Global Regulator & Central Bank News Roundup

Volume 14/2024 (April 1 – April 7)

 

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
 
EIOPA Launches 2024 Stress Test for Insurers
The European Insurance and Occupational Pensions Authority (EIOPA) has initiated its 2024 stress test for insurers within the European Economic Area. The 2024 edition of the stress test involves a hypothetical scenario that simulates the re-intensification or continuation of geopolitical tensions and their extensive economic and financial market repercussions and encompasses a microprudential perspective, complemented by an analysis of potential spillovers to other financial sectors due to the shocks. The scenario crafted by EIOPA, in collaboration with the European Systemic Risk Board, anticipates significant supply-chain disruptions leading to sluggish growth and renewed inflationary pressures, alongside a complex interplay of rising short-term market rates, an inverted yield curve further steepening, tightening financing conditions affecting corporate profitability and asset classes, as well as heightened government bond yields raising concerns over sovereign debt sustainability. A total of 48 undertakings from 20 member states covering over 75% of the EEA market by total assets are in scope of the exercise. Participants are expected to submit their results by mid-August 2024 for a quality assurance process, which is due to be concluded by end of October. Final results of the test are planned to be released by EIOPA in December via an aggregated data report and individual results for certain capital-based indicators, contingent on entity consent.

 

EBA Risk Dashboard Indicates EU Banking Sector’s Strong Capitalization While Highlighting Emerging Credit Quality Concerns
The European Banking Authority (EBA) has released its Q4 2023 quarterly Risk Dashboard, highlighting the financial health and risks within the EU/EEA banking sector. The report notes that EU/EEA banks have achieved record high capitalisation levels, with a common equity tier 1 (CET1) ratio of 15.9%, indicating strong capital positions while liquidity measures such as the Liquidity Coverage Ratio (LCR) and the Net Stable Funding Ratio (NSFR) have seen further improvements, standing at 167% and 127% respectively. Despite these positive indicators, there remain emerging signs of credit quality deterioration with the non-performing loans (NPL) ratio having undergone a slight increase from 1.8% to 1.9% and stage 2 loans rising from 9.2% to 9.6%. Profitability remains high with a return on equity (RoE) of 10.3%, yet with EBA noting a high dispersion among banks including a notable decrease in those achieving an RoE higher than 10% from 60% to 45%.

 


AML & CFT
 
MAS Launches COSMIC Platform to Strengthen ML/TF Information Sharing
The Monetary Authority of Singapore (MAS) has announced the launch of a new AML/CFT platform. Dubbed COSMIC – an abbreviation for “Collaborative Sharing of Money Laundering /TF Information & Cases” – the platform is intended to serve as a central digital platform to enable the sharing of customer information among financial institutions to support AML/CFT efforts and was co-developed by MAS and six major commercial banks in Singapore, which will also be the platform’s inaugural participants. The platform’s development followed a public consultation in October 2021, leading to amendments in the Financial Services and Markets Act 2022 that outline operational safeguards and policies FIs must adhere to when sharing information. To that end, COSMIC only allows for the exchange of data on customers whose profiles or behaviors exhibit objectively-defined indicators of suspicion. During the initial period of operation, focus will be on three key financial crime risks in commercial banking: (1) misuse of legal persons; (2) misuse of trade finance for illicit purposes; and (3) proliferation financing.

 

Finansinspektionen Proposes Enhanced Access to Criminal Records to Enhance AML Prevention
The Swedish Finansinspektionen has announced its intention to broaden its access to suspicion and criminal records in an effort to further strengthen money laundering and terrorist financing prevention. The proposed expansion of access aims to include information on a wider range of crimes, including those linked to gang activities such as weapons offenses, drug offenses, human trafficking, crimes dangerous to public safety, and those against national security. The broader information base is intended to strengthen suitability assessments of owners and managerial personnel within financial firms, ensuring they meet qualifications and adhere to regulatory standards. Currently, Finansinspektionen’s access is limited to certain financial crimes and does not extend to representatives of foreign payment companies or encompass other serious offenses.

