Global Regulator & Central Bank News Roundup
Volume 02/2024 (January 8 – January 14)
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
- Other transversal themes
- Leadership changes & appointments
- Cross-border cooperation
Prudential & financial stability
EBA and ECB Quarterly Banking Statistics for Q3 2023 Show Continued Bank Resilience
The European Banking Authority (EBA) and the European Central Bank (ECB) have released key banking sector statistics for Q3 2023. The EBA’s report showcases the resilience of EU/EEA banks, with sustained high profitability, strong capitalization, and robust liquidity, despite a slight decrease in the CET1 ratio to 15.8%. However, there are anticipations of asset quality deterioration, particularly in the real estate sector, due to rising interest rates affecting borrowers. The ECB’s figures mirror this development, showing a a slight decrease in the aggregate CET1 ratio to 15.61% and a marginal decline in the annualized return on equity to 10.01%. Despite the stability of the non-performing loans ratio at 2.27%, there is a noticeable increase in stage 2 loans, indicating heightened credit risk. This risk is particularly pronounced in loans associated with non-financial corporations collateralized by immovable property. The report also notes an increase in the net interest margin, reflecting structural differences across various countries.
HM Treasury Seeks Input on Proposals to Strengthen UK Financial Resolution Framework
HM Treasury has initiated a consultation to propose enhancements to the UK’s resolution regime for financial institutions, including banks, building societies, and PRA-designated investment firms. A key feature of the proposal is the introduction of a new mechanism that would allow the use of certain stabilisation powers for small banks, shifting the burden of associated costs from taxpayers to the industry. The government’s motivation for these enhancements is to provide the Bank of England with greater flexibility in handling the failure of small banks, thereby strengthening the UK’s robust regulatory regime and ensuring the protection of financial stability, customers, and public funds. The Bank of England has expressed its support for the changes outlined in the consultation paper. Feedback to the consultation paper can be provided until 7 March.
AML & CFT
BIS Innovation Hub and Bank of England Partner on Project Hertha to Detect Financial Crime in Real-Time Payments
The Bank for International Settlements (BIS) Innovation Hub’s London Centr has launched Project Hertha. Project Hertha aims to address the critical challenge of detecting financial crime within real-time payment systems without compromising user privacy. The initiative, a collaborative effort with the Bank of England, will focus on the application of network analytics to discern patterns of financial crime using a minimal dataset, thereby aiming to maintain user confidentiality. The project will involve creating a map of current and potential financial crime typologies specific to real-time payment platforms that incorporates insights from existing instant payment systems and cryptocurrency networks. Additionally, Project Hertha will develop a synthetic dataset to refine the detection process, enhancing accuracy and minimizing the occurrence of false positives. Named after Hertha Ayrton, a notable British scientist and innovator, the project is currently assembling an advisory group to provide expertise and guidance, with a call for applications open until 24 January 2024.
Senate Committee on Banking Hearing Reinforces Support for FEND Off Fentanyl Act to Combat Illicit Drug Trade
At a recent U.S. Senate Committee on Banking, Housing, and Urban Affairs hearing, significant testimonies were presented regarding the FEND Off Fentanyl Act, a bipartisan bill targeting the China-Mexico illicit fentanyl supply chain. Ranking Member Tim Scott, alongside Committee Chairman Senator Sherrod Brown, led the discussions, emphasizing the urgent need for legislative action against the opioid crisis. Tim Scott highlighted the act’s potential to disrupt financial operations of traffickers, employing sanctions and anti-money laundering laws as critical tools. He stressed the alarming rise in American fentanyl-related deaths, citing over 75,000 fatalities in 2022, and proposed additional measures like the Alan T. Shao II Fentanyl Public Health Emergency and Overdose Prevention Act and the Secure the Border Act of 2023. These acts aim to expedite migrant processing, enhance border security, and reduce fentanyl influx into the U.S. Scott expressed frustration over delays in passing the FEND Off Fentanyl Act, underscoring its importance as a national security concern. Senator Brown reiterated the significance of the bipartisan FEND Off Fentanyl Act in curbing the fentanyl crisis. He highlighted the bill’s focus on disrupting the financial networks of cartels and chemical suppliers and advocated for related legislation such as the Combatting Illicit Xylazine Act and the POWER Act, which provides advanced fentanyl screening devices to law enforcement.
