Global Regulator & Central Bank News Roundup
Volume 47/2023 (December 4 – December 10)
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
- Cyber & operational resilience
- Conduct & consumer protection
- Fintech & ecosystem innovation
- Payments & currency
- Other transversal themes
- Cross-border cooperation
Cyber & operational resilience
FSB Introduces Toolkit to Strengthen Oversight of Third-Party Risks
The Financial Stability Board (FSB) has released new a toolkit for financial institutions and regulatory authorities to support effective third-party risk management and oversight. The toolkit seeks to address the risks associated with outsourcing and third-party service relationships with a particular focus on critical third-party services due to their potential to disrupt financial institutions’ operations and overall financial stability as well as contribute to greater harmonization in regulatory and supervisory approaches across jurisdictions. It encompasses a list of common terms and definitions in relation to third-party risk management, tools to support the identification of critical services and management of risks throughout the lifecycle of a third-party service relationship as well as tools to aid in the supervision of institution-specific third-party risks as well as systemic risks.
ESAs Commence Public Consultation on Second Round of Policy Mandates for Digital Operational Resilience Act
The European Supervisory Authorities (EBA, EIOPA, and ESMA, collectively the ESAs) announced a public consultation regarding the second package of policy mandates under the Digital Operational Resilience Act (DORA). This second batch includes four draft regulatory technical standards (RTS), one draft implementing technical standard (ITS), and two sets of guidelines (GL) with policy instruments relating to (1) content, timelines and templates on incident reporting, (2) costs and losses from major incidents, (3) subcontracting of critical or important functions, (4) oversight harmonization, (5) cooperation between ESAs and competent authorities as well as (6) threat-led penetration testing. The consultation will be open for submissions until 4 March 2024, with a public hearing in the form of a webinar scheduled for 23 January 2024. The ESAs expect to submit the draft technical standards to the European Commission and release the guidelines by July 17, 2024.
Bank of England, PRA, and FCA Consult on Requirements for Critical Third Parties
The Bank of England, Prudential Regulation Authority, and Financial Conduct Authority have jointly initiated the consultation on the proposed requirements for critical third parties (CTPs) as designated by the HM Treasury under the Financial Services and Markets Act. The consultation paper follows the discussion paper from earlier this year. Among other things, the consultation paper sets forth the proposed approach and criteria for the identification of potential CTPs by the regulatory authorities for recommendation to HM Treasury for designation. Additionally, it outlines a proposed set of fundamental rules applicable to CTPs for all the services they provide to firms and financial market infrastructure entities (FMIs) along with more specific operational risk and resilience requirements that would apply specifically to the material services supplied. Beyond this, the paper also outlines details regarding CTPs’ testing approach, including both individual scenario testing and joint testing of incident management capabilities with firms and FMIs, as well as requirements for an annual self-assessment by CTPs. Feedback to the consultation paper can be provided until 15 March 2024, with the final requirements expected to be published in the second half of 2024.
Conduct & consumer protection
OeNB Introduces “Savings Interest Austria” Platform for Transparent Comparison of Savings Rates Across Austrian Banks
In effort to further enhance financial literacy among the population, the Oesterreichische Nationalbank (OeNB) has launched a new initiative called “Savings Interest Austria,” a transparency platform that provides updated information on the savings interest rates of banks operating in Austria. This platform allows consumers to easily compare interest rates for different forms of savings from commercial banks. Via the platform, consumers can get detailed information about market trends and individual bank’s conditions, covering conditions for classic savings deposits up to 36 months which can be digitally obtained via smartphone or physically from a branch . The resource is designed to not replicate existing private or public platforms but rather provide a clear market overview and increase transparency, serving as a primary point of reference for consumers.
