Global Regulator & Central Bank News Roundup

Volume 21/2024 (May 20 – May 26)

 

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
 
FSB releases report on vulnerabilities in short-term funding markets
As part of its work on enhancing the resilience of Non-Bank Financial Institutions (NBFIs), the Financial Stability Board (FSB) has published a new report analyzing vulnerabilities in the commercial paper (CP) and negotiable certificate of deposit (CD) markets. The report identifies several vulnerabilities including limited secondary market activity, investor and dealer concentration, and market opacity, which contribute to insufficient liquidity during times of stress, as evidenced during the March 2020 market turmoil. It also notes that electronic trading platforms have made limited progress in these markets, primarily facilitating primary market issuance without significantly impacting overall market functioning. To address these issues, the FSB suggests reforms such as improving market microstructure, enhancing transparency through regulatory reporting and public disclosure, and bolstering liquidity via private repo markets. However, the report cautions that these reforms, while beneficial in normal market conditions, are unlikely to substantially enhance market resilience on their own during periods of stress. Consequently, the FSB encourages authorities to explore these reforms’ applicability to their markets and consider them alongside other policies, such as those aimed at addressing vulnerabilities in money market funds (MMFs), for a more comprehensive approach to financial stability. A detailed summary of the report can be accessed here.

 

OSFI Issues 2024-2025 Annual Risk Outlook Highlighting Four Principal Financial System Risks
The Office of the Superintendent of Financial Institutions (OSFI) has released its Annual Risk Outlook (ARO) for 2024-2025, detailing the most significant risks to Canada’s financial system in the coming year and OSFI’s strategies for managing them. The ARO pinpoints four core areas of concern as follows: (1) Elevated Interest Rates and Market Uncertainty: Ongoing high interest rates and market volatility are expected to keep borrowing costs high, reduce consumer and business spending, and necessitate adjustments in loan renewals and investment strategies by financial institutions, which may also face unpredictable impacts on their actuarial and risk management practices. (2) Rising Household Debt Costs: Strong labor markets currently mitigate risks associated with rising household debt levels, but any future weakening could significantly impact credit quality, with increasing mortgage payments already causing some borrowers to default on other debts. (3) Wholesale Credit Stress and Changing Depositor Behavior: Stress in corporate credit and commercial real estate sectors, coupled with volatile funding conditions and shifting depositor expectations, pose risks to financial stability as competition for deposits may divert funds from traditional savings. (4) Integrity and Security Amidst Geopolitical Uncertainty: Geopolitical tensions and uncertainties, including conflicts, sanctions, cyber threats, and foreign interference, heighten security and integrity risks for financial institutions, with significant implications for financial stability and regulatory practices. Commenting on the publication, OSFI’s Superintendent Peter Routledge emphasized the shift towards a more focused risk overview in this latest ARO.

 


AML & CFT
 
Swiss Federal Council Submits Anti-Money Laundering Framework Enhancement Bill to Parliament
The Swiss Federal Department of Finance has announced the adoption of a dispatch on the enhancement of the anti-money laundering framework by the Federal Council for submission to Parliament. The proposed bill mandates that all companies and legal entities in Switzerland register their beneficial owners in a new transparency register managed by the Federal Department of Justice and Police (FDJP), with simplified registration processes for certain entities like associations and foundations. The register aims to enable law enforcement authorities to more effectively identify the individuals behind legal structures. Additionally, the bill foresees the application of anti-money laundering due diligence rules to specific high-risk advisory activities provided by lawyers and notaries, with oversight responsibilities assigned to self-regulatory organizations rather than regional bar associations.

 


Cyber & operational resilience
 
BIS Working Paper Examines Gen AI’s Impact on Central Bank Cybersecurity Dynamics
The Bank for International Settlements has published a new working paper, which explores the dual-edged nature of generative artificial intelligence (GenAI) in enhancing cyber security within central banks. The paper is based on a dedicated survey conducted among cyber security experts at major central banks, focusing on their experiences and expectations regarding the adoption of gen AI tools. Key findings indicate that most central banks are either currently utilizing or planning to implement gen AI in their cyber security strategies, motivated by the technology’s potential to improve threat detection and hasten responses to cyber incidents. However, the survey also underscores concerns about heightened risks, particularly related to social engineering attacks and unauthorized data disclosure. To effectively manage these challenges and capitalize on GenAI’s advantages, the paper recommends that central banks make significant investments in human capital, emphasizing the need for professionals skilled in both cyber security and AI programming. The detailed summary of the paper can be accessed here.

