Global Regulator & Central Bank News Roundup

Volume 07/2024 (February 12 – February 18)

 

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
 
CPMI and IOSCO Issue Discussion Paper on Optimizing Variation Margin Practices in Central Clearing
The Bank for International Settlements (BIS) Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) have released a discussion paper titled “Streamlining variation margin in centrally cleared markets – examples of effective practices,” which seeks comments on eight effective practices aimed at enhancing variation margin (VM) processes and transparency among Central Counterparties (CCPs), clearing members, and their clients. These practices are designed to supplement the Principles for Financial Market Infrastructures (PFMI) and CCP resilience guidance by providing concrete examples of compliance. Key areas covered include the scheduling, frequency, and timing of intraday VM calls, the treatment of excess collateral, the pass-through of VM by CCPs, and enhancing transparency in VM requirements and processes. The initiative forms part of a broader effort to streamline VM and initial margin processes in both centrally and non-centrally cleared markets. Comments on the paper can be provided until 14 April.

 

Canadian Securities Administrators Publish Inaugural 2023 Report on Systemic Risks in Canadian Capital Markets
The Canadian Securities Administrators (CSA) has released its Systemic Risk Committee’s 2023 Annual Report on Capital Markets, marking the report’s inaugural public dissemination. The report identifies and evaluates recent financial market trends, highlights key vulnerabilities within Canadian capital markets, and outlines the CSA’s initiatives to address and mitigate these risks. Key vulnerabilities addressed in the report include inter alia the transition of benchmark risk-free interest rates from CDOR to CORRA, liquidity risks, crypto asset markets, as well as the challenges posed by higher interest rates and tighter monetary conditions. Despite these vulnerabilities, the Systemic Risk Committee concludes that risks to financial stability in Canadian capital markets are appropriately mitigated. The CSA, through its Systemic Risk Committee established in 2009, analyzes and monitors systemic and emerging risks, which is supported by an annual systemic risk survey, which was first initiated in 2022 to gather insights on financial risks from market participants.

 

Federal Reserve Board Outlines 2024 Stress Test Scenarios for Major Banks, Including Novel Exploratory Analysis
The Federal Reserve Board (FRB) has announced the release of hypothetical scenarios for its 2024 annual stress test, aimed at assessing the resilience of 32 large banks in the event of a severe recession. This year’s stress test scenarios envision a severe global recession characterized by significant stress in commercial and residential real estate markets, as well as corporate debt markets, with the U.S. unemployment rate surging by nearly 6.5 percentage points to 10%. The scenarios include a 36% decline in house prices, a 40% drop in commercial real estate prices, and severe market volatility. Banks with significant trading or custodial operations will also evaluate the impact of a counterparty default scenario. Additionally, banks with large trading operations will face a global market shock component that stresses trading and related positions. For the first time, the Board has introduced an exploratory analysis with four hypothetical elements to assess the banking system’s resilience to a broader range of risks, including funding stresses and market shocks, such as the hypothetical failure of five large hedge funds under various financial conditions. This exploratory analysis, which will not affect bank capital requirements, aims to probe different risks and will publish aggregate results alongside the annual stress test results in June 2024. In addition to the Federal Reserve Board, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) have likewise announed the details for the respective stress tests by institutions under their remit, which were developed in coordination with the FRB.

 


AML & CFT
 
FinCEN Proposes AML/CFT Obligations for SEC-Registered and Exempt Reporting Investment Advisers
The Financial Crimes Enforcement Network has released a Fact Sheet detailing a Notice of Proposed Rulemaking (NPRM) to enhancing anti-money laundering (AML) and countering the financing of terrorism (CFT) measures within the U.S. investment adviser sector. Recognizing the sector’s significant role in the U.S. economy and its vulnerability to illicit financial activities, the NPRM proposes to extend comprehensive AML/CFT requirements under the Bank Secrecy Act (BSA) to certain investment advisers, specifically those registered with the Securities and Exchange Commission (U.S. SEC) and exempt reporting advisers (ERAs). This includes the implementation of risk-based AML/CFT programs, the filing of Suspicious Activity Reports (SARs) with FinCEN, and adherence to recordkeeping requirements. The initiative follows the recent risk assessment by the Treasury, highlighting the sector’s exposure to illicit finance risks, including the misuse by sanctioned individuals and foreign adversaries and aims to recalibrate the regulatory environment in response to the sector’s growth as well as align U.S. measures with international standards, addressing a gap identified by the Financial Action Task Force (FATF). Under the proposed rule, The public comment period for the NPRM is open until April 15, 2024.