OCC Issues Bulletin on Risk Management of “Buy Now, Pay Later” Lending
The Office of the Comptroller of the Currency (OCC) has issued a new bulletin to national banks and federal savings associations on managing the risks involved in “buy now, pay later” (BNPL) lending. The bulletin outlines the key risks associated with BNPL and against this backdrop sets out expectations for the risk management of banks engaging in BNPL lending with a specific focus on credit risk, operational risk, third-party risk as well as compliance risk. In terms of credit risk management, banks are required to put in place policies and procedures that cover BNPL lending loan terms, underwriting criteria, methodologies to assess repayment capacity, fees, charge-offs, and credit loss allowance considerations. The approach to repayment assessment in particular should ensure that borrowers can reasonably repay their debts, with methodologies potentially including debt-to-income ratios, use of deposit account information, or alternative data. Prudent BNPL lending also includes measures to prevent adverse outcomes like debt cycles due to rollovers or reborrowing, and may employ risk-based credit limits and “low-and-grow” strategies for new or higher-risk borrowers. Operational risk management should address the automated nature of BNPL lending, fraud risk, and challenges in service and support, including clear disclosures, dispute resolution, and processes for handling merchandise returns while compliance risk management should focus on ensuring appropriate marketing, advertising, and consumer disclosures including in relation to applicable fees such as late fees. BNPL lenders are also expected to have effective mechanisms in place for the resolution of errors and disputes, such as in scenarios where there’s a timing mismatch between customers receiving credit for returned merchandise and BNPL payments being drawn from their accounts.
Fintech & ecosystem innovation
IAIS Provides Update on Adoption of AI/ML in Insurance Sector
The International Association of Insurance Supervisors (IAIS) has provided an update on its ongoing initiatives around the implementation of artificial intelligence and machine learning (AI/ML) in the insurance sector. Given the growing adoption of AI/ML, the IAIS FinTech Forum conducted a thematic review in 2023 of existing guidance on AI/ML and model risk management (MRM) across jurisdictions with a view to foster the further exchange of supervisory practices and experiences and assessing the need for further IAIS guidance in this area. Key findings, which the IAIS shared in a short summary document, highlight that AI/ML-specific policy responses globally vary, including binding legislation, AI principles, and non-binding supervisory guidance, with their maturity and scope differing across jurisdictions. While some measures are technology-agnostic, e.g. addressing model risk management for all models including AI/ML models, others are AI/ML-specific The development of these policies typically involves collaborative efforts among prudential and conduct supervisors, insurers, AI/ML firms, government agencies, and academia, with multi-disciplinary platforms established in some jurisdictions for deeper engagement on AI/ML use in the financial sector. Furthermore, there was agreement among jurisdictions on the need to further evolve standards including with a view to responding to the risks emanating from generative AI and large language models. The IAIS will continue to monitor and support supervisors with fintech-related trends and is planning to develop an application paper on AI/ML in 2024, involving stakeholders for expert advice on AI/ML applications.
EBA Publishes Draft Technical Standards for Conflicts of Interest in ART Issuers Under MiCAR
As part of its continued Markets in Crypto-Assets Regulation (MiCAR) policy development efforts, the European Banking Authority (EBA) has published for consultation draft regulatory technical standards (RTS) outlining the measures needed to address conflicts of interest for issuers of asset-referenced tokens (ARTs). The standards mandate that issuers’ management bodies institute appropriate policies and procedures to enable to identification, prevention, management and disclosure of conflicts of interest, addressing both conflicts of interest affecting holders of asset-referenced tokens as well as issuers. Specific provisions under the standards address conflicts of interest associated with the reserve of assets, personal transactions and issuer remuneration procedures. Feedback to the proposed standards can be provided until 7 March 2024. A virtual hearing is scheduled for 11 January 2024.
European Council and European Parliament Reach Provisional Agreement on AI Act
Following a three-day negotiation, the European Council and the European Parliament have reached a provisional agreement on the Artificial Intelligence Act. Under the proposed Act, a risk-based approach is employed where AI systems are categorized according to their potential harm. High-risk systems will face stringent regulations for market access in the EU, while systems with limited risk will have lighter obligations, like transparency requirements. The Act notably exempts AI systems used solely for military, defense, research, innovation, or non-professional purposes from its scope. It also establishes a fundamental rights impact assessment requirement for deployers of high-risk AI systems, ensuring a balance between innovation and ethical considerations.