 


Conduct & consumer protection
 
SEBI Launches SCORES 2.0 to Enhance Investor Complaint Resolution Efficiency
The Securities & Exchange Board of India (SEBI) has announced the launch of its upgraded complaints redress system SCORES. SCORES is a dedicated online platform which allows investors in the securities market to lodge complaints against listed companies and registered intermediaries and receive redressal for their grievances. The upgraded version, SCORES 2.0., seeks to enhance the efficiency and effectiveness of the investor complaint redress mechanism through several new features. These include auto-routing of complaints to the relevant regulated entity, auto-escalation of complaints as well as the introduction of uniform timeline of 21 days for redressal of investor complaints from the date of the complaint receipt, applicable across the entire securities market. Furthermore, the system provides for an advanced approach for the handling of situations when investors are dissatisfied with an initial resolution by introducing a two-tier review system. Under this approach, unresolved complaints are subject to an initial review by a so-called designated body followed by a second review by SEBI, if necessary.

 


Fintech & ecosystem innovation
 
BIS Innovation Hub Launches Project Agorá to Investigate Tokenization in Cross-Border Payments
The Bank for International Settlements (BIS) Innovation Hub has announced the initiation of Project Agorá, a collaborative effort involving seven central banks and the private sector, focused on exploring how tokenization can enhance the functioning of the monetary system. Named after the Greek word for “marketplace,” the Project includes participation from the Bank of France (on behalf of the Eurosystem), Bank of Japan, Bank of Korea, Bank of Mexico, the Swiss National Bank, the Bank of England, and the Federal Reserve Bank of New York and will investigate the potential benefits of tokenizing central bank and commercial bank deposits on a public-private shared programmable ledger, which would enable the use of new solutions such as smart contracts and programmability. In doing so, the Project seeks to address several structural inefficiencies, most notably in relation to cross-border payment systems, such as varying legal, regulatory, and technical standards, operational hours across time zones, and financial integrity controls. Private financial institutions will have the opportunity to express their interest in participating in the Project in a forthcoming call for applications facilitated by the Institute of International Finance (IIF), which will act as an intermediary for selecting private sector participants without requiring IIF membership.

 

ESMA Issues Interim Update on DLT Pilot Regime
The European Securities and Markets Authority (ESMA) has shared with the European Commission, the Parliament and the Council an update on the Distributed Ledger Technology (DLT) Pilot Regime. The Regime, which originally became effective in March 2023, serves as the legal framework for trading and settlement transactions in crypto-assets that qualify as financial instruments under MiFID II while establishing new types of market infrastructures such as DLT multilateral trading facilities (MTF), settlement systems (SS), and combined trading and settlement systems (TSS). It seeks to foster the development in crypto-assets and DLT market infrastructures while ensuring investor protection, market integrity, financial stability, transparency, and preventing regulatory arbitrage. As to date no DLT market infrastructure has been authorized yet, ESMA’s update provides preliminary insights regarding challenges and opportunities that have emerged during the first year of the regime’s application alongside recommendations for its improvement, drawing among other things on the insights from four applications submitted. Specific challenges highlighted relate to innovative solutions for cash settlement, insufficient clarity of regulatory expectations in relation to custody through self-hosted wallets, interoperability between traditional and DLT-based infrastructures, investor protection particularly regarding direct retail investor access to these platforms, and competitiveness concerns vis-à-vis third-country regimes due to uncertainties about the duration of the pilot regime.

