Global Regulator & Central Bank News Roundup

Volume 06/2024 (February 5 – February 11)


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
Hong Kong Deposit Protection Board Finalizes Enhancements to DPS Following Public Consultation
The Hong Kong Deposit Protection Board has released the consultation conclusions on proposed enhancements to the Deposit Protection Scheme (DPS) in Hong Kong, following a three-month public consultation initiated on 13 July 2023. The Board’s policy recommendations included raising the protection limit, refining the levy system, improving deposit protection in bank mergers, expanding DPS membership sign display to digital channels, and streamlining negative disclosure requirements for private banking customers. The consultation attracted 33 written submissions from various stakeholders and a public opinion survey conducted by the Hong Kong Institute of Asia-Pacific Studies, which interviewed around 1,000 local bank account holders. The feedback was generally supportive of the enhancements, particularly the increase of the protection limit from HK$500,000 to HK$800,000, although the banking industry had mixed views on the level of protection. The Board has decided to raise the protection limit to HK$800,000, which is a 60% nominal increase and a 20% real value increase after adjusting for inflation, ensuring over 92% of depositors will have full coverage. Legislative amendments will be prepared based on the original proposals, with minor refinements in response to bank feedback. The Board aims to implement the new protection limit within the year and review the DPS again in 2027. The implementation of policy proposals will occur in two phases, with the first phase expected to take effect in the fourth quarter of the current year and the second phase in early 2025. The consultation conclusions report is available on the Board’s website.


FSB Regional Consultative Group MENA Meeting at Discusses Global Financial Stability Challenges and Regional Development Opportunities
The Financial Stability Board (FSB) Regional Consultative Group for the Middle East and North Africa (RCG MENA), which comprises financial and regulatory authorities from several MENA countries including Saudi Arabia, Kuwait, UAE, Bahrain, Oman, Qatar, Egypt, Algeria, Jordan, Lebanon, Morocco, Tunisia, and Turkey, convened at the Saudi Central Bank (SAMA) to address challenges pertaining to global and regional financial stability. Co-chaired by SAMA Governor H.E. Ayman Al-Sayari and Central Bank of Egypt Governor H.E. Hassan Abdulla, with FSB Chair Mr. Klaas Knot in attendance, the meeting focused on vulnerabilities such as the implementation of the global regulatory framework for crypto-assets, the impact of the 2023 global banking sector turmoil, and risks associated with high-interest rates and non-bank financial intermediation (NBFI). Governor Al-Sayari highlighted the MENA region’s strengths, including economic diversification, technological progress, and strategic location, as key to its development, referencing the IMF’s affirmation of the region’s resilience to adverse macrofinancial risks. He emphasized the need for tailored financial stability policies that consider the region’s unique economic and financial landscape and the interconnectedness of its economies. The group also reviewed the FSB’s 2024 work program and discussed a report on the initial lessons from the 2023 banking disturbances.


ECB Reports Decrease in EU Bank Assets and Slight Uptick in NPLs for Q3 2023
The European Central Bank (ECB) has released consolidated banking data for the EU banking sector as of end-September 2023. The data shows a decline in the total assets of EU-headquartered credit institutions by 3.30% from €32.66 trillion in September 2022 to €31.58 trillion in September 2023 compared to the previous year. Over the same period, the aggregate non-performing loans ratio of these institutions increased by 0.06 percentage points to 1.89%. The data also indicates that the return on equity for these institutions was 7.69%, and the Common Equity Tier 1 ratio stood at 15.75%. The dataset encompasses 314 banking groups and 2,301 stand-alone credit institutions, representing nearly the entire EU banking sector’s balance sheet.