The Act distinctly outlines prohibited practices for AI, targeting systems that could manipulate behavior or infer sensitive information. High-risk AI systems that are authorized will have to meet specific requirements, which have been adjusted to be technically feasible for stakeholders, including SMEs. The Act also clarifies the roles and responsibilities of various actors in the AI value chain, integrating these with existing EU data protection and sectorial legislation. For law enforcement, the Act allows limited exceptions for AI use, subject to stringent safeguards, including an emergency procedure for deploying high-risk AI tools and provisions for the use of real-time remote biometric identification systems in public spaces, under strict conditions.
To govern the diverse landscape of AI applications, the Act establishes a new governance architecture. This includes an AI Office within the Commission to oversee advanced AI models and enforce regulations, supported by a scientific panel of experts. The AI Board, comprising member states’ representatives, will serve as a coordination and advisory body. The Act also stipulates penalties for non-compliance, with proportional fines for SMEs and startups. Finally, to foster innovation, the Act supports AI regulatory sandboxes and real-world testing, with particular attention to reducing administrative burdens for smaller companies. The Act is scheduled to come into effect two years after its enactment, with specific provisions for immediate implementation, pending final approval and formal adoption by the co-legislators.
CVM and ABCripto Collaborate on Launch of “Crypto Dictionary”
The Brazilian Securities and Exchange Commission (CVM) and the Brazilian Association of Cryptoeconomics (ABCripto) have launched a dedicated cryptocurrency glossary. The glossary, which encompasses over 200 terms, is intended to standardize the terminologies associated with cryptocurrencies, digital assets, tokenization, decentralized finance (DeFi), and other related areas. Its objective is to assist the public in understanding complex crypto-economic terms and foster dialogue among various actors in the new financial system. DEveloped by a working group from ABCripto and validated by the CVM, the glossary will be revised and expanded periodically to encompass emerging trends and definitions in the crypto market.
Payments & currency
IMF Study Examines Risks of Stablecoin Adoption for Small Developing Economies
A new Fintech Note by the IMF titled “Macro-Financial Implications of Foreign Crypto Assets for Small Developing Economies” examines the potential risks to small open economies in a hypothetical large-scale adoption of crypto assets. It finds that foreign-currency denominated stablecoins can exacerbate currency substitution and capital outflows, especially during negative economic shocks, and weaken the transmission of monetary policy. This necessitates more aggressive interest rate adjustments by central banks. The ineffectiveness of capital flow management measures in controlling crypto flows can further drive households towards foreign stablecoins, amplifying the negative macroeconomic impacts. The authors suggests a combination of broad and targeted policy responses. Broad measures include maintaining robust macroeconomic policy frameworks and guarding against macro-financial vulnerabilities to reduce the likelihood of foreign currency substitution. Targeted actions involve national and international regulatory coordination on foreign stablecoin operations. While introducing a domestic Central Bank Digital Currency (CBDC) could slightly reduce stablecoin adoption, it does not fully address the transmission of foreign shocks to the domestic economy.
HKMA and BOT Launch FPS x PromptPay Link to Enhance Cross-Border Retail Payments between Hong Kong and Thailand
The Hong Kong Monetary Authority (HKMA) and the Bank of Thailand (BOT) have launched the FPS x PromptPay Link, a cross-border QR payment service between Hong Kong and Thailand. The new system will allow travelers from both countries to perform retail payments using mobile payment applications by scanning the Hong Kong FPS QR code and Thai PromptPay QR Code at merchants. This step aims to provide inhabitants with a quick, secure and cost-attractive cross-border retail payment service and facilitate tourism and economic activities for the two nations. The initiative was realized through cooperation from various stakeholders from both jurisdictions under the joint supervision of the HKMA and the BOT, including the Hongkong and Shanghai Banking Corporation Limited and Bangkok Bank as settlement banks responsible for cross-border settlements for the service.
