, inspiring”. The ECB surveyed over 365,000 Europeans online, and based on the results, combined “Rivers” and “Birds” into one nature-related theme. An advisory group will be established to suggest motifs for the chosen themes by the end of 2024, and a competition to design the new banknotes will be conducted. The ECB expects to decide on the final designs and the timeline for production and issuing of the new banknotes in 2026.
Basel Committee Consults on Pillar 3 Disclosure Requirements for Climate-Related Financial Risks
The Basel Committee on Banking Supervision (BCBS) has launched an initial consultation to seek views for a Pillar 3 disclosure framework for climate-related financial risks. Part of the BCBS’ broader work on climate-related financial risks, the paper includes a proposal for bank-specific Pillar 3 disclosure requirements that would complement the existing ISSB framework and further contribute to a harmonized disclosure baseline for internationally active banks. The paper outlines both qualitative disclosure requirements in the areas of strategy, governance, risk management and concentration risk as well as quantitative disclosure requirements, supported by draft disclosure tables and templates for illustrative purposes. Feedback to the consultation can be provided until end of February 2024. In conjunction with the build-out of the bank-specific requirements, the BCBS will continue to engage with relevant international bodies in evolving their climate-related financial risk disclosure requirements to ensure interoperability of frameworks.
IOSCO Launches Consultation Report on Good Practices for Voluntary Carbon Markets
The IOSCO has released for consultation a new report setting forth good practices for promoting the integrity and orderly functioning of Voluntary Carbon Markets. The latest consultation follows the IOSCO’s discussion paper issued at the end of 2022 and incorporates the feedback received. The report sets out 21 good practices, grouped across four themes: (1) regulatory frameworks, (2) primary, (2) market issuance, (3) secondary market trading, and (4) use and disclosure of use of carbon credits. Besides the principles, the report offers a general overview of the carbon credits ecosystem and market structure, discusses identified vulnerabilities and concerns as well as lays out key for regulatory authorities and market participants to foster sound and effective Voluntary Carbon Markets. The consultation is open for feedback for a 90-day period.
IFRS Foundation Launches Knowledge Hub to Support Implementation of ISSB Standards
The IFRS Foundation has unveiled the IFRS Sustainability knowledge hub, aimed at supporting the application of the ISSB Standards starting next year. The hub, which went live during COP28’s Climate Action Day, features content from the IFRS Foundation and over 100 resources from third-party organizations, with material to be progressively added as per market requirements and emerging practices. Primarily designed for companies preparing their ISSB disclosures, the hub also offers a range of resources for different stakeholders such as auditors, investors, and regulators. Among these resources are an introduction to the ISSB Standards and a guide for transitioning from TCFD recommendations to ISSB Standards. The introduction of the hub coincides with an updated version of the IFRS Foundation’s Fundamentals of Sustainability Accounting (FSA) Credential Level 1, which incorporates the work of the ISSB. Aside from this, multiple organizations including the UN Sustainable Stock Exchange Initiative, ACCA, the Pan African Federation of Accountants, the United Nations Development Programme, and the International Federation of Accountants have committed to capacity-building initiatives to support the use of ISSB Standards.
IFSB, AAOIFI, and CIBAFI Issue Declaration on Islamic Sustainable Finance at COP 28
During the 28th Conference of the Parties (COP 28) hosted by the UAE in 2023, the Islamic Financial Services Board (IFSB) partnered with two other Islamic Finance Infrastructure Organizations (IFIO), the AAOIFI and CIBAFI, signing a declaration to address gaps in Islamic sustainable finance. The Central Bank of the UAE helped facilitate this partnership, with the three organizations creating a roadmap to manage sustainability-related risks and opportunities, pending their respective governance committees’ consent. The roadmap outlines ongoing and forthcoming efforts to develop industry-wide guidance, regulatory standards, disclosure requirements, market development initiatives, and capacity-building and certification programs. The organizations are committed to regularly reviewing the roadmap’s progress and making necessary revisions based on global changes and the respective organizations’ annual work agendas. This collaboration marks a significant milestone, as it’s the first to include Islamic finance among global climate change initiatives.
World Federation of Exchanges Introduces Ring the Bell for Climate initiative
The World Federation of Exchanges (WFE) has launched the Ring the Bell for Climate initiative, rallying global exchange industry groups to address climate change and sustainability. The initiative, which acknowledges the key role of exchanges in sourcing capital for sustainable development, will feature a series of actions, including ringing the bell for climate at exchanges around the world. More than 20 exchanges globally are participating in the augural edition of the initiative. The initiatve comes on top of other measures and tools aimted to facilitate the green transition, such as the Green Equity Principles – a blueprint for creating a ‘green’ offering for listed equities.