 

FinCEN Reports Surge in BSA Filings Linked to CVC in Online Child Exploitation and Trafficking Cases
In addition, the FinCEN also released a Financial Trend Analysis (FTA) indicating a significant rise in Bank Secrecy Act (BSA) reporting related to the use of convertible virtual currency (CVC) in the context of online child sexual exploitation (OCSE) and human trafficking. The analysis, covering the period from January 2020 to December 2021, underscores the critical role of financial institutions in identifying and reporting financial activities that may be linked to human trafficking and related crimes, thereby aiding law enforcement in protecting victims. The FTA reveals a substantial increase in OCSE- and human trafficking-related BSA reports involving CVC, from 336 in 2020 to 1,975 in 2021, with 95 percent of these reports involving child sexual abuse material (CSAM) or a combination of human trafficking and CSAM. Bitcoin was identified as the predominant CVC of choice for these illicit activities. Specifically, FinCEN has identified four common typologies across BSA reports: the use of darknet marketplaces for distributing CSAM, peer-to-peer exchanges, CVC mixers, and CVC kiosks. The analysis forms part of FinCEN’s broader efforts to combat human trafficking and the illicit use of CVC.

 


Conduct & consumer protection
 
ASIC Research Highlights Financial Stress Disparity Between Gen Z Women and Men
The Australian Securities & Investments Commission (ASIC) has unveiled new research through its Moneysmart initiative, highlighting significant financial stress and concerns among Australian Gen Z women compared to their male counterparts. The study reveals that Gen Z women are more likely to experience severe stress over the cost of living, with 87% of women feeling stressed compared to 77% of men. Additionally, 57% of women feel overwhelmed by their finances, in contrast to 41% of men. The research also indicates that Gen Z women are less inclined to explore ways to increase their wealth and are more likely to have no personal savings and to utilize buy-now-pay-later services. ASIC’s Acting Senior Executive Leader of Corporate Finance, Amanda Zeller, pointed out that this gender gap in personal finance aligns with international findings and is exacerbated by stereotypes, leading to a cycle of financial anxiety among young women. The report also critiques the social media trend of ‘girl math,’ a rationalization of spending that does not contribute to financial security, and emphasizes the need for financial literacy to empower young women to make informed financial decisions. Moneysmart offers various tools and resources to aid in financial planning, including budgeting, saving, and investment strategies, aiming to change the narrative around ‘girl math’ and promote financial independence among young women.

 


Fintech & ecosystem innovation
 
FSC Mauritius Consults on DeFI Financial Collaterals
The Financial Services Commission (FSC) of Mauritius has released a new Consultation Paper titled “Decentralised Finance (DeFI): Regulatory Considerations on Financial Collaterals”. The paper aims to explore the nature, benefits, and challenges associated with financial collaterals within the DeFI sector and to evaluate how these can be integrated within the Mauritian regulatory framework. Among other things, the paper discusses collateral arrangements in decentralised lending, which accommodates collaterals via DLTs, mainly involving intangible assets like security tokens and virtual assets, and highlights the associated benefits, such as transparency, lower fees, liquidity, and faster processing, while also drawing attention to the risk of using virtual assets and security tokens as collaterals, including the inherent volatility of virtual assets, the risk of over-collateralisation, limited collateral options, and cybersecurity risks. Against this backdrop it offers a comprehensive review of Mauritian laws relevant to the use of virtual assets and security tokens as collaterals. Feedback to the paper can be provided until 15 March 2024.

 

Quebec AMF Discussion Paper Outlines 30 Practices for Responsible Use of AI in the Financial Sector
The Autorité des marchés financiers (AMF) has published a comprehensive issues and discussion paper titled “Best Practices for the Responsible Use of AI in the Financial Sector” to foster dialogue on the benefits and challenges of artificial intelligence (AI) in the financial industry. The paper highlights the transformative potential of AI in the financial sector innovation in product and service development, cost reduction, and enhanced client segmentation, while highlighting the need to address the associated complexities and risks. To that end, the AMF outlines 30 best practices in six main areas: (1) Practices aimed at safeguarding consumers from unfair or misleading AI applications, emphasizing AI’s use in consumers’ best interests, privacy respect, autonomy enhancement, fair treatment, conflict of interest management, and consumer consultation; (2) Transparency regarding AI use in financial products and services, including disclosing AI frameworks, explaining AI-driven outcomes, and providing channels for consumer assistance and compensation; (3) Justifying AI use based on the financial player’s mission and consumer benefits, with a preference for simpler, more explainable alternatives when possible; (4) Ensuring clear accountability for AIS actions and decisions, promoting employee and officer accountability, and implementing human control measures proportional to AIS risks; (5) Overseeing AI design and use through a clear governance structure including ethical considerations and diversity in AI development teams; and (6) Managing and monitoring AI-associated risks to mitigate potential adverse consequences of AI applications. The report does not propose a new regulatory framework or modify existing ones but seeks industry feedback on the deployment of AI in the financial sector to inform the AMF’s future efforts in enhancing or developing new frameworks for clear risk understanding and management. The AMF seeks to engage with stakeholders through consultations, roundtables, and forums to discuss the proposed best practices and gather further insights.