Bank Indonesia and Bank of Korea Plan Implementation of Local Currency Framework for Bilateral Trade by 2024
Bank Indonesia (BI) and the Bank of Korea (BOK) are set to introduce a framework for local currency transactions in bilateral trade in 2024. Announced during a high-level meeting, this initiative follows a Memorandum of Understanding (MoU) signed by both central banks in May 2023. The Operational Guidelines for local currency transactions will facilitate trade settlements between Indonesia and Korea in their respective local currencies, mitigating exchange rate risks and costs. This initiative is part of the broader financial integration efforts to encourage the use of local currencies. Both BI and BOK’s governors expressed strong commitment to this arrangement, emphasizing the framework’s potential for enhanced bilateral cooperation, improved efficiency in cross-border transactions, and increased macroeconomic stability.
FCA Proposes New Regulations to Safeguard Access to Cash
The UK Financial Conduct Authority (FCA) is actively proposing new regulations to ensure sustained access to cash for both personal and business customers. The initiative comes in response to the continued reliance on cash by over 3 million consumers and numerous small businesses amid a greater trend towards digital payments. The new regulation would mandate designated firms including banks and building societies to carry out thorough assessments of cash access when changes to cash access services are introduced, taking into account local demographics and transportation, and to provide reasonable additional cash services to address any identified gaps. Firms would also be expected to actively respond to requests from local residents and the community to consider, assess and fill gaps when they arise. While the new rules do not prohibit the closure of bank branches, they aim to ensure that such closures do not adversely affect local cash access, and ensure appropriate interim measures are in place. On the contrary, retailers would retain the discretion to accept cash or not, a decision beyond the FCA’s control. The FCA plans to finalize these regulations by Q3 2024, following the consultation period ending on 8 February 2023.
NGFS Releases Technical Paper on Scaling Blended Finance in EMDEs
The Network for Greening the Financial System (NGFS) has issued a technical document outlining strategies to scale blended finance for climate mitigation and adaptation in emerging market and developing economies (EMDEs). The paper shares examples of successful projects from various EMDEs and insights into the associated financial and macroeconomic stability implications of climate change. Blended finance could enhance the investability of climate financing projects in these regions and attract private capital. To do this, the NGFS outlines strengthening the climate information architecture, developing a pipeline of viable projects with standardised and scalable structures to attract investment capital and reduce information asymmetries between investors and project developers, fostering risk mitigation and diversification strategies, and aligning practices and products offered by financial and information intermediaries. It further stresses the need for an ecosystem-of-solutions approach that brings together partnerships across key stakeholders as well as a project-life-cycle approach to ensure viability of these projects.
IOSCO Releases Final Report on Member Supervisory Practices to Combat Greenwashing
The IOSCO has issued its final report on supervisory strategies to combat greenwashing. Against the backdrop of a characterization of greenwashing risks and its drivers, the report offers a comprehensive overview of existing and/or planned regulatory and supervisory approaches to combat greenwashing in the areas of asset management and ESG ratings and data products providers. Besides the discussion of specific initiatives and recommendations, which draw on responses from a survey across 22 jurisdictions and insights from various private and public sector roundtables, the report also identifies several critical obstacles that authorities face in implementing these such as data gaps, ESG rating transparency, reliability, and quality, consistency in labeling and classifying sustainability-related products, evolving regulatory procedures, and capacity building needs.
