Global Regulator & Central Bank News Roundup
Volume 05/2024 (January 29 – February 4)
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
- Cyber & operational resilience
- Conduct & consumer protection
- Fintech & ecosystem innovation
- Payments & money
- Leadership changes & appointments
- Cross-border cooperation
Prudential & financial stability
ESMA Risk Monitoring Report Highlights Financial Market Resilience Amidst Interest Rate Hikes and Geopolitical Uncertainties
The European Securities and Markets Authority (ESMA) has published its first risk monitoring report of 2024, identifying key risk drivers and structural developments within the financial markets amidst ongoing geopolitical and macro-financial uncertainties. The report overall notes that markets overseen by ESMA showed resilience in the second half of 2023, amid persistent high risks, including the impact of sustained high interest rates and geopolitical uncertainties. However, there remains a significant correction risk, particularly in equity, bond, and crypto markets due to fragile liquidity and real estate exposures, while ongoing inflation pressures investors’ real returns. Additionally, the impact of geopolitical and peripheral risks is expected to further rise and exacerbate price volatility.
In terms of structural developments, the report makes three key observations: (1) It points to the continued reliance of European corporates on fixed income markets and securitized products, with a notable concern over a looming maturity wall for corporate bonds from 2024 to 2028 that could pose sustainability challenges, especially in lower-quality segments; (2) It highlights a slowdown in ESG investing, with the ESG bond market’s growth decelerating and specific sustainable investment funds experiencing net outflows for the first time; (3) It acknowledges a rebound in crypto-asset valuations following regulatory developments in the U.S., alongside a growing adoption of artificial intelligence in finance. From a market monitoring perspective, it notes inter alia slight increases in equity valuations, a level of volatility in EU fund performance and flows, as well as continued subdued consumer sentiment.
Bank of Italy Assumes Role as National Resolution Authority for CCPs
As of 31 January 2024, the Bank of Italy has assumed the role of the national resolution authority for central counterparties (CCPs) located within Italy, in alignment with Legislative Decree 224/2023 that enacts Regulation (EU) 2021/23. This regulation establishes a comprehensive framework for the recovery and resolution of CCPs, aiming to enhance the resilience of CCPs and the capability of authorities to manage crises effectively. It includes measures to ensure CCPs are better prepared for stress scenarios, granting authorities the necessary powers to plan for the potential resolution of a CCP. The Bank of Italy’s Resolution and Crisis Management Unit, which already oversees the resolution and crisis management of banking and non-banking financial intermediaries, will undertake these additional responsibilities.
AML & CFT
ECON Committees Holds Hearing to Evaluate Applications for AMLA Headquarters
The Committee on Economic and Monetary Affairs has announced that joint public hearings with the nine countries that have applied to host the future Authority for Anti-Money Laundering and Countering the Financing of Terrorism (AMLA) have been conducted by the ECON and LIBE Committees and the Council. The purpose of the hearings was to evaluate the applications of the countries vying for the AMLA seat. Candidates for the host role included Austria, Belgium, France, Germany, Ireland, Italy, Latvia, Lithuania and Spain. As a next step in the process, the Next, the European Parliament and Council will determine the seat of the new Authority through a joint vote.
Cyber & operational resilience
OSFI Issues Final Guideline on Financial Institutions’ Integrity and Security Measures
Following consultation during Q3 2023, the Office of the Superintendent of Financial Institutions (OSFI) has released its final Integrity and Security Guideline. The Guideline outlines OSFI’s expectations for federally regulated financial entities—including banks, credit associations, insurance companies, and trust and loan companies – regarding the establishment of policies and procedures to safeguard against threats to their integrity and security, whereby integrity includes actions, behaviours, and decisions consistent with the letter and intent of regulatory expectations, laws, and codes of conduct and security relates to protection against malicious or unintentional internal and external threats to physical or electronic threats. The final Guideline sets out four principles for the integrity of financial institutions, covering expectations for the good character of responsible persons and leaders, organizational culture, governance structures and effective mechanisms to identify and verify compliance with regulatory expectations, laws, and codes of conduct exist. These are complemented by six security-related principles, articulating new expectations among other things for standards and controls for physical buildings, office spaces, physical file storage, and technical security inspections; risk-based background checks on all employees and contractors; third-party risk management and the reporting of threats. The new Guideline complements other existing OSFI Guidelines, such as in relation to operational resilience and operational risk management, third-party risk management as well as technology and cyber risk management.