 


Payments & currency
 
BIS CPMI Brief Highlightes Latest Trends in Digital Payment Adoption
The Bank for International Settlements (BIS) has published a CPMI Brief titled “Tap, click and pay: how digital payments seize the day,” highlighting key trends in digital payments. The brief highlight a marked increase in cashless payments per capita in both advanced economies and emerging market and developing economies, with a notable shift towards using cashless methods for smaller payments and a corresponding decline in cash withdrawals and the circulation of small-denomination banknotes. Fast payments in particular have undergone significant growth and are identified as a key factor in the digitalization of countries’ payment ecosystems, with many jurisdictions introducing these as alternatives to traditional payment methods to enhance financial inclusion and reduce transaction costs. Despite the surge in digital payments, the brief acknowledges that cash remains a prevalent choice for consumers both domestically and internationally, with a marked increase in cross-border card and e-money payments as well as cross-border cash withdrawals in 2022. The insights are based on the 2022 Red Book statistics, collected from member jurisdictions of the BIS Committee on Payments and Market Infrastructures (CPMI) in the latter half of 2022. On the basis of the findings, the brief outlines several implications for financial regulation and supervision, among other things noting the need for policies that promote financial inclusion to ensure that digital payment systems are accessible to all segments of the population while also maintaining focus on the accessibility and acceptance of cash remains vital, given its continued use across various demographics and regions.

 

Deutsche Bundesbank Launches National Cash Forum
The Deutsche Bundesbank has announced the establishment of the National Cash Forum in Berlin, a collaborative initiative involving the Bundesbank, associations from the banking industry, retail trade, consumer protection, the Cash-in-Transit (CIT) industry, and vending machine operators. The forum’s primary goal is to ensure the preservation of cash as an efficient and widely utilized payment method amidst the evolving payment landscape. Specifically, the Forum seeks to explore various topics, including the efficiency, sustainability, security, and digitalization of cash, emergency and crisis preparedness, as wel as cross-border cooperation in cash management. Despite a decline in cash usage at points of sale, a significant majority (93%) of participants in a Bundesbank survey expressed a preference for the autonomy to choose cash payments. The Forum, which plans to convene at least annually with the next meeting scheduled for the autumn, will operate through several working groups.

 


ESG
 
Thailand SEC and Partners Initiate Phase 2 of Sustainable Economy Taxonomy Development
The Thailand Securities & Exchange Commission, in collaboration with the Bank of Thailand, the Stock Exchange of Thailand, the Department of Climate Change and Environment, and 26 other government and private sector entities, convened the first meeting of 2024 for the Working Group to Define and Categorize Projects or Activities in the Sustainable Economy Sector. The meeting, part of the Thailand Taxonomy Phase 2 initiative, aims to extend the classification framework for environmentally friendly economic activities beyond the initial focus on climate change mitigation in the energy and transportation sectors. The expanded taxonomy will now also cover sectors with significant greenhouse gas emissions and environmental impacts, including manufacturing, construction and real estate, waste management, and agriculture. The initiative, supported by international organizations such as the Climate Bonds Initiative, DNV, Thailand Development Research Institute, International Finance Corporation, Asian Development Bank, and the German International Cooperation Agency, seeks to align with international standards while being tailored to the Thai context. This taxonomy is intended as a tool for promoting capital allocation, risk management, and investment in the private sector, as well as for guiding government policy and support measures. Public hearings on the draft of Thailand Taxonomy Phase 2 are scheduled for the fourth quarter of 2024, inviting input from businesses, civil society, academics, the financial sector, and international organizations.

 


Other transversal themes
 
SRB Unveils SRM Vision 2028 Strategy Focusing on Operationalisation and Crisis Preparedness
The European Single Resolution Board (SRB) has formally launched its new “SRM Vision 2028” strategy during the SRB conference, which convened industry experts, EU policymakers, stakeholders, and academia to discuss financial stability risks and the banking sector’s preparedness for potential crises. The strategy marks a critical transition towards operationalization, resolution testing, and crisis readiness, beyond its foundational resolution planning and preparation efforts. This strategic reorientation is designed to enhance the SRM’s capability to implement bank-specific resolution plans and strategies promptly, thereby bolstering crisis resilience. Developed over the period of a year through seven consultations with National Resolution Authorities (NRAs), the industry, and other stakeholders, the the strategy encompasses three main areas – core Business, governance, and human resources – and outlines nine strategic objectives accompanied by 20 actions scheduled for implementation by the end of 2028. Specific activities and performance indicators under the strategy will be detailed in the forthcoming SRB’s Multi-Annual Plan.