UNDP FC4S Network Shares Results of 2023 Assessment Programme at COP28
UNDP’s Financial Centres for Sustainability (FC4S) Network has presented the findings of its Assessment Programme (AP) 2023 at COP28. The initiative, the first of its kind, evaluates the progression of financial centres in aligning their activities with the Sustainable Development Goals (SDGs) and the Paris Agreement. The report identifies five key insights that can guide the actions of financial centres, including the emphasis on non-financial data quality, funding for sustainable development, creating supportive policies and regulations to counter sustainability risks, addressing the educational gap, and fostering growth in the sustainable debt market. The findings are based on a survey of 26 financial centres from varied regions, income levels, and financial market sizes. The goal of the FC4S Network is to utilize the role of financial centres in mobilizing resources and innovation required to achieve the SDGs and the Paris Agreement.
MAS Issues Code of Conduct for ESG Rating and Data Providers
The Monetary Authority of Singapore (MAS) has released a finalized Code of Conduct (CoC) for providers of Environmental, Social, and Governance (ESG) rating and data products, alongside a self-compliance checklist. The CoC aims to enhance transparency, governance, and conflict of interest management, as per the guidelines of the International Organization of Securities Commissions (IOSCO). Providers are encouraged to disclose their adoption of the CoC and publish their completed checklist in 12 months from its publication, with those compliant being listed on the International Capital Market Association’s (ICMA) website.
CBUAE Releases Results of COP28 UAE TechSprint Initiative
The Central Bank of the UAE (CBUAE) in partnership with the COP28 Presidency, the Bank for International Settlements (BIS), and the Emirates Institute of Finance (EIF) has declared the outcomes of the COP28 UAE TechSprint initiative. The TechSprint recorded 126 proposals from 31 countries, with 15 selected finalists presenting innovative solutions in green and sustainable finance to an independent panel of judges. Winning entries were recognized in three categories: Hong Kong’s Intensel for their climate analytics platform leveraging AI in the field of sustainable finance and climate action, the UK’s ZERO13 for their blockchain-driven platform facilitating ESG-linked carbon credit transactions, and Singapore’s Evercomm for their IoT-powered digital emission disclosure and verification tool.
DFSA Eliminates Regulatory Fees for ESG Listings on Nasdaq Dubai
Dubai Financial Services Authority (DFSA) is waiving all regulatory fees for issuers who aspire to list sustainability-related debt securities on the Dubai International Financial Centre (DIFC) in 2024, it announced in a new statement. Nasdaq Dubai, the DIFC’s exchange, is the world’s largest Environmental, Social, and Governance (ESG) sukuk market, with the majority of US-denominated ESG sukuk and nearly half of all-currencies ESG sukuk. The fee waiver aims to mobilize finance for sustainable projects in the UAE and beyond, applying to all ESG-related bonds and sukuk categorized as green, social, sustainable, sustainability-linked, climate, climate adaptation, climate transition, or similar. projects.
Global Climate Finance Centre Launched in Abu Dhabi to Spur Investment and Drive Sustainable Finance
A new Global Climate Finance Centre (GCFC) has been launched in Abu Dhabi with nine founding members, including ADGM, the World Bank Group, and BlackRock, among others. The GCFC aims to accelerate the development of global financial frameworks and practices that will address key barriers to investment in climate finance. As an independent research and think-tank hub, the center will work with various sectors to facilitate investment into low-carbon and sustainable projects. In addition to innovative research and advisory roles, the GCFC will also establish a Climate Finance Academy to bolster expertise and capacity in the UAE. The initiative coincides with the launch of ALTÉRRA, a US$30 billion climate vehicle that seeks to improve access to climate finance, particularly in the developing economies of the Global South.
ESAs Present Final Report on Proposed Amendments to Sustainability Disclosures
The European Supervisory Authorities (EBA, EIOPA and ESMA – ESAs) have published their Final Report on amendments to the draft Regulatory Technical Standards (RTS) concerning the Sustainable Finance Disclosure Regulation (SFDR). Proposed changes include the addition of new social indicators, refining the framework for revealing principal adverse impacts of investment decisions on the environment and society, as well as new product disclosures pertaining to “greenhouse gas emissions reduction” targets. Additionally, the ESAs propose enhancing disclosures on ‘Do No Significant Harm’ sustainable investments, simplifying financial product disclosure templates, and making various other technical adjustments. These draft RTS, subject to the European Commission’s approval within the next three months, will be implemented before any changes resulting from the European Commission’s comprehensive assessment of SFDR due in September 2023.
