Global Regulator & Central Bank News Roundup

Volume 19/2024 (May 6 – May 12)

 

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
 
U.S. Financial Stability Oversight Council Highlights Nonbank Mortgage Servicing Sector Growth and Regulatory Challenges in New Report
The U.S. Financial Stability Oversight Council has released its Report on Nonbank Mortgage Servicing, highlighting the significant role and vulnerabilities of nonbank mortgage servicers in the financial system. The report documents the expansion of nonbank mortgage servicing, which now originates about two-thirds of U.S. mortgages and holds servicing rights for over half of mortgage balances. It identifies key risks that could destabilize the sector and, by extension, affect broader financial stability, such as liquidity risks and operational disruptions during economic stress. To address these issues and mitigate potential disruptions in mortgage servicing that could lead to wider financial implications, the Council sets out three sets of recommendations: (1) enhancing prudential requirements including requiring recovery and resolution planning by large nonbank mortgage providers as well as improving the coordination of supervision among state and federal agencies; (2) improving liquidity backstops through legislative changes; and (3) establishing a fund by the nonbank mortgage servicing sector to ensure continuity in mortgage servicing operations during crises.

 


Conduct & consumer protection
 
CFPB Report Identifies Consumer Challenges with Credit Card Rewards Program Transparency and Fairness
The Consumer Financial Protection Bureau (CFPB) has released a new issue report detailing significant issues consumers face with credit card rewards programs. The report reviews the growing role of rewards programs offered by consumer credit card companies as part of their marketing efforts. The CFPB’s findings reveal that consumers are often misled by complex and vague terms and conditions and face challenges in taking full advantage of the promised benefits. Key concerns identified through consumer complaints and addressed in the report involve complaints regarding the administration of these programs, including issues such as hidden conditions preventing consumers from reward collection, the devaluation of earned rewards by issuers or their partners and/or the removal of benefits from reward programs, technical glitches during redemption processes, and the revocation of previously earned rewards without prior notice. In response to these problems, the CFPB has taken enforcement actions against companies like American Express and Bank of America for unfair practices related to rewards programs and reiterated its intention to continue to monitor these programs closely.

 


Fintech & ecosystem innovation
 
EBA Issues Final Draft Technical Standards for Crypto-Asset Market Regulation Compliance
The European Banking Authority (EBA) has published three sets of final draft regulatory technical standards (RTS) and implementing technical standards (ITS) under the Markets in Crypto-Assets Regulation (MiCAR). These include the RTS on authorization which specifies the information requirements for ART issuer applications, the ITS on authorization which provide the standard application letter and the application template as well as detail the process for assessing completeness of an application, and the RTS on the detailed content of the information to be covered in the notification for of the proposed acquisition of direct or indirect qualifying holdings in issuers of ARTs that are not credit institutions, such as information regarding the reputation and financial soundness of the proposed acquirer. Developed in collaboration with ESMA and the ECB, these standards are now submitted to the European Commission and form part of MiCAR’s broader regulatory framework which oversees crypto-asset issuance and service provision within the EU. This framework will be applicable from June 2024, with supervision tasks conferred on the EBA for significant ARTs and electronic money tokens (EMTs).

 

OSC Launches TestLab Initiatives to Facilitate Capital Formation for Ontario’s Early-Stage Enterprises
The Ontario Securities Commission (OSC) has announced a series of measures through its OSC TestLab program to facilitate capital-raising for early-stage businesses in Ontario. The measures include: (1) A dealer registration exemption for early-stage businesses to engage in permitted promotional activities and raise capital up to CAD 3 million; (2) a dealer registration exemption for not-for-profit angel investor groups to support connecting these investors with early-stage businesses looking to raise capital; (3) a self-certified investor prospectus exemption to provide new sources of capital for businesses in Ontario and increased investment opportunities for investors in Ontario; and (4) simplified reporting procedures for early-stage business distributions. The four measures are time-limited and have been formalized through dedicated orders. To assess the effectiveness of these measures in supporting enhanced access to capital, the OSC will gather data and solicit feedback from relevant stakeholders involved in the early-stage capital-raising process.