Conduct & consumer protection
OSC Research Highlights Retirement Planning Vulnerabilities Among Canadians Over 50
The Ontario Securities Commission (OSC) has published the findings from its “Profiles of Retirement” investor research survey, which examines the financial circumstances of Canadians aged 50 and above. The survey highlights that while a majority of this demographic are actively investing and earning income, there is a notable portion that is financially vulnerable. According to the survey, 15% of retired Canadians consider their financial situation poor, and nearly one-third are experiencing higher monthly expenses than anticipated. The research also suggests that working Canadians over 50 may face less comfortable retirements compared to current retirees. Both retirees and pre-retirees expressed concerns about being unprepared for financial emergencies and many have not planned for potential physical or cognitive decline. The survey, which included 1,500 participants, revealed that unexpected events such as long-term disabilities have significantly impacted the finances of nearly half of the retirees, with those on lower incomes being more affected. Top concerns identified include the lack of appointed power of attorney for property, trusted contact persons, and consideration of unexpected health or long-term care costs in retirement planning.
Brazil Security Commission Study Reveals Increased Propensity for Pyramid Scheme Victims to Reinvest in High-Risk Ventures
The Brazilian Securities and Exchange Commission (CVM), in collaboration with the Getúlio Vargas Foundation (FGV) and under the supervision of the CVM’s Education and Financial Inclusion Management (GEIF), has released a report on a study examining investor decision-making in irregular investments, particularly those resembling financial pyramids. The study, which involved 1,377 participants from the CVM’s Customer Service database, tested 12 hypotheses concerning the likelihood of investing in or recruiting for low-risk versus high-risk opportunities, and the influence of prior victimization by pyramid schemes on future investment behavior. Key findings indicate that risk perception does not significantly alter behavior towards irregular investments, and that individuals with past experiences of being scammed are more likely to reinvest and recruit in high-risk, irregular schemes. This counterintuitive behavior is attributed to victims’ predisposition towards high-risk investments and a lack of financial market knowledge, which leads to susceptibility to unrealistic returns. The CVM aims to use these insights to enhance financial education and investor protection strategies.
Fintech & ecosystem innovation
BIS Innovation Hub and Partners Initiate Project Promissa to Explore Tokenisation of Promissory Notes Using DLT
The Bank for International Settlement’s (BIS) Innovation Hub, in collaboration with the Swiss National Bank and the World Bank and the International Monetary as an observer, has initiated Project Promissa to explore the tokenisation of financial instruments with a focus on promissory notes. Promissory notes remain a key contributor to the funding of international financial institutions including multilateral development banks, yet have to date remained largely paper-based, creating challenges for their effective operational management. To that end, the project seeks to develop a proof of concept for a digital platform leveraging distributed ledger technology to streamline the management of promissory notes, ensuring a unified and transparent view of outstanding notes for both issuing member nations and international financial institutions. The platform aims to provide a single source of truth throughout the lifecycle of the notes, enhancing operational efficiency. The Project’s proof of concept and testing phase are targeted for completion by early 2025, with potential future expansion to include tokenised payment systems for the encashment of such notes.
Thailand SEC Seeks Public Feedback on Digital Asset Business Licensing and Operator Credibility Criteria
The Thailand Securities & Exchange Commission (SEC) has announced that it is seeking public input on proposed improvements to the licensing process for digital asset businesses and revisions to the criteria for assessing the credibility of operators in this sector. Purpose of the latest revisions is inter alia to streamline the application and inspection process for digital asset business licenses as well as enhance the clarity and appropriateness of the criteria for operator credibility. Specific proposals include simplifying the application review process to align with SEC practices, reducing the prohibition period for reapplying after a withdrawal from six to three months, clarifying the Minister of Finance’s role in license considerations, and extending the system development and business operation commencement period to 270 days post-license, with a possible 120-day waiver. Additionally, the SEC seeks to refine the qualifications for directors, executives, and major shareholders of digital asset businesses, particularly concerning past denials or revocations of licenses and involvement in unauthorized securities, derivatives, or digital asset activities. Feedback can be provided until February 9, 2024.