 

BoE and FCA Consult on Modus Operandi for New Digital Securities Sandbox
The Bank of England (BoE) and the Financial Conduct Authority (FCA) have jointly announced a consultation on their approach to operating the Digital Securities Sandbox (DSS). The DSS is designed to modify existing regulations, allowing financial market participants to leverage new technologies including distributed ledger technology provide securities depository and settlement services as well as operate trading venues under a unified legal entity. Set to last five years, the DSS may evolve into a permanent regulatory regime for securities settlement. The consultation focuses on the DSS’ detailed modus operandi. Complementary to the consultation, the BoE and the FCA have published draft guidance directed at interested DSS applicants firms looking to enter the DSS, including details of how firms are expected to be able to scale their activities once authorised to undertake live activity in the DSS as well as a detailed breakdown of how existing regulations on securities depositories will apply throughout the lifecycle of the sandbox. Feedback to the consultation can be provided until end of May.

 


Payments & money
 
Bank of England Shares Key Discussion Points from January and February CBDC Technology Forum Meetings
The Bank of England has published the minutes from the ninth and tenth meetings of the CBDC Technology Forum. The ninth meeting, held at the end of January, focused on exploring design options for the digital pound architecture, with presentations from two subgroups. Subgroup 1 discussed their approach to ensuring privacy in a digital pound and designing an alias service, emphasizing the importance of privacy while adhering to legal and regulatory requirements. They explored data access requirements for payments, assessing solutions against these requirements and considering various data types and roles within the system. The subgroup also discussed potential challenges and the use of cryptographic techniques like zero-knowledge proofs for privacy enhancement. Subgroup 4 presented their initial findings on providing a platform for innovation within the digital pound ecosystem. They proposed nine experiments for consideration, ranging from implementing smart contract platforms to exploring technologies for user balance privacy protection and interoperability across all forms of money. The tenth meeting, respectively, involved presentations from subgroups 2 and 3. Subgroup 2 concentrated on models of interaction between Payment Interface Providers (PIPs), examining three models – (1) a centralised model through the core digital pound system, (2) a centralised model via a third-party operator, and (3) a decentralised model allowing direct interactions among PIPs – and assessing these vis-à-vis various use cases. The group also delivered its preliminary findings on messaging standards, discussing among other things challenges in adopting ISO20022 messaging standards for digital pound APIs. Finally, subgroup 3 explored core ledger technologies for supporting transaction speed, privacy, and uptime requirements, evaluating both centralised database systems and distributed ledger technologies and discussing trade-offs in terms of transaction speed and consistency.

 


ESG
 
ADB Announces Plans for ASEAN Climate Finance Policy Platform
The Asian Development Bank (ADB) has announced its intention to initiate the ASEAN Climate Finance Policy Platform. Revealed by ADB President Masatsugu Asakawa during the High-Level Policy Dialogue at the 11th ASEAN Finance Ministers and Central Bank Governors’ Meeting, the platform is intended to help Southeast Asian finance ministry leaders in advancing the collective effort in response to climate change by fostering collaboration and exchange among finance ministries, aiding in sharing experiences, building capacity, and reinforcing evidence-based policies. The ADB will offer technical assistance as part of the platform’s development.

 

APRA Outlines 2024 Climate Risk Self-Assessment Survey
The Australian Prudential Regulation Authority (APRA) has released a cross-industry letter in preparation of its upcoming 2024 voluntary climate risk self-assessment survey among regulated entities. Following the inaugural survey in 2022, the new survey seeks to further expand APRA’s understanding of the alignment of entities’ current practices for the identification, assessment and management of climate-related financial risks with the expectations set by Prudential Practice Guide CPG 229 Climate Change Financial Risks. Using the 2022 survey as a baseline, additional focus areas in this iteration include entities’ transition plans and nature risks. Additionally, the scope of the survey is broadened to include to all entities from across the banking, insurance and superannuation sector. As an output of the exercise, APRA will share with participating entities an anonymized peer-comparison to better gauge their own position as well release aggregated industry-level insights.