 

U.S. House Financial Services Committee Set to Proceed with Voting over Financial Innovation and Technology for the 21st Century Act to Enhance Regulatory Clarity for Digital Assets
The U.S. House Committee on Rules has announced its intention to consider the Financial Innovation and Technology for the 21st Century Act (FIT21) for a floor vote later in May. The proposed Act aims to provide clarity on the regulatory framework for digital assets in the US. Spearheaded by bipartisan efforts and extensive stakeholder feedback, FIT21 seeks to establish robust consumer protections and clarify the roles of both the Commodity Futures Trading Commission (CFTC) and the Securities Exchange Commission (SEC) in overseeing digital assets. The act includes provisions for enhanced transparency, accountability, and customer protection measures such as mandatory disclosures by digital asset developers and operational requirements for digital asset exchanges, brokers, and dealers. By delineating jurisdiction between the SEC and CFTC, the Act also seeks to facilitate a clearer pathway for digital asset transactions and fundraising activities within a regulated environment.

 

Bermuda Monetary Authority Seeks Feedback on Proposed Guidance for Single Currency Pegged Stablecoin Issuers
The Bermuda Monetary Authority (BMA)has issued for consultation its ‘Guidance on Digital Asset Business Single Currency Pegged Stablecoins (SCPS).’ The draft Guidance delineates the regulatory expectations for entities operating as Single Currency Pegged Stablecoin Issuers (SCPSIs), which are deemed a “category of digital assets that seek to maintain a stable value relative to a specified asset or a pool or basket of assets in a single fiat currency, providing stability when compared to unbacked digital assets”. The guidance, which complements the existing rules and regulations under the BMA’s regulatory framework for digital asset businesses and is designed to ensure that SCPSIs operate prudently, outlines expectations in several key areas including inter alia governance and risk management, market-making and due diligence, backing assets, attestations, disclosures, stress testing and own fund requirements. Feedback to the proposed guidance can be submitted until 9 July 2024.

 


Payments & money
 
HKMA Launches Project Ensemble Architecture Community to Advance Tokenisation Standards and Interoperability
The Hong Kong Monetary Authority (HKMA) has announced the formation of the Project Ensemble Architecture Community, a new collaborative initiative aimed at fostering the development of Hong Kong’s tokenisation market. Encompassing a broad range of public and private sector stakeholders, including the HKMA, the Hong Kong Securities and Futures Commission, the BIS Innovation Hub Hong Kong Centre, the CBDC Expert Group, major local banks and technology firms, the Community’s primary objective of the new Community is to establish industry standards that ensure interoperability among wholesale Central Bank Digital Currency (wCBDC), tokenised money, and tokenised assets. To that end, it will initially concentrate on creating a mechanism for seamless interbank settlement of tokenised deposits through wCBDC in relation to tokenised asset transactions. Additionally, the it will contribute to the design and implementation of the Project Ensemble Sandbox, which is set to launch around mid-2024 and will serve as a platform for further research and experimentation with tokenisation use cases.

 


ESG
 
ASIC Seeks Feedback on Proposed Updates to Carbon Market Participant Guidance
The Australian Securities & Investments Commission (ASIC) has released a consultation paper proposing updates to Regulatory Guide 236 (RG 236), which provides guidance for participants in the carbon market regarding Australian financial services (AFS) licensing requirements. The proposed updates address several areas. These include addressing the implications of the safeguard mechanism reforms. Introduced in July 2023, the reforms regulate safeguard mechanism credits units (SMCs) as financial products and thus may necessitate an AFS license for certain activities such as when acting as a safeguard facility, providing advice to a safeguard facility, or dealing in or making a market in SMCs. Additionally, the updates seek to address changes in carbon markets, notably in relation to Australian Carbon Credit Units (ACCUs), through amendments to ASIC’s RG 236. These include additional guidance on the circumstances when an entity will provide financial product advice in relation to ACCUs, when an entity will provide financial product advice in relation to SMCs and on when a person is viewed as making a market in relation to ACCUs and SMCs and may therefore require a AFS licence.