FATF Releases Revised Methodology for 5th Round of Mutual Evaluations for Information
The Financial Action Task Force (FATF) has released for informational purposes the revised methodology for the upcoming 5th round of mutual evaluations. The revisions build on the outcomes and areas for improvement identified during the 4th round and are intended to enhance the assessment process by incorporating lessons learned. The revised methodology introduces several key changes. The evaluation cycle will be reduced from ten to six years with a shift in focus towards effectiveness, ensuring that countries not only have the necessary laws, regulations, and policies in place but are also actively implementing and utilizing them to combat money laundering, terrorist financing, and the financing of weapons of mass destruction. Additionally, under the updated methodology the financial sector and non-financial businesses and professions will be evaluated separately to support more precise and actionable recommendations for improvement. Finally, the recommendations from mutual evaluation reports are intended to be more results-oriented, emphasizing specific actions and timelines for countries to address identified shortcomings.


Egmont Group Concludes 24th Annual FIU Meetings in Malta with Enhanced Cooperation Agreements and Strategic Initiatives
The Egmont Group recently concluded its 24th annual Working and Regional Groups Meetings in St. Julian’s, Malta, which were hosted by the Financial Intelligence Analysis Unit of Malta. The event, aligned with the Egmont Strategic Plan 2022-2027, focused on fostering development, cooperation, and expertise sharing among Financial Intelligence Units (FIUs) to combat money laundering and terrorist financing. Attended by 423 delegates from 128 FIUs and 17 observer organizations, the meetings saw the signing of 19 Memorandums of Understanding to enhance financial intelligence sharing. The Egmont Group welcomed new members from Guyana, Kenya, Oman, and Timor-Leste, expanding its membership to 174 FIUs. Key discussions included the selection of a Board to provide strategic direction for the IT infrastructure facilitating FIU collaboration and the Information Exchange Working Group’s (IEWG) progress on projects such as data analysis tools and FIUs’ roles in National Risk Assessments. The Policies and Procedures Working Group (PPWG) worked on templates for multilateral information exchange MoUs, while the Membership Support and Compliance Working Group (MSCWG) recommended two new FIUs for membership endorsement. The Training and Technical Assistance Working Group (TATWG) endorsed documents to improve future project quality and discussed training development. Workshops and operational training sessions covered topics like cyber-enabled fraud, trade-based money laundering, and asset recovery. Finally, leadership roles for various working groups and regional representatives were also selected during the event.


UK FCA Outlines Progress and Future Strategy in Financial Crime Mitigation Efforts
The Financial Conduct Authority (FCA) has provided an update on its progress midway through its 3-year strategy, focusing on combating financial crime, including fraud, money laundering, sanctions evasion, and terrorist financing. The update outlines the significant damage financial crime continues to inflict on society, emphasizing the importance of a collective effort involving regulatory bodies, government, law enforcement, and the private sector to tackle these issues. Throughout 2022-23 achieved further impact through its work. In relation to fraud, the FCA’s strategy has led to a significant slowdown in the growth of investment fraud, with a notable decrease in overall losses and a slight increase in the number of victims. Efforts have included issuing warnings, engaging with social media influencers, and hosting a multi-agency TechSprint to foster collaboration and data sharing. As regards, the FCA’s approach has involved ensuring new entrants have appropriate financial crime controls, driving improvements in regulated firms, and removing firms with inadequate controls. Developments include the rollout of a synthetic data sanctions testing tool and conducting multi-firm reviews to share best practices and expectations. Looking ahead, the FCA identifies four areas of focus: (1) leveraging data and technology for better fraud detection including through the use of synthetic data and behavioural biometrics; (2) further enhancing cross-sector collaboration and information sharing including at an international level; (3) increasing consumer awareness to combat sophisticated fraud methods including through an expanded use of financial influencers in promoting awareness; and (4) utilizing metrics to measure the impact of financial crime prevention efforts.


