Global Regulator & Central Bank News Roundup

Volume 24/2024 (June 10 – June 16)

 

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 Plenary Session Evaluates Global Financial Stability and Reviews Progress in NBFI Resilience, Crypto-Asset Regulation, and Nature-Related Risks
The Financial Stability Board (FSB) convened its recent Plenary Meeting in Toronto, examining the global financial stability landscape. Members noted improvements in the macroeconomic environment but also discussed persistent vulnerabilities like high asset valuations and commercial real estate concerns, coupled with elevated market interest rates and leverage in non-bank financial institutions. The prolonged effects of high interest rates on debt servicing, substantial public debt, and geopolitical uncertainties were highlighted. Besides the financial stability outlook, the meeting addressed several other key areas, including the March 2023 banking issues, which confirmed the strength yet identified weaknesses in the international resolution framework, and discussed enhancing public sector funding mechanisms and managing interest rate and liquidity risks, alongside the influence of new technologies and social media on depositor behavior. Additionally, a draft report on the impact of G20 financial regulatory reforms on securitization was reviewed, addressing Non-bank Financial Intermediation (NBFI) related stability risks, emphasizing the need for better data quality and liquidity management. Progress was noted in implementing the FSB’s recommendations on crypto-assets to prevent regulatory arbitrage, with ongoing focus on global compliance. The meeting also addressed financial risks from environmental degradation, reviewing a draft report on nature-related financial risks as directed by the G20 Finance Ministers and Central Bank Governors, which will detail member initiatives and analytical work on biodiversity loss.

 

NBE Revises Banking Directives to Align with International Standards and Strengthen Risk Management
The National Bank of Ethiopia (NBE) has issued five revised directives in effort to further enhance financial stability of the banking sector and align with international best practices. The directives aim to achieve two principal objectives: (1) reducing vulnerabilities and improving risk management; as well as (2) enhancing oversight and governance. The former is achieved through a new large exposure limited directive, which limits large exposures to 25% of a bank’s total capital to mitigate risk concentration; a related party exposure directive which seeks to prevent conflicts of interest and ensure transactions with related parties are monitored and conducted at arm’s length and an asset classification and provisioning directive, intended to ensure that loans are review and classified in line with international standards. The latter is achieved through a new fit and proper, introducing stricter qualifications for bank owners, directors and senior management, as well as a dedicated corporate governance directive to strengthen governance by introducing independent board members, revising election procedures, and ensuring diversity and inclusion.

 

ECB Publishes Annual Consolidated Banking Data Showing Asset Growth and Slight Rise in NPLs for EU Credit Institutions
The European Central Bank (ECB) has released its annual consolidated banking data. Data indicates a growth in the total assets of EU-headquartered credit institutions to €31.92 trillion in December 2023, marking a 3.45% increase from the previous year. The report also shows a slight uptick in the non-performing loans ratio, which now stands at 1.91%, up by 0.05 percentage points over the year. Despite this, EU credit institutions have sustained a solid aggregate return on equity of 9.29% and maintained a strong Common Equity Tier 1 ratio of 16.07%. The dataset covers a broad set of indicators pertaining to profitability, balance sheet structure, liquidity, asset quality, and solvency metrics across 385 banking groups and 2,306 stand-alone institutions—accounting for nearly the entire EU banking sector’s balance sheet total.

 

ESRB Issues EU Non-bank Financial Intermediation Risk Monitor 2024 Highlighting Cyclical and Structural Risks
The European Systemic Risk Board (ESRB) has released the EU Non-bank Financial Intermediation Risk Monitor 2024, which evaluates the risks associated with non-bank financial intermediaries based on data from 2023. The report highlights both cyclical and structural risks within the sector, focusing on investment funds and other financial institutions (OFIs). It cautions that structural vulnerabilities in non-bank financial intermediation could amplify cyclical risks, potentially destabilizing the EU’s financial system as interest rates rise. This environment may result in heightened credit risk, potential losses, and liquidity strains, particularly for entities with exposure to interest rate-sensitive sectors or those employing leverage. The NBFI Monitor notes that high leverage is prevalent not only among alternative investment funds (AIFs) but also in some undertakings for collective investment in transferable securities (UCITS) that adopt hedge fund-like strategies. The report also reviews the interconnectedness of the sector by analyzing market presence and cross-exposures between investment funds and OFIs. Besides the overarching analysis, the edition includes three special features: an analysis of EU fund managers’ ownership structures and related risks; an exploration of private finance’s rapid expansion; and a discussion on money market funds (MMFs).