Estonia’s Ministry of Finance Proposes Regulatory Oversight of Crypto-Asset Service Providers by Financial Supervision Authority Starting 2025
The Ministry of Finance of Estonia has advanced a draft for the second round of coordination to introduce new regulatory requirements for crypto-asset service providers, placing them under the oversight of the Financial Supervision Authority. The draft aligns crypto-asset service providers with the regulatory framework applicable to traditional financial instruments and addresses the previously unregulated and varied landscape of crypto-asset services across the European Union. The current requirement for virtual currency service providers to obtain an activity license from the Financial Intelligence Unit will be replaced by a new licensing regime under the Financial Supervision Authority, starting from 2025 and with a transition period until 1 January 2026. The move aligns with the EU Markets in Crypto-Assets (MiCA) Regulation, which entered into force in Q2 2023.
U.S. Financial Services Committee Forms Bipartisan AI Working Group to Assess Impact on Financial Sector
The U.S. Financial Services Committee has announced the establishment of a bipartisan Working Group on Artificial Intelligence (AI), co-led by Subcommittee Chairman French Hill and Ranking Member Stephen F. Lynch. The new Working Group aims to investigate the impact of AI on the financial services and housing industries, focusing on the development of new products and services, fraud prevention, compliance efficiency, and the enhancement of supervisory and regulatory tools. It will also consider AI’s effects on the workforce and scrutinize how current regulations address AI usage, while contemplating the balance between the technology’s potential benefits and risks. The initiative builds on the previous work of the Task Force on Artificial Intelligence from the 116th and 117th Congresses. The Working Group will also contribute to the examination of the directives from President Biden’s Executive Order on the development and use of AI.
CFTC Subcommittee Publishes In-Depth DeFi Report to Guide Policy and Regulatory Discussions
The Commodity Futures Trading Commission’s (CFTC) Digital Assets and Blockchain Technology Subcommittee of the Technology Advisory Committee has published a report on Decentralized Finance (DeFi). The report aims to provide foundational knowledge to inform policy debates among U.S. Congress, state legislatures, and regulators, including the CFTC. The report follows the Department of Treasury’s April recommendations on addressing illicit finance risks in DeFi, marking the commencement of federal engagement with the industry to clarify applicable laws and regulations. It highlights that DeFi systems vary in their degree of centralization, with benefits and risks heavily dependent on their specific designs and features, and addresses key concerns such as the lack of clear lines of responsibility in DeFi systems, which could pose risks to consumers, investors, and financial stability. The report offers detailed recommendations for mitigating risks, including resource assessment, regulatory perimeter surveys, risk identification, policy response evaluation, and fostering engagement with standard setters and DeFi builders. It also suggests actions to strengthen AML/CFT protections and digital identity requirements within the DeFi ecosystem.
Australian Treasury Seeks Public Input on Draft Legislation for Climate-Related Financial Disclosures
The Department of Treasury (Australia) has released an Exposure Draft legislation that proposes amendments to the Australian Securities and Investment Commission Act 2001 and the Corporations Act 2001 to mandate climate-related financial disclosures for large businesses and financial institutions. This legislative initiative follows the government’s final policy design announcement for corporate climate-related financial disclosure requirements. Under the proposed requirements, large entities (subject to a size threshold), including listed and unlisted companies, financial institutions, superannuation entities and registered investment schemes would be required to disclose climate-related disclosures covering governance, strategy, risk management, metrics, targets, and Scope 1, 2, and 3 greenhouse gas emissions, in line with international standards. Entities in scope will be phased into mandatory disclosure over four years, categorized into three groups based on size and emissions. The proposal also encompasses requirements for assurance, mandating assurance reports from financial auditors for climate disclosures. Feedback on the exposure draft can be submitted until 9 February 2024.