 


Conduct & consumer protection
 
CFPB Issues Interpretive Rule on BNPL Lenders’ Obligations
The Consumer Financial Protection Bureau (CFPB) has issued an interpretive rule regarding the application of Regulation Z, which governs Truth in Lending, to buy now, pay later lenders. The rule clarifies that lenders offering BNPL products through digital user accounts are defined as “card issuers” under Regulation Z and as such are treated similarly to traditional credit card providers. Consistent with this treatment, BNPL lenders must adhere to certain provisions, including investigating consumer-initiated disputes, pausing payment requirements during investigations, issuing refunds to consumers’ accounts when consumers return products or cancel services for a refund and providing periodic billing statements akin to those for classic credit cards. The action comes in response to the rapid growth of the BNPL market and seeks to ensure that consumers receive consistent legal protections across different credit options. Specifically, with over 13% of BNPL transactions involving returns or disputes in 2021 alone, this rule seeks to address potential chaos for consumers when dealing with merchandise returns or billing issues. Comments on the interpretative rule can be submitted until 1 August.

 


Payments & money
 
BIS CPMI Sets 2024-25 Agenda with Focus on FMI Risk Management, Cross-Border Payments Enhancement, and Digital Innovation
The Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI) has announced its work programme for 2024-25. Priorities for the work ahead fall into three areas as follows: (1) Risk management of financial market infrastructures (FMIs) with a focus on enhancing FMIs’ resilience to non-default losses and CCP margining practices, improving cyber and operational resilience, and addressing emerging challenges like climate risks and shorter settlement cycles. (2) Enhancement of cross-border payments by implementing a prioritized roadmap that improves interoperability, regulatory frameworks, and data exchange standards to meet G20’s 2027 targets. (3) Digital innovation in payments, clearing and settlement, which involves exploring the implications of tokenization and cross-border CBDCs, assessing risks from multicurrency stablecoins, and preparing policy responses to ensure safe and efficient payment ecosystems.

 


ESG
 
ADGM Seeks Stakeholder Feedback on Proposed Sustainable Finance Framework Enhancements
The Abu Dhabi Global Market (ADGM) has published a new Discussion Paper to gather feedback on proposed enhancements to its sustainable finance regulatory framework. The proposed enhancements address expectations for ESG-labelled investment vehicles as well as the management of climate-related risks and transition planning for ADGM-licensed entities more broadly. Among other things, the proposed guidance sets out that investment vehicles must provide clear, fair and non-misleading disclosures about their ESG strategies and outcomes as well as should only make use of ESG in its name if ESG-related objectives or strategies are central to the product’s focus and if the investment considers all three – environmental, social, and governance – factors comprehensively. Additionally, the guidance addresses the use of ESG taxonomies and indices, encouraging funds to use reputable, third-party ESG taxonomies to ensure consistency and clarity in how ESG criteria are applied to investments as well as mandating clear disclosure about ESG indices, including the provider and methodology, when these are used for asset selection. As regards the management of climate-related risks and transition planning, the guidance outlines the expectation towards for integrating climate-related risks into entities’ risk management frameworks and governance processes as well as for entities to develop transition plans that outline their strategies for moving towards a net-zero economy. Comments on the discussion paper can be provided until 19 July.

 


Other transversal themes
 
SC Malaysia Launches 5-Year Roadmap to Enhance Capital Market Access for MSMEs and MTCs
The Securities Commission Malaysia (SC) has released a comprehensive 5-year Roadmap designed to enhance access to capital markets for micro, small and medium enterprises (MSMEs) and mid-tier companies (MTCs). The “Catalysing MSME And MTC Access to the Capital Market: 5-Year Roadmap (2024-2028)” seeks to position the capital market as a key financing source for MSMEs and MTCs. To that end, the Roadmap outlines nine strategies and 36 initiatives in the areas of regulatory innovation, market infrastructure, and capacity building, targeting a sevenfold increase in capital raising to RM40 billion by 2028—a 46% compound annual growth rate from the RM6.3 billion raised in 2023. Developed through extensive industry engagement and with input from the World Bank Group as technical advisor, the plan aligns with and complements several other national development policies including the Madani economy framework, the 12th Malaysia Plan, NIMP 2030, and the National Energy Transition Roadmap.