 

NAIC Sets 2024 Agenda with Emphasis on Climate Resilience, Financial Oversight, and Consumer Protection Initiatives
The National Association of Insurance Commissioners (NAIC) has announced its strategic priorities for 2024, which include addressing climate risks and resilience, enhancing insurer financial oversight and transparency, improving the marketing of insurance products, addressing race and insurance, financial inclusion, and protection gaps, and managing the use of artificial intelligence (AI) by insurers and cyber risk. The NAIC’s approach to climate risks involves a unified strategy, data collection, and the launch of a Climate Risk Dashboard. To enhance financial oversight, the NAIC plans to reduce reliance on credit rating providers and modernize the role of its Securities Valuation Office. As regards the protection of consumers from deceptive insurance marketing, the NAIC looks to strengthen information sharing and develop a tool for consumers to check insurance producers’ licenses. Finally, under the work on AI and cyber, the NAIC will involve inter alia projects and efforts to monitor and support the adoption of the model bulletin on the use of AI by insurers, the development of a regulatory framewwork for overseeing third-party data and predictive models as well as the finalization of a cybersecurity event response plan.

 


Leadership changes & appointments
 
Kuwait CMA Secures Second Term on IOSCO Board of Directors Representing GEMC
The Kuwait Capital Markets Authority (CMA) has been elected as a member of the Board of Directors of the International Organization of Securities Commissions (IOSCO) and a Board Representative for the Growth and Emerging Markets Committee (GEMC) for a two-year term from 2024 to 2026, marking the second consecutive term for the Authority in this role. The GEMC, IOSCO’s largest committee, is responsible for fostering the development ofg financial markets in developing and emerging economies through the establishment of market efficiency standards, training, technical support, and facilitating the exchange of information and experiences.

 

Steven Vanackere of National Bank of Belgium Appointed to EIOPA Management Board for 2024 Term
The European Insurance and Occupational Pensions Authority (EIOPA) has announced the appointment of Mr. Steven Vanackere, the Vice-Governor of the National Bank of Belgium, to its Management Board for a two-and-a-half-year term. He succeeds Ms. Else Bos, who previously held the position until her departure from De Nederlandsche Bank at the end of the last year. The Management Board of EIOPA is composed of EIOPA’s Chairperson, six representatives from national supervisory authorities, and a representative from the European Commission.

 

Davit Onoprishvili Reappointed as Head of Georgia’s Insurance State Supervision Service
Davit Onoprishvili has been reappointed as the Head of the Insurance State Supervision Service of Georgia for a five-year term. Onoprishvili has been assuming the role since early 2019. Prior to that he was a majoritarian MP of the Parliament of Georgia from 2012 to 2016, where he held the position of Chairman of the Finance and Budget Committee, was a member of the Health and Social Issues Committee, and the Co-Chair of the Energy Subcommittee, among other things.

 


Cross-border cooperation
 
ESCB and European Commission Initiate EU-Funded Capacity Building Program for African Central Banks
The European Central Bank (ECB), in collaboration with the Bundesbank, the Bank of France and six other national central banks of the European System of Central Banks (ESCB), has initiated a European Union (EU)-funded program aimed at enhancing macroeconomic and financial stability in Africa. With a budget of €2 million, the program is designed to strengthen the capacities of African central banks. Specifically, it will encompass a comprehensive 24-month training for central banks across 24 African countries, covering various critical topics including inter alia anti-money laundering, banking supervision, climate change, data management, digitalisation, fintech and cyber security, financial consumer protection and financial literacy, reserve management and statistics. The Bank of France will assume the thematic coordination of the project while the German Bundesbank will act as coordination lead.

 

CBCG and OeNB Strengthen Bilateral Cooperation With Respect to Personal Data Protection
The Central Bank of Montenegro (CBCG) has initiated a bilateral cooperation with the National Bank of Austria (OeNB) as part of the IPA regional project titled “Programme for Strengthening the Central Bank Capacities in the Western Balkans with a view to the Integration to the European System of Central Banks – Phase II”, which focuses on enhancing the CBCG’s capacity in personal data protection in line with EU regulations. The collaboration involves two bilateral visits aimed at sharing experiences and challenges related to GDPR implementation and personal data management frameworks. The first expert mission involved among other things the OeNB’s Data Protection Officer sharing the organization’s framework for personal data management and its experiences during the GDPR implementation.

 

BSP and Deutsche Bundesbank Sign MoU to Expand Joint Capacity-Building Efforts
The Bangko Sentral ng Pilipinas (BSP) and the Deutsche Bundesbank have entered into a Memorandum of Understanding (MOU) with a view to strengthening their capacity-building partnership for BSP personnel. The partnership, which has been in effect since 2004, encompasses a range of technical programs, in-person seminars, online courses, and study visits aimed at benchmarking and productivity enhancements for the BSP. Recent capacity-building initiatives have included in-person training on credit assessment and analysis for central bank lending operations as well as online training on payment and securities settlement systems.