Hong Kong Green Finance Steering Group Unveils Initiatives to Bolster Sustainable Finance Ecosystem
The Green and Sustainable Finance Cross-Agency Steering Group, co-chaired by the Hong Kong Monetary Authority and the Securities and Futures Commission, has outlined three major initiatives to enhance Hong Kong’s role in sustainable finance. The Steering Group is expanding its membership with the inclusion of the Accounting and Financial Reporting Council. One of the initiatives involves the local adoption of the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards, with a working group co-led by the Financial Services and the Treasury Bureau and the Securities and Futures Commission developing a roadmap covering sustainability reporting, assurance, data and technology, and capacity building. The Steering Group plans to engage stakeholders to tailor the implementation of these standards to Hong Kong’s unique context. A asecond initiative focuses on leveraging technology for sustainability reporting and data analysis, including an event in Q1 2024 to demonstrate green fintech applications, enhancements to the Steering Group’s website, and the introduction of digital tools for environmental risk assessment and greenhouse gas emissions calculation, developed in collaboration with the Hong Kong University of Science and Technology. Lastly, the Steering Group is prioritizing transition finance to solidify Hong Kong’s position as a sustainable finance hub, by integrating transition considerations into policy work, expanding the local taxonomy to include transition activities, and collaborating on capacity building with regional and international partners.
BCB Enhances Support for Green Finance by Adjusting Repo Operation Conditions for Sustainable Securities
The Central Bank of Bolivia (BCB) has announced the authorization by its Board of Directors to extend the use of guarantees for repo operations to include green, social, and/or sustainable bonds, offering them more favorable conditions compared to other securities. Specifically, green bonds will be subject to a lower haircut of 4.75%, resulting in a more advantageous valuation rate for financial entities. Additionally, the BCB has authorized an extension of the hedging mechanisms for these securities, setting the Margin Call at 5.75%, slightly higher than the activation rate for other collateral at 5.5%. The move forms part of the BCB’s ongoing efforts to support environmental sustainability through the financial sector.
Other transversal themes
ESMA Partners with NCAs for Joint Supervisory Review of Algorithmic Trading Pre-Trade Controls
The European Securities and Markets Authority (ESMA) has initiated a Common Supervisory Action (CSA) in collaboration with National Competent Authorities (NCAs) to evaluate the application of pre-trade controls (PTCs) by EU investment firms engaging in algorithmic trading. This action follows the May 2022 flash crash and involves a detailed examination of PTCs, which are critical for preventing the submission of erroneous orders to trading venues. The CSA will scrutinize the implementation and calibration of PTCs, the establishment of credit and risk limits, the monitoring and governance framework, and the oversight of PTCs when trading activities are outsourced to third countries. The aim is to ensure a consistent application of EU rules, particularly those outlined in MiFID II and CDR 2017/589 (RTS 6), which govern the organizational requirements for firms involved in algorithmic trading. The CSA is scheduled to be conducted throughout 2024.
EBA Publishes Final Drafts for Updated Technical Standards Governing EU Supervisory Colleges
The European Banking Authority (EBA) has published final draft Regulatory Technical Standards (RTS) and Implementing Technical Standards (ITS) to update the framework governing supervisory colleges as per the Capital Requirements Directive (CRD) and Capital Requirements Regulation (CRR 2). These revisions are informed by the EBA’s monitoring activities and past experiences with the standards since their initial adoption in 2015. The amendments are designed to enhance the efficiency and effectiveness of supervision for cross-border banking groups within the EU. Key changes include improved information sharing within colleges and with observers, both under normal circumstances and in emergencies, better identification of emerging risks that could materially impact a group’s risk profile, and the optimized use of task entrustment and responsibility delegation to facilitate supervision. Th new technical standards which will replace the 2015 versions upon their issuance.