 

Federal Reserve Board Publishes Findings from Pilot Climate Scenario Analysis with Six Major Banks
The Federal Reserve Board (FRB) has released a summary of its exploratory pilot Climate Scenario Analysis (CSA) exercise with six major bank holding companies, including Bank of America Corporation, Citigroup Inc, The Goldman Sachs Group, Inc., JPMorgan Chase & Co., Morgan Stanley, and Wells Fargo & Company. The exploratory exercise aimed to understand and enhance how large banking organizations manage and identify climate-related financial risks. Key findings from the CSA indicate that participants employed various methodologies to assess the resilience of their business models against diverse climate scenarios over different time horizons. They faced significant challenges due to inconsistent data on factors like building characteristics and insurance coverage, which often required reliance on external vendors for gap filling. Additionally, the exercise revealed substantial variability in how banks estimate the impact of physical and transition risks on their portfolios using existing credit risk models. Participants also noted the critical role of insurance in mitigating climate change risks and emphasized the importance of monitoring changes within the insurance industry. The pilot exercise was strictly informational and serves primarily as a foundation for ongoing dialogue between the FRB and the banks on enhancing their ability to measure and manage climate-related financial risks and as such carries no implications for bank capital or regulatory supervision.

 

Central Bank of Brazil Launches 2024 Edition of the G20 TechSprint 2024 to Promote Technological Innovations in Sustainable Finance
The Central Bank of Brazil has announced the launch of the fifth edition of the G20 TechSprint, a global competition under Brazil’s presidency of the G20, in collaboration with the Bank for International Settlements (BIS) Innovation Center. The initiative aims to foster innovative technological solutions in sustainable finance, addressing climate change, environmental degradation, and poverty reduction. Innovators, entrepreneurs, start-ups, change agents, creators, programmers, data scientists, and sustainable finance experts worldwide are invited to participate in the competition by May 31. The 2024 edition of the TechSprint focuses on three problem statements: Nature-based solutions (NBS), Environmental, social and governance (ESG), and Sustainable Development Goals (SDGs). Winners will receive $25,000 for each problem statement, while five pre-selected proposals per statement will be granted an allowance of $5,000 to develop their proposals further. Finalist teams will gain the opportunity to engage with industry experts and feature in a BIS TechSprint report. The event is supported by the Inter-American Development Bank (IDB), IDB Lab, and the National Federation of Central Bank Employees Associations (Fenasbac).

 


Other transversal themes
 
South Korea FSC Announces Nextrade Launch as Part of Capital Market Reform Efforts
The South Korea Financial Services Commission has announced the upcoming launch of Nextrade, Korea’s first alternative trading system (ATS), which is set to commence operations in the domestic market in the first half of 2025. Nextrade’s introduction forms a critical part of the government’s capital market reform initiative with the aim of enhancing accessibility and convenience for investors by extending stock trading hours to twelve hours a day and offering more order types, such as mid-point and stop-limit orders. The extended hours will include pre-market and after-market sessions, effectively lengthening the trading day by five hours and thirty minutes. Additionally, institutional investors will benefit from a relaxation of mandatory bid rules for stock holdings acquired via an ATS. Comprehensive market oversight will be maintained with guidelines on best execution standards for securities firms and consistent management over short selling practices between KRX and Nextrade. To support Nextrade’s integration into the capital market, regulatory changes are planned, including revisions that allow transactions of exchange-traded funds (ETFs) and exchange-traded notes (ETNs) through an ATS.The FSC aims to revise relevant regulations within this year to facilitate a smooth transition to ATS operations while Nextrade seeks final approval from the FSC at year-end to achieve the goal of becoming operational in early 2025.