 

EBA Issues Final Draft Technical Standards and Guidelines for Crypto-Asset Prudential Requirements
The European Banking Authority (EBA) has released the latest set of final regulatory technical standards (RTS) and guidelines under the Markets in Crypto-Asset Regulation (MiCAR) with focus on prudential expectations. The package comprises RTS outlining the adjustment of own funds requirements and minimum features of stress testing programmes of issuers of asset-referenced tokens (ARTs) and of e-money tokens (EMTs), including criteria to evaluate the risk level of issuers and the steps and measures by competent authorities to determine the period of issuers to increase own funds and ensure timely compliance, and RTS specifying the procedure and timeframe for an issuer to adjust the amount of its own funds to 3% of the average amount of the reserve of assets when the relevant issuer is issuing an ART or EMT classified as ‘significant’. It also includes RTS prescribing the liquidity requirements of reserve assets, RTS specifying the highly liquid financial instruments as well as RTS which set out the minimum content for the liquidity management policy and procedures. Finally, the package also encompasses guidelines on recovery plans with details on their format and content.

 


Fintech & ecosystem innovation
 
BIS and Bank of Canada Launch Toronto Innovation Centre
The Bank for International Settlements (BIS) has expanded its global innovation network with the launch of the new BIS Toronto Innovation Centre in collaboration with the Bank of Canada. Situated in Toronto and led by Miguel Diaz, the Centre is intended to advance financial technology and promote a more efficient and inclusive financial system throughout Canada, Latin America, and the Caribbean. In line with the BIS Innovation Hub’s broader strategic themes, the hub will initially focus on enhancing next-generation financial market infrastructures, supervisory technology (suptech), and open finance. The new centre builds upon BIS’s collaborative initiatives like Project FuSSE with the Inter-American Development Bank to promote financial inclusion in Latin America and the Caribbean. It also enhances the work of existing BIS Innovation Hub centres in Switzerland, Eurosystem countries, London, Nordic countries, Hong Kong, and Singapore.

 

WFE Issues Paper on Tokenisation’s Role and Challenges in Financial Markets
The World Federation of Exchanges (WFE) has released a comprehensive paper entitled “Demystifying Tokenisation: Embracing the Future,” which examines the prospective development of tokenisation in the financial sector, highlighting its potential benefits and limitations, as well as pertinent regulatory considerations. The document underscores the view that tokenisation should be regarded as an evolutionary step in traditional finance, presenting opportunities for fractional ownership, improved liquidity, and increased transparency that could contribute to broader financial inclusion and economic expansion. Nevertheless, it also warns against overestimating certain advantages such as continuous trading and disintermediation, noting these can be realized independently of tokenisation. The WFE points out several obstacles impeding the broad adoption of tokenisation in conventional markets: Distributed Ledger Technology (DLT) currently lacks the speed required for handling large volumes of transactions; interoperability issues due to different blockchains managing tokenised assets; substantial capital investments needed for DLT infrastructure; and ongoing regulatory uncertainties since many jurisdictions have yet to fully incorporate tokenised assets into their legal frameworks. The paper concludes by asserting that while tokenisation offers potential benefits, they require careful evaluation and significant investment for effective integration into the financial ecosystem. It stresses that regulatory clarity and harmonization are essential for the successful implementation of tokenised assets. The detailed summary of the document can be accessed here.