Conduct & consumer protection
MAS Consultation Seeks to Streamline Insurance Policy Information Collection for Enhanced Consumer Access
The Monetary Authority of Singapore (MAS) has initiated a public consultation on its intention to streamline the data collection process by financial institutions for certain insurance products, in circumstances when recommendations are guided by the Basic Financial Planning Guide. This step aims to facilitate consumer access to straightforward and affordable insurance policies by minimizing the information required from clients when advising on term life insurance and standard critical illness policies and is part of a broader strategy, developed in collaboration with MoneySense, CPF Board, and finance industry associations since October 2023, to enhance Singaporeans’ financial well-being. The Guide, which advises individuals on savings, insurance, and investment, recommends allocating up to 15% of take-home pay on insurance, with coverage suggestions for death, total permanent disability, and critical illness based on multiples of annual income. Goal of the new proposal is to simplify the financial advisory process by reducing the required information to be provided by consumers when making recommendations on term life insurance and standard critical illness policies within the parameters of the guide, thereby enhancing consumers’ ability to obtain cost-effective insurance protection.
Fintech & ecosystem innovation
ESMA Seeks Stakeholder Feedback on Guidelines for Reverse Solicitation and Crypto-Asset Classification under MiCA
The European Securities and Markets Authority (ESMA) has released two Consultation Papers concerning the Markets in Crypto Assets Regulation (MiCA). Under the first Consultation Paper, ESMA is soliciting feedback on proposed guidelines that clarify the conditions under which the reverse solicitation exemption can be applied, emphasizing that this exemption is narrowly framed and should not be used to circumvent MiCA regulations. The guidelines will instruct National Competent Authorities (NCAs) on supervision practices to prevent such circumvention. Under the second Consultation Paper, ESMA seeks input on establishing conditions and criteria for classifying crypto-assets as financial instruments, aiming to align MiCA with the Markets in Financial Instruments Directive II (MiFID II) and ensure EU-wide consistency. The guidelines are designed to provide NCAs and market participants with a structured yet flexible framework for classification, avoiding a one-size-fits-all approach and contributing to global crypto-asset regulatory standards. The consultation period is open until end of April.
ESAs Outline Framework for Strengthened Oversight of BigTech Financial Services Operations in the EU
The European Supervisory Authorities (EBA, EIOPA, and ESMA) have released a report detailing the current landscape of Bigtech companies’ direct provision of financial services within the EU. The stocktake, which follows up on the ESAs’ 2022 response to the European Commission’s Call for Advice on Digital Finance and draws on responses to a survey conducted among National Competent Authorities in 2023, reviewed both Bigtech companies’ footprint across the EU, including through partnerships and white labeling, as well as qualitative aspects on the risks and opportunities and supervisory and regulatory issues arising from these companies and their intragroup dependencies. The report notes that Bigtech subsidiaries are primarily engaged in the payments, e-money, and insurance sectors under EU licenses, with a slight increase in activity observed since the last stocktake, while limited activity in banking and no significant presence in the securities and markets sector are observed, and concludes that Bigtech companies’ direct financial service provision presently does not pose a financial stability threat. Besides reiterating the general risks inherent in Bigtech companies, the report highlights poor visibility over intra-group connections alongside challenges in monitoring Bigtech activity including white labeling activity and challenges in identifying relevant supervisory counterparts as well as the the deficiencies of current regulatory frameworks in addressing risks from intragroup dependencies efficiently as major obstacles. As a next step, the ESAs plan to enhance monitoring of BigTech’s role in the EU financial sector by establishing a monitoring matrix within the European Forum for Innovation Facilitators (EFIF). This matrix is intended to serve as a data mapping tool for National Competent Authorities to dynamically oversee BigTech’s direct and indirect financial activities and their relevance to the EU financial sector. Additionally, the ESAs will maintain cross-disciplinary dialogue within the EFIF to improve information exchange among financial and non-financial sector authorities, including those focused on data and consumer protection.