U.S. Treasury Issues 2024 National Risk Assessments on Illicit Finance Threats
The U.S. Department of the Treasury has released the 2024 National Risk Assessments for Money Laundering, Terrorist Financing, and Proliferation Financing. The 2024 publications mark the fourth iteration of the money laundering and terrorist financing risk assessments and the third update of the proliferation financing risk assessment in less than a decade. The reports underscore the evolving nature of these threats, highlighting the fentanyl crisis, terrorist financing both on foreign and domestic soil, the rise in ransomware potency, professional money laundering networks, and the impact of the digitization of financial services as particular areas of concern. Additionally, the assessment addresses how major global security threats, notably Russia’s war in Ukraine and Hamas’s terrorist attacks in Israel, have influenced the U.S. illicit finance risk landscape. The forthcoming 2024 National Strategy for Combatting Terrorist and Other Illicit Finance will be informed by the National Risk Assessment and outline recommendations for addressing the identified issues. Among other things, the strategy foresees enhancements to the AML/CFT regime, including the implementation of the new beneficial ownership reporting requirement and proposed rules targeting illicit finance vulnerabilities in the real estate sector and among certain investment advisers.


Conduct & consumer protection
Securities Commission Malaysia Revises Sophisticated Investor Definition to Enhance Capital Market Entry
The Securities Commission Malaysia (SC) has expanded the definition of sophisticated investors to enhance capital market accessibility and cater to the diverse financing needs and investment risk appetites of the Malaysian market. The SC’s new “Guidelines on Categories of Sophisticated Investors” introduces a ‘Knowledge and Experience’ category, allowing individuals with relevant education, membership in recognized financial associations, or practical experience in sectors like banking, capital markets, or insurance to qualify as sophisticated investors, even if they do not meet traditional financial thresholds. The guidelines also adjust the financial criteria for high net worth individuals, including the consideration of an investor’s primary residence value up to RM1 million towards their sophisticated investor status and expanding the definition of a joint account to include those with a spouse or child. The changes reflect the SC’s strategy to foster market growth and stability by attracting a broader investor base and encouraging capital inflow into sophisticated product and market segments, following the growth of the domestic capital market to RM3.8 trillion in 2023.


UK FCA Secures Industry Commitment to Pause GAP Insurance Sales Amid Fair Value Scrutiny
The Financial Conduct Authority (FCA) has announced that a significant portion of the insurance industry, representing 80% of the Guaranteed Asset Protection (GAP) insurance market, has agreed to temporarily halt sales of GAP insurance at the regulator’s request. This decision comes as the FCA aims to enhance the product’s value following concerns that it may not be providing fair value to consumers. GAP insurance, often sold with car finance, covers the difference between a vehicle’s purchase price or outstanding finance and its market value if the vehicle is written off. The FCA’s recent fair value measures data revealed that only a small fraction of GAP insurance premiums are paid out in claims, with some firms paying out a substantial percentage of premiums in commission. The FCA has previously warned insurers about the product’s value and has conducted a market study on insurance add-ons, resulting in new rules for GAP insurance. Firms have committed to making changes to their products to align with FCA rules and the Consumer Duty, which requires firms to provide fair value, meet customer needs, and offer good customer service. The FCA will review proposals for different distribution channels and continue to engage with the industry to resolve these issues.


Estonian Financial Supervision Authority to License and Regulate Debt Collection Agencies
The Estonian Ministry of Finance has announced the government’s approval of a draft law that mandates debt collection agencies involved in the collection of debts from loan agreements to obtain a license from the Financial Supervision Authority. The law introduces operational requirements for these agencies, including transparency in their activities and the prohibition of exerting excessive pressure on debtors. The law also stipulates that debt collection agencies must act in good faith, respect privacy, and avoid harassment. Managers and owners of debt collection agencies face new requirements, such as a prohibition on those previously engaged in usury and a higher minimum capital requirement of 25,000 euros. Banks and creditors are required to explore long-term payment options for debtors before initiating enforcement proceedings. Debt collection agencies must secure authorization from the Financial Supervision Authority by December 31, 2024.