ESAs Issue Consultation Paper on ITSs for European Single Access Point Operations and Data Standards
The European Supervisory Authorites (ESAs) have jointly released a Consultation Paper on the draft implementing technical standards (ITSs) for the European Single Access Point (ESAP), a key component of the Capital Markets Union Action Plan aimed at centralizing financial and sustainability information. The paper outlines proposed ITSs detailing the tasks of collection bodies and the functionalities of the ESAP. Key areas addressed include automated validations, the use of Qualified Electronic Seals, open standard licenses, data collection APIs, metadata characteristics, time limits for information provision, acceptable data formats, data publication APIs, the use of legal entity identifiers, classification of information types, entity size categories, and industry sector characterizations. Stakeholders are invited to submit feedback via ESMA’s consultation page by March 8, 2024. A public hearing will be organized as a webinar, with details to be announced on the ESAs’ websites. The ESAs will review the consultation feedback with the aim to submit the draft ITSs to the European Commission by September 10, 2024. The ESAP is due to become operational in July 2026 and will begin publishing information by July 2027.
CSA Finalizes Amendments for Electronic Access Model in Prospectus Delivery for Non-Investment Fund Issuers
The Canadian Securities Administrators (CSA) has finalized amendments and changes to national instruments and companion policies to implement an access model for prospectuses of non-investment fund reporting issuers. The so-called Access Model, which is optional for issuers, allows for the provision of a preliminary or final prospectus through public electronic access, with notification to investors via SEDAR+. In certain provinces and territories, notably British Columbia, Québec, and New Brunswick, the new model will satisfy the conditions of an exemption from the requirements under securities legislation to send a prospectusw, while in the remaining CSA member jurisdictions, it will be considered as having delivered the prospectus. The model is intended to support cost reduction along with greater efficiency, and environmental friendliness, as it modernizes prospectus accessibility and alleviates the need for physical printing and mailing. Investors retain the right to request prospectuses in electronic or paper form. The amendments are set to take effect on April 16, 2024, subject to all pending approvals.
Leadership changes & appointments
Pierre Wunsch Secures Second Term as Governor of the National Bank of Belgium Pending Royal Decree
The National Bank of Belgium has announced the federal government’s approval for the reappointment of Pierre Wunsch as the Governor for a second five-year term, following the expiration of his initial term on December 31, 2023. His reappointment is pending confirmation by royal decree. Governor Wunsch, who first assumed the role in January 2019, concurrently serves on the Governing Council and the General Council of the ECB, the Board of Governors of the IMF, and as chairperson of the NBB’s Resolution Board. He also leads the audit committee of the Bank for International Settlements and holds positions with the High Council of Finance, the National Accounts Institute, and the European Systemic Risk Board.
Bank of Namibia Gains Plenary Membership in the Network for Greening the Financial System
The Bank of Namibia has officially become a plenary member of the Network for Greening the Financial System (NGFS). By joining the NGFS, the Bank of Namibia aligns with 134 members and 21 observers, emphasizing its commitment to addressing the significant climate-related challenges that Namibia faces, particularly its vulnerability to drought and the subsequent effects on food security and macroeconomic stability. The membership is expected to facilitate the development of climate risk mitigation and adaptation policies within Namibia’s financial sector and enhance its resilience.
CBSM and AFA Sign MoU to Strengthen Supervisory Cooperation in Financial Sector Regulation
The Central Bank of the Republic of San Marino (CBSM) has entered into a MoU with the Andorran Financial Authority (AFA), establishing a framework for cooperation in the supervision and regulation of banking, financial, and insurance activities. The MoU aims to enhance the exchange of information, mutual assistance, and the sharing of supervisory capacities, particularly in light of the anticipated Association Agreement with the European Union, as well as reinforces the commitment to a robust financial sector and the international alignment of both countries’ financial systems, which will support the implementation of new EU legislation and foster a culture of collaboration and continuous improvement in supervisory practices.
Capital Market Commissions of Montenegro and Bosnia and Herzegovina Strengthen Regional Ties with new MoU
The Capital Market Commission of Montenegro has announced the signing of a MoU with the Securities Commission of the Federation of Bosnia and Herzegovina, marking a significant advancement in regional collaboration for capital market regulation and supervision. The memorandum underscores a commitment to sharing knowledge, experience, and best practices, as well as to jointly address challenges in the capital markets of both economies. It seeks to foster growth and development of the capital markets, improving the investment climate, and safeguarding investor interests, thereby contributing to economic prosperity and stability in the region.