 

EIOPA Launches Public Consultation to Update Standard Formula for Natural Catastrophe Risk Assessment
The European Insurance and Occupational Pensions Authority (EIOPA) has initiated a public consultation to update the standard formula for assessing natural catastrophe risks, reflecting the latest insights, data, and models since the last update in 2018. The reassessment aims to address the increasing frequency and severity of natural catastrophes in Europe, such as earthquakes, floods, hail, and windstorms, driven by climate change. The objective is to ensure that insurers’ capital requirements for natural catastrophe underwriting risk remain aligned with the expected impact of climate change on these events. EIOPA’s review has led to the proposal of new risk factors for 25 perils/regions across five perils and suggests recalibrating flood risk for 10 countries. Additionally, it proposes expanding coverage in the standard formula to include nine more countries for certain risks previously not covered. Moreover, EIOPA is considering adding new perils like wildfire, coastal flood, and drought in future updates. The consultation is part of EIOPA’s mandate under the Solvency II Review to reassess and recalibrate natural catastrophe risk parameters at least every five years and contributes to its broader work on analyzing insurers’ exposure to physical climate change risks and addressing insurance protection gaps for natural catastrophes. Feedback can be provided until 20 June.

 


Other transversal themes
 
IOSCO Discusses Regulatory Implications and Proposed Good Practices for the Operation, Governance and Business Models of Exchanges in Latest Report
The International Organization of Securities Commissions (IOSCO) has published a Consultation Report examining the evolution in the operation, governance, and business models of exchanges, with a focus on equities listing trading venues. The report identifies a trend towards demutualization and for-profit models among exchanges, including diversification into activities such as data services and technology provision, leading to more competitive and diversified operations within larger corporate groups. This shift is translating into several regulatory considerations given the potential conflicts of interest and challenges in supervising individual exchanges within Exchange Groups, particularly Multinational Exchange Groups. Against this backdrop, the report lays out six proposed good practices for regulators to consider in supervising exchanges that provide multiple services or are part of an Exchange Group. These include: (1) scrutinizing exchanges’ organizational structure to ensure autonomy in decision-making and independence; (2) reviewing exchanges’ arrangements for managing regulatory compliance; (3) evaluating potential conflicts of interest due to exchanges being part of an Exchange Group; (4) evaluating the robustness of exchanges corporate structure and any associated conflicts of; (5) interest; (5) utilizing cooperation mechanisms like MoUs for cross-border supervision; and (6) monitoring the evolution of the structure and ownership of exchanges and multinational exchange groups to ascertain their ability to supervise exchanges effectively. Feedback to the report including the proposed practices can be submitted until 3 July.

 

CFPB Highlights Financial and Privacy Risks in Video Gaming Marketplaces
The Consumer Financial Protection Bureau (CFPB) has issued a report highlighting the financial and privacy risks to consumers in the video gaming marketplaces. Titled “Banking in Video Games and Virtual Worlds,” the report examines the growing use of virtual currencies and assets across the gaming industry, which amounted to nearly $57 billion spent by American consumers in 2023. Among other things, the report highlights that gaming platforms now facilitate storage and exchange of valuable assets, including virtual currencies, as well as collect extensive personal and behavioral data from players that could be used for manipulative monetization strategies or sold to third parties. Despite this, these platforms frequently lack adequate consumer protections against scams, phishing attempts, account thefts, and do not offer sufficient customer support and/or recourse when financial harm occurs.

 


Leadership changes and appointments
 
DFSA’s Ian Johnston Re-Appointed as IOSCO AMERC Vice Chair and Board Member
The Dubai Financial Services Authority (DFSA) announced the reappointment of its Chief Executive, Ian Johnston, as the Vice Chair of the Africa and Middle East Regional Committee (AMERC) and a board member of the International Organisation of Securities Commissions (IOSCO) for the term 2024-2026. IOSCO facilitates collaboration among 42 financial market regulators in the region through the AMERC to discuss and promote capital market development and regulatory issues specific to Africa and the Middle East.