Fintech & ecosystem innovation
BIS Paper Analyzes Economic Impact and Regulatory Challenges of Metaverse Services
The Bank for International Settlements has released a paper titled “The economic implications of services in the metaverse,” which explores the potential impact of an immersive computer-generated environment on the digital economy. Authored by Carlos Cantú, Cecilia Franco, and Jon Frost, the paper acknowledges the rapid growth in investment in virtual worlds but notes that the technology has yet to deliver fully immersive experiences. It also observes a decline in interest over the past two years. The paper identifies promising use cases such as gaming, education, and healthcare, while critiquing others like virtual bank branches and land speculation as gimmicky. The authors suggest that if the metaverse succeeds, it could blur the lines between tradable and non-tradable sectors, enhance cross-border economic integration, and create new demands on payment services. They propose that retail fast payment systems, retail central bank digital currencies, or tokenised deposits could be adapted for the metaverse, yet emphasize the need for public policy to ensure efficient, interoperable payments and to establish clear standards for data privacy, digital ownership, and consumer protection to prevent fragmentation and dominance by powerful private firms.


FSC Announces Implementation Framework for Virtual Asset User Protection Act
The Financial Services Commission (FSC) has announced the enactment of the Act on the Protection of Virtual Asset Users, set to take effect from July 19, 2024. This legislation encompasses the protection of user-held assets, the prohibition of unfair trading practices within the virtual asset market, and the establishment of supervisory and sanctioning powers over Virtual Asset Service Providers (VASPs) and their market activities. Key provisions include the obligation of VASPs to securely store user deposits and assets, with banks being the designated financial institutions for managing these deposits. Furthermore, VASPs are required to maintain a significant portion of assets in cold wallets (at least 80% of their economic value) and must have either liability insurance or a reserve for compensation in the event of hacking or system failures. The Act also strictly prohibits the use of undisclosed material information, market manipulation, and unfair trading practices, with penalties ranging from criminal sentences to penalty surcharges based on the severity and economic gain from such activities. The FSC, along with the Financial Supervisory Service (FSS), is granted authority for the supervision, inspection, and investigation of VASPs and enforcement against unfair trading. Ahead of the Act’s implementation, the FSS has established dedicated units for VASP supervision and investigation and has enhanced its fraud prevention call center. Additionally, the FSC is considering the introduction of a whistleblower reward system to encourage reporting of illegal activities.


Federal Reserve Board Paper Examines Governance Structures in Major Permissionless Blockchain Networks
The Federal Reserve Board has released a comprehensive analysis titled “Governance of Permissionless Blockchain Networks,” which discusses the governance structures of decentralized blockchain networks, particularly focusing on the two largest networks, Bitcoin and Ethereum. The note, authored by Amber Seira, Jeffrey Allen, Cy Watsky, and Richard Alley, provides a primer on the stakeholders involved in permissionless blockchains, including developers, nodes, and users, and their respective roles and influence within the network’s governance. It highlights the differences between core and application developers, the various types of nodes such as full, archival, and partial nodes, miners and validators, and the ways in which users can impact governance decisions. It further contrasts the governance patterns of Bitcoin and Ethereum, noting Bitcoin’s tendency towards a more consolidated authority structure and Ethereum’s evolving, more diverse governance approach, and emphasizes the significance of hard forks—non-backward compatible protocol updates—and how they reflect the governance models of these networks, with Ethereum more frequently pursuing substantive changes through hard forks compared to Bitcoin. The authors suggest that these variations in governance and change models present important research questions regarding the networks’ ability to adapt and the implications for their economic outcomes. The note concludes by encouraging further investigation into the interaction between governance and change models within permissionless blockchain networks.