 

ESMA Proposes 20 Recommendations to Strengthen and Enhance EU Capital Markets
The European Securities and Markets Authority (ESMA) has released its Position Paper on “Building more effective and attractive capital markets in the EU,” which includes 20 recommendations aimed at strengthening the EU’s capital markets. ESMA’s recommendations target three key dimensions: citizens, companies, and the regulatory and supervisory framework of the EU. To empower EU citizens to invest in capital markets, ESMA proposes simple, cost-efficient investment options, development of basic long-term investment products and pension systems with suitable incentives, complemented by improved financial education. For EU companies, particularly SMEs, ESMA suggests fostering a conducive ecosystem for public companies and developing pan-European markets while addressing integration barriers for market infrastructures to provide diverse and sustainable financing options. Regarding the modernization of the EU’s regulatory framework, ESMA recommends updating regulations to include new tools such as effective forbearance powers and prioritizing supervisory consistency among EU supervisors with an evaluation of further centralization at the EU level. Further details from the paper can be accessed here.

 

CSA Finalizes Amendments for Mutual Funds to Transition to T+1 Settlement Cycle
The Canadian Securities Administrators (CSA) has published final amendments to facilitate mutual funds in transitioning to a shortened trade settlement cycle from two trading days to one (T+1). The amendments come in response to a recent shift by North American securities markets to T+1 settlement, allowing mutual funds that opt for this expedited cycle to streamline their operations accordingly. The amendments are designed to cater to different settlement cycles and include specific provisions such as revised payment dates for transactions and an adjusted timeframe for forced redemption of securities due to non-payment, which is now two days post-pricing date instead of three.

 


Leadership changes
 
Asia/Pacific Group on Money Laundering Names Dr. Chris Black as Executive Secretary
The Asia/Pacific Group on Money Laundering (APG) has appointed Dr. Chris Black as the new APG Executive Secretary, with his tenure set to begin on June 10, 2024. Dr. Black will be taking over from Dr. Gordon Hook, who served in this role for a duration of 18 years. Dr. Black’s experience spans over 25 years in organizational leadership, change management, and the direction of law enforcement and criminal intelligence programs, most notably as a senior executive with the Australian Federal Police where he was Chief of Staff to two AFP Commissioners.

 

U.S. Financial Services Committee Announces FDIC Chair Gruenberg’s Intention to Resign
The U.S. Financial Services Committee has reported that Federal Deposit Insurance Corporation (FDIC), Chair Martin Gruenberg has expressed his intention to resign, contingent upon the confirmation of a successor. Gruenberg’s move comes in response to the recent disclosure of findings from an independent report by the firm Cleary Gottlieb, which reveals a toxic workplace culture and misconduct under the leadership of Gruenberg. In the face of the findings, Chairman of the House Financial Services Committee, Patrick McHenry, called for immediate deep institutional changes at the FDIC and the need for new leadership to initiate a cultural overhaul.

 


Cross-border cooperation
 
Philippines Central Bank Hosts UN Special Advocate Queen Máxima to Advance Financial Inclusion Initiatives
Her Majesty Queen Máxima of the Netherlands, in her capacity as the United Nations Secretary-General’s Special Advocate for Inclusive Finance for Development (UNSGSA), has paid a three-day visit to the Philippines including the Central Bank of the Philippines as part of her efforts to promote financial inclusion and financial health. The visit focused on engaging with relevant public and private sector stakeholders, including through various fields in Manila and other areas, over the country’s evolution in financial inclusion including key developments in the areas of digital ID and digital payments as critical enablers. Queen Máxima previously visited the Philippines in 2015 to participate in the launch of the National Financial Inclusion Strategy among other things.