 

South African Reserve Bank Releases Transition Strategy from Jibar to ZARONIA
The South African Reserve Bank has announced a comprehensive transition strategy for the shift from the Johannesburg Interbank Average Rate (Jibar) to the South African Rand Overnight Index Average (ZARONIA). Informed by consultation with industry stakeholders and under consideration of international best practices, the strategy comprises three pillars: the adoption in derivatives markets, the adoption in cash markets, and the transition of legacy positions. Key strategic objectives under these pillars include establishing a ZAR overnight indexed swap market, formulating market conventions for ZARONIA-based derivatives and cash products, and transitioning legacy contracts away from Jibar. In line with the plan, the formal announcement of Jibar’s cessation is planned for 2025, with its final discontinuation set for 2026. To support the execution of the plan, various workstreams within the Market Practitioners Group have been tasked with developing market conventions, investigating fallback methodologies for both derivatives and cash markets, and analyzing potential legislative measures to ensure contractual continuity post-Jibar.

 

OCC Proposes Rulemaking on Incentive-Based Compensation to Curb Excessive Risk in Financial Institutions
The Office of the Comptroller of the Currency (OCC) has approved a notice of proposed rulemaking to address incentive-based compensation arrangements at certain financial institutions with a view to mitigating the risks associated with excessive compensation that could lead to material financial loss. The proposed rule targets national banks, federal savings associations, federal branches and agencies, and their subsidiaries with average total consolidated assets of USD 1 billion or more, excluding community banks with less than USD 1 billion in assets. Specifically, institutions covered under the provisions, would be prohibited from awarding excessive incentive-based compensation. Additionally, the rule would introduce additional restrictions for larger institutions with at least USD 50 billion in average total assets, including inter alia mandatory deferral and potential clawback of such compensation as well as certain prohibitions on hedging, and limits on the maximum permissible incentive-based compensation that can be awarded relative to defined incentive-based compensation targets.

 


Leadership changes
 
Martin Moloney to Assume Role as FSB Deputy Secretary General
The Financial Stability Board (FSB) has announced the appointment of Martin Moloney as its new Deputy Secretary General. Set to commence his term on 1 September 2024, Moloney will be taking over from Rupert Thorne, who is retiring after a notable 24-year tenure with the organization and its predecessor, the Financial Stability Forum. Prior to this appointment, Moloney held the position of Secretary General at the International Organization of Securities Commissions (IOSCO) since September 2021. His background in financial regulation includes serving as Director General of the Jersey Financial Services Commission (JFSC) and acting as a Special Adviser on Risk and Regulation to the Central Bank of Ireland (CBI).

 

Tajinder Singh Appointed as IOSCO’s Acting Secretary General
The International Organization of Securities Commissions (IOSCO) has announced Tajinder Singh as the acting Secretary General, effective immediately. He succeeds Martin Moloney in the role who has accepted a new position as the Financial Stability Board’s (FSB) new Deputy Secretary General. Singh, previously the Deputy Secretary General since 2010, is recognized for his leadership and deep understanding of IOSCO’s objectives, alongside extensive experience in international standard setting.

 


Cross-border cooperation
 
ASIC and FRC Establish MoU for Bilateral Recognition of Audit Qualifications
The Australian Securities & Investments Commission (ASIC) has entered into a Memorandum of Understanding (MoU) with the UK Financial Reporting Council (FRC) to facilitate the mutual recognition of audit qualifications between Australia and the UK. The agreement allows auditors with professional qualifications in one country to more easily have their credentials and audit rights recognized in the other, thereby supporting the development of a robust audit industry and reducing barriers to cross-border skills and expertise. The MoU was signed by the FRC’s Executive Director of Supervision and the Chair of ASIC.

 

Central Bank of the UAE and Bank Indonesia Establish MoU for Local Currency Settlement in Bilateral Trades
The Central Bank of the UAE and Bank Indonesia have signed a Memorandum of Understanding (MoU) to enhance trade relations by promoting the use of local currencies for bilateral transactions. The agreement establishes a framework that supports the settlement of cross-border trade in the UAE Dirham and Indonesian Rupiah, sets out the types of eligible transactions as well as provides for heading and liquidity management activities with respect to the two currencies. Among other things, the measure is expected to enable businesses to lower their transaction processing costs.