EU Council and Parliament Reach Provisional Accord on Two-Year Deferral of ESRS for Specific Sectors and Non-EU Entities
The Council of the European Union and the European Parliament have provisionally agreed to postpone the adoption of sustainability reporting standards for certain sectors and third-country companies by two years, amending the Corporate Sustainability Reporting Directive (CSRD). This adjustment sets a new deadline for the adoption of the sector-specific European Sustainability Reporting Standards (ESRS) and standards for large non-EU companies to June 2026, aiming to reduce the administrative burden on companies and enhance European competitiveness and streamlining reporting requirements without compromising the policy objectives of social and environmental sustainability transparency . The agreement reflects a strategic decision to allow companies additional time to prepare for the implementation of the ESRS and to develop sector-specific sustainability standards, as well as standards tailored for specific third-country companies with significant operations in the EU. In accordance with this, the agreement also involves the expectation for the Commission to release eight sector-specific reporting standards prior to the 2026 deadline. The next steps involve the formal endorsement and adoption of the provisional agreement by both the Council and the European Parliament.


Other transversal themes
SEC Chief Accountant Stresses Audit Quality and Professional Skepticism in Investor Protection Efforts
The U.S. Securities & Exchange Commission’s Chief Accountant, Paul Munter, has issued a statement emphasizing the critical role of high-quality audits in investor protection and the concerning trend of increasing deficiency rates in PCAOB inspections. The PCAOB found that in 40% of the 2022 inspections, auditors did not obtain sufficient evidence to support their opinions, marking a rise from previous years. Munter reminds auditors of their duty to exercise professional skepticism and objective judgment, particularly in challenging management and ensuring reliable financial statements and disclosures. He notes that the highest rate of deficiencies in PCAOB inspections pertains to auditor testing of management review controls, followed by deficiencies in the selection of controls to test and controls over information accuracy. The statement also underscores the importance of audit committees in prioritizing audit quality and maintaining independence from management to safeguard investor interests. Munter encourages audit committees to support auditors’ independence and professional skepticism, engage in open dialogue, and assess the auditor’s performance using various metrics, including PCAOB inspection results and team expertise.


OCC, Federal Reserve, and FDIC Initiate EGRPRA Review to Streamline Banking Regulations
The Office of the Comptroller of the Currency (OCC), alongside the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, has initiated a regulatory review as mandated by the Economic Growth and Regulatory Paperwork Reduction Act of 1996 (EGRPRA). This act requires a decennial review of regulations to identify those that are outdated, unnecessary, or unduly burdensome for insured depository institutions. The review process involves dividing regulations into 12 categories, with the first notice, published in the Federal Register, calling for comments on the categories of Applications and Reporting, Powers and Activities, and International Operations. Stakeholders, including community banks, are encouraged to submit their comments by May 6. The review will extend over the next two years, during which three additional notices will be published covering other categories, and a series of outreach meetings will be held to facilitate direct feedback. The OCC has provided a chart to assist commenters in identifying the specific regulations under current review.


Leadership changes & appointments
Egypt’s FRA Secures Third Term as Chair of IOSCO’s Growth and Emerging Markets Committee and Vice Chairmanship
The Egypt Financial Regulatory Authority (FRA) has been re-elected to chair the Growth and Emerging Markets Committee (GEMC) of the International Organization of Securities Commissions (IOSCO) for the third consecutive term, with Dr. Mohamed Farid, Chairman of the FRA, also serving as Vice Chairman of IOSCO’s Board of Directors. The GEMC, which is IOSCO’s largest committee, represents over 75% of its members, including the world’s fastest-growing economies and G20 members, and focuses on improving stock market efficiency, setting principles and standards, facilitating information exchange, and providing training and technical assistance.


OSC Announces Five-Year Extension for CEO Grant Vingoe Amid Strategic Planning Initiatives
The Ontario Securities Commission (OSC) has announced the extension of Grant Vingoe’s tenure as Chief Executive Officer (CEO) for an additional five years. Kevan Cowan, Chair of the OSC Board, commended Vingoe’s leadership for advancing critical initiatives that protect investors, modernize regulations, and facilitate capital raising. Vingoe, who has been a part of the OSC’s Board of Directors, was initially appointed as the dedicated CEO on April 29, 2022, following the separation of the roles of Chair and CEO with the enactment of the Securities Commission Act, 2021.