MAS Publishes Singapore-Asia Taxonomy for Sustainable Finance, the World’s First Multi-Sector Transition Taxonomy
The Monetary Authority of Singapore (MAS) has introduced the Singapore-Asia Taxonomy for Sustainable Finance, the world’s first multi-sector transition taxonomy. It establishes definitions for green and transition activities across eight sectors: Energy, Real Estate, Transportation, Agriculture and Forestry/Land Use, Industrial, Information and Communication Technology, Waste/Circular Economy, and Carbon Capture and Sequestration. Moreover, the taxonomy introduces a “transition” category, a concept especially relevant to Asia, where the journey to a net-zero economy coincides with economic growth, population expansion, and increased energy requirements. Two new approaches define transition activities: a traffic light system (classifying activities into green, transition, and ineligible) and a measures-based approach (encouraging capital investments into decarbonization measures). MAS is collaborating with the People’s Bank of China to align the Singapore-Asia Taxonomy with global standards, including the International Platform for Sustainable Finance’s Common Ground Taxonomy (CGT). The comprehensive model, supported by four rounds of public consultations, will serve as a guide for investment in green and transitioning activities throughout the region.
Central Bank of the UAE and Higher Shari’ah Authority Issue Ten Guiding Principles to Promote Sustainable Islamic Finance
The Central Bank of the UAE (CBUAE) and the Higher Shari’ah Authority have introduced guiding principles on sustainable Islamic finance, aimed at encouraging Islamic financial institutions to incorporate more sustainability into their operations. Launched concurrently with the UAE’s hosting of COP28, the principles consist of ten directives aimed at effectively embedding sustainability. The guidelines also stress the need for financial products that interact positively with environmental and social factors. “Islamic financial institutions play a crucial role in advancing sustainable practices within UAE’s financial sector,” said His Excellency Khaled Mohamed Balama, Governor of CBUAE. The Chairman of the Supreme Shari’ah Authority, Sheikh Dr Ahmed Abdel Aziz Al-Haddad, emphasized the proponents’ active social contribution and their drive for sustainable financing.
ESAs Collaborate with National Authorities to Disseminate Interactive Factsheet on Sustainable Finance to Consumers
The three European Supervisory Authorities (EBA, EIOPA, and ESMA – ESAs) have released an interactive factsheet aimed at educating consumers about sustainable finance. The factsheet answers commonly asked questions and provides tips for consumers interested in financial products with sustainability features, including loans, investments, insurances, and pensions. It also offers guidance on the importance of understanding sustainability features to avoid ‘greenwashing’, the lack of a risk-free guarantee in such products, and encourages taking time to decide on investments and life insurance policies. Additionally, the factsheet uses pop-up boxes to explain technical terms such as ‘ESG’ and ‘EU taxonomy’. Translated into all EU languages, the ESAs are cooperating with national supervisory authorities to circulate the factsheet throughout the EU.
EBA Publishes Environmental Statement Ahead of COP28 to Reaffirms Commitment to Enhancing Sustainability in EU Banking Sector
Ahead of COP28, the European Banking Authority has reaffirmed its commitment to ESG with a dedicated environmental statement. In the statement, the EBA reiterated the importance of Environment, Social, and Governance (ESG) aspects in its work agenda. The statement highlighted EBA’s key initiatives to incorporate ESG factors, which focus on enhancing risk management, improving disclosures, refining supervisory practices, conducting climate stress testing, augmenting the Pillar 1 prudential framework as well as addressing greenwashing. The EBA also stressed its commitment to improving its own environmental performance.
Other transversal themes
U.S. SEC Adopts Rule Prohibiting Conflicts of Interest in ABS Securitizations
The US Securities and Exchange Commission (SEC) has adopted Securities Act Rule 192 in an effort to prohibit conflicts of interest in asset-backed securities (ABS) securitizations. The rule, which enacts Section 27B of the Securities Act of 1933, bars securitization participants from being involved in any “conflicted transactions” that may result in a material conflict of interest with ABS investors for a certain period. However, it allows exceptions for risk-mitigating hedging activities, liquidity commitments, and bona fide market-making activities according to specific stated conditions that enable ongoing risk management, liquidity commitment, and essential market-creating activities. The rule also restricts transactions such as short sales of the relevant ABS, purchases of certain credit derivatives, or equivalent transactions that only hedge general interest rate or currency exchange risks. The rule will take effect 60 days after its publication in the Federal Register, with compliance required for any ABS whose first sale closes 18 months after the rule’s publication date.
New Zealand FMA and FMSB Sign Consultation Agreement
The Financial Markets Authority (FMA) and the Financial Markets Standards Board (FMSB) have entered into a consultation agreement. The agreement is intended to formalize the cooperation between the two bodies in relation to fostering fair and efficient global wholesale financial markets. Specifically, the collaboration is expected to help New Zealand align with global best practice and reinforce its engagement with the wholesale industry while also facilitating the FMSB’s consultation with the FMA in the development of draft guidance and other publications. The FMSB, a global standards body for fair wholesale financial markets, was founded following the Fair and Effective Markets Review by the Bank of England, the Financial Conduct Authority, and HM Treasury.
Astana Financial Services Authority (AFSA) and Magyar Nemzeti Bank (MNB) Sign MoU to Strengthen Collaboration
The Astana Financial Services Authority (AFSA) and Magyar Nemzeti Bank (MNB) have jointly signed a MoU to boost cooperation in the financial sector. Entered into on the sidelines of the Budapest Eurasia Forum, the MoU aims to foster cross-border cooperation, promote senior-level dialogues, and facilitate information exchange on financial markets.