Other transversal themes
Basel Committee to Review Standards on Cryptoassets and Interest Rate Risk in Banking Sector, Address Window-Dressing in G-SIB Framework.
The Basel Committee on Banking Supervision, in its virtual meetings on December 5 and 7, 2023, resolved to initiate consultations on its standards on cryptoassets and interest rate risk in the banking book (IRRBB). In terms of cryptoassets, the Committee will focus on refining the criteria for stablecoins to receive “Group 1b” regulatory treatment and address technical ambiguities in the standard. In relation to IRRBB, proposed adjustments aim to update the interest rate shocks in the standard, taking into account the changes in interest rates since its first publication in April 2016. Besides these revisions, the Committee also addressed the issue of window-dressing behavior by banks within the global systemically important banks (G-SIBs) framework. This practice, which involves banks temporarily modifying their risk profiles to influence G-SIB scores, was identified as detrimental to the integrity of financial markets. As a response, the Committee plans to develop policy options in 2024 to mitigate such behaviors, including the collection of higher frequency data for more informed decision-making. Finally, the Committee also discussed risk management considerations pertaining to the transition to a low carbon economy and associated physical risks, underlining its ongoing efforts to integrate climate-related financial risks into banking supervision.
IAIS Publishes 2023 Global Insurance Market Report, Highlighting Risks and Trends Facing the Sector
The International Association of Insurance Supervisors (IAIS) has published its 2023 Global Insurance Market Report (GIMAR), which shares the outcomes of the Global Monitoring Exercise (GME). The GME data suggests that the capital adequacy of the global insurance sector remains steady and that systemic risk scores declined from 2022, despite some challenges in financial market developments. The global insurance industry continues to face significant exposure to climate change, causing possible negative effects on profitability and capital adequacy. Additionally, geopolitical tensions and household purchasing power strains could also adversely impact insurers’ solvency and profitability. The GIMAR further noted sustained growth in the global reinsurance market while highlighting that the sharp increase in insured losses from natural catastrophe events in 2022 resulted in decreasing profitability, especially in the Americas and Europe. Complementary to the general trend analyses, the report offers deep dives interest rate, liquidity and credit risks as well as structural shifts in the life insurance sector, including greater allocation of capital to alternative assets and increased reliance on cross-border asset-intensive reinsurance.
New York Fed Launches Podcast Series on Building Cultures of Curiosity and Learning in Banking Culture Reform.
The Federal Reserve Bank of New York has launched a new season of its “Bank Notes” podcast series titled “Banking Culture Reform: Building Cultures of Curiosity and Learning”. The series, which is part of the New York Fed’s ongoing focus on cultivating a positive culture and conduct within the financial sector, explores strategies firms can implement to create inquisitive cultures that identify the mistakes, motivations, and behaviors that hinder organizational advancement. The podcast season features interviews with various thought leaders from financial services, behavioral science, ethics, and organizational psychology. The episodes cover topics such as the use of the PreMortem Method of Risk Assessment to anticipate potential risks before they occur, the importance of converting negative events into positive learning opportunities, and the necessity of analyzing established operational frameworks to improve employee performance. The series is one of several initiatives by the New York Fed’s Governance and Culture Reform movement to improve conduct and culture in financial services.
Emmanuel Faber to Serve a Second Term as ISSB Chair until 2027
Emmanuel Faber has been appointed to serve a second three-year term as Chair of the International Sustainability Standards Board (ISSB), when his current term concludes in December 2024. This decision was announced by the Trustees of the IFRS Foundation. Additionally, the ISSB’s vice-chairs, Sue Lloyd and Jingdong Hua, will continue their roles into 2026, as part of the leadership team.