Payments & money
BIS CPMI Brief Analyzes Cross-Border Payment Systems in Arab Monetary Fund member countries
The Bank for International Settlements (BIS) has released a CPMI Brief titled “Monitoring cross-border payment developments: a regional analysis of AMF member countries”. Against the backdrop of the G20 roadmap on cross-border payments, the paper highlights the significance of cross-border payments for Arab Monetary Fund (AMF) member countries, particularly in light of the increasing volume of interbank transfers and the importance of remittances in the region. It offers an overview of the current state of and the challenges and progress in achieving payment system interoperability and the extension of operating hours in the region as well as discusses the potential opportunities for enhancing cross-border payments arising from multilateral platforms and interlinking of payment systems along with an assessment of the relevant legal, regulatory and supervisory aspects.
National Bank of the Kyrgyz Republic Initiates Regulatory Impact Analysis for Digital Som Legislation
The National Bank of the Kyrgyz Republic has announced the commencement of a regulatory impact analysis concerning the legal regulation of the digital som, a digital form of the national currency. The analysis forms part of the implementation of the Concept of Digital Som and involves studying legal and regulatory issues, as well as proposing amendments to various legislative acts of the Kyrgyz Republic. The digital som is intended to be an additional form of currency, maintaining the current two-level retail model of settlements without altering the roles of participants. The proposed regulation aims to introduce legal status for the digital som and assess its benefits, such as financial inclusion in remote regions, offline payments, and real-time settlements through smart contracts. The regulation also seeks to address potential risks and ensure a balanced regulatory environment.
EBA Launches Survey on Credit Institutions’ ESG Risk Classification Practices
The European Banking Authority (EBA) has initiated a voluntary industry survey to gather insights from credit institutions regarding their methods for classifying exposures to environmental, social, and governance (ESG) risks and the accessibility of ESG data needed for these classifications. The survey is launched with a view to assessing the availability and accessibility of relatable and consistent ESG data for each exposure class as well as the feasibility of introducing a standardized methodology for identifying and qualifying the exposures for each exposure class. To that end, the scope of the survey involves the collection of qualitative data on the current methodologies used by credit institutions in the identification of ESG risks and the qualification of exposures subject to them, distinguishing between exposures to non-financial corporates, retail and non-retail small and medium-sized enterprises, and households. Questions address both the approach for mapping credit exposures to ESG and collecting the required data, including the use of ESG scores, transition and physical risk indicators and guidance and conclusions from supervisory stress testing or scenario analysis, as well as institutions’ approaches and methodologies for classifying credit exposures according to potential pools/levels/buckets of differing ESG risks. Institutions can provide responses until end of March.
ECB Expands Climate Strategy with Three Additional Focus Areas
The European Central Bank has announced an expansion of its climate change strategy for 2024/2025 into three priority areas. Priority area one focuses on investigating the economic impacts and risks associated with the transition to a green economy. Specific initiatives include inter alia an analysis on the effects of transition funding and risks on the monetary policy transmission mechanism, the assessment of green investment needs and its funding and an analysis of the structural consequences arising from the transition. As a second priority, the ECB will assess the physical impacts of climate change. This will involve analyzing how extreme weather events and adaptation measures affect inflation and the financial system, taking steps to integrate climate change impacts into climate scenarios and the analytical framework used for macroeconomic projections, as well as reviewing the impact of climate adaptation, including the insurance protection gap, and enhancing the data infrastructure to support physical risk analysis. As a third priority, the ECB will focus on the economic and financial consequences of nature loss and degradation, exploring their interplay with climate change and the role of ecosystems. Beyond these three priority areas, the ECB will continue to integrate environmental considerations into its own operations. This will include defining eco-design principles for the future euro banknote series and for the design of the potential digital euro.
FINMA Initiates Consultation on Circular for Nature-Related Risk Management in Banking and Insurance Sector
The Swiss Financial Market Supervisory Authority (FINMA) has issued a new circular outlining its supervisory practice for the management of nature-related financial risks across the banking and insurance sectors. The circular, which is based on the recommendations by the Basel Committee on Banking Supervision (BCBS), the International Association of Insurance Supervisors (IAIS), and the Network for Greening the Financial System (NGFS), sets out cross-cutting expectations for the management and integration of nature-related financial risks in the areas of governance, risk identification, materiality assessment and management as well as stress testing as well as specific expectations for banks and insurers, respectively, thereby acknowledging the varying exposure of banks and insurers to nature-related financial risks, such as physical risks for non-life insurance and reinsurance companies and credit risks for banks. Specific expectations focus inter alia on the consideration of nature-related risks with respect to credit, market, liquidity risks and other non-financial risk areas such as operational, compliance and reputational risk. Following the conclusion of the public consultation at the end of March, the circular is set to take effect on 1 January 2025.
CIMA Initiates Sector-Wide Climate Risk Assessment Survey for Financial Entities
The Cayman Islands Monetary Authority (CIMA) has announced its plan to conduct a comprehensive survey on climate change and environmental-related risks within the financial services sector. The initiative forms part of CIMA’s effort to stay abreast of global developments and deepen its understanding of emerging risks that could impact the sector. The survey will target all regulated entities, including licensees and registrants, and aims to gather insights on the strategies, practices, and challenges these entities face in managing climate change and environmental risks. Responses to the survey are intended to inform CIMA’s development of initiatives and regulatory frameworks in relation to these risks.
Leadership changes & appointments
Guillermo Plate Assumes Role as Argentina’s Superintendent of Insurance
Guillermo Plate has been officially appointed as the new Superintendent of Insurance of the Nation (SSN) by Argentina’s President Javier Milei, as per Decree No. 82/2024. Plate previously served at the SSN from 2017 to 2019 and has held positions in several law firms, companies, and as a manager of fiduciary services in International Banking. He holds a law degree from the Universidad Católica Argentina and master’s degrees in International Law and Business Law from Duke University School of Law and Universidad Austral, respectively. In his new role, Plate aims to implement changes in insurance regulation to promote legal certainty, innovation, and process simplification.
Central Bank of the Republic of Türkiye and Bank of Spain Formalize Cooperation with MoU
The Central Bank of the Republic of Türkiye has entered into a MoU with the Bank of Spain, which establishes a formal basis for enhanced cooperation in central banking activities, including technical cooperation and the exchange of knowledge. The agreement, which was formalized during a signing ceremony in Madrid, aims to promote collaboration and the execution of corporate technical activities within the realm of central banking.
BaFin and NSSMC Initiate Joint Efforts to Enhance Virtual Asset Supervision
The German Federal Financial Supervisory Authority (BaFin) has announced its intention to establish a close cooperative relationship with the Ukrainian National Securities and Stock Market Commission (NSSMC), with the inaugural event being a joint online workshop focused on virtual assets. The collaboration aligns with the ongoing legislative process in Ukraine regarding crypto assets and the EU’s implementation of the Markets in Crypto Assets Regulation (MiCAR). The cooperation, which is set to be long-term and encompass all relevant areas of financial supervision, also reinforces the MoU signed by the finance ministries of Germany and Ukraine in August 2023 to strengthen financial cooperation.