 

OJK Launches SPRINT Application to Streamline Financial Technology Licensing and Sandbox Entry
The Financial Services Authority of Indonesia (OJK) has introduced the SPRINT application, an integrated system designed to enhance the licensing process for financial sector technology innovation. The platform is intended to improve communication between the OJK and Financial Sector Technology Innovation (ITSK) operators, accelerating their entry into the Regulatory Sandbox and simplifying registration procedures. In support of this initiative, OJK has disseminated two new circular letters: SEOJK Number 5/SEOJK.07/2024, which serves as a technical guide for sandbox testing of technology-based innovations, and SEOJK Number 6/SEOJK.07/2024, detailing the registration process for ITSK Organizers. The measures are intended to increase efficiency and consumer benefits while promoting responsible innovation within the digital financial ecosystem.

 

CySEC Launches Regulatory Sandbox to Foster FinTech and RegTech Innovation
The Cyprus Securities and Exchange Commission (CySec) has formally inaugurated its new regulatory sandbox in a dedicated virtual event. The sandbox, which complements the existing innovation hub, was launched with the goal of further facilitating the growth of fintech, regtech and suptech solutions across Cyprus. It is open for both regulated and unregulated entities for controlled testing of novel solutions and/or financial products that fall under the CySec’s remit. To be eligible for participation, the prosed solution and/or product must be genuinely innovative, hve reached a sufficient level of maturity for testing and be designed to deliver benefits to the financial services industry. Unregulated entities must further obtain prior authorisation by the Commission in order to participate. The participation itself is structured into four phases including the application and preparation phase followed by the testing and evaluation/exist phase.

 

SEC Levies $4.5 Billion in Penalties on Terraform Labs and CEO for Fraudulent Scheme and Other Violations
The U.S. Securities and Exchange Commission (SEC) has concluded its enforcement action against Terraform Labs PTE, Ltd. and its CEO Do Kwon, imposing penalties exceeding $4.5 billion for their involvement in a fraudulent scheme. The jury’s verdict found them liable for orchestrating a multi-year fraud through the Terraform blockchain and its associated crypto asset security, UST, culminating in substantial investor losses when the operation failed. The SEC’s investigation uncovered that Terraform and Kwon misrepresented the blockchain’s transaction settlement efficiency and UST’s stability, which contributed to a $40 billion market value erosion and severe financial repercussions for investors, including retail participants who suffered the loss of their life savings. In resolving the matter, Terraform is mandated to disgorge $3.586 billion, pay $466 million in prejudgment interest, a civil penalty of $420 million, cease all crypto asset sales, terminate operations, replace two board members, and allocate remaining assets to compensate victims and creditors as per a court-sanctioned liquidation plan within its bankruptcy proceedings. Separately, Kwon faces financial repercussions including disgorgement of $110 million, over $14 million in prejudgment interest, alongside an $80 million civil penalty.

 


Payments & money
 
BIS Survey Reveals 94% of Central Banks Exploring CBDCs with Increased Trials and Regulatory Focus on Cryptoassets
The Bank for International Settlements has published a report entitled “Embracing diversity, advancing together – results of the 2023 BIS survey on central bank digital currencies and crypto,” which indicates that 94% of central banks are examining the potential of central bank digital currencies (CBDCs). The survey, conducted by Alberto Di Iorio, Anneke Kosse, and Ilaria Mattei, shows a notable rise in wholesale CBDC trials, especially within advanced economies, while emerging market and developing economies are also stepping up their activities. Central banks are considering various design features for CBDCs with interoperability and programmability being key aspects for wholesale CBDCs. Retail CBDC considerations typically involve holding limits and domestic interoperability, as well as offline functionality and non-remuneration. The report suggests that maintaining the relevance of central bank money in a digital economy is a primary incentive for exploring CBDCs. It also observes that stablecoins are mostly used within the crypto ecosystem but find niche applications in remittances and retail payments. Regulatory measures for stablecoins and other cryptoassets are in place or being developed in two-thirds of jurisdictions to ensure investor protection, maintain financial stability, and prevent illicit finance. The detailed summary of the document can be accessed here.

 

BIS Innovation Hub Launches Project Meridian FX to Enhance Cross-Border FX Settlement Efficiency
The Bank for International Settlements – Innovation Hub, in collaboration with the Eurosystem and London Centres and the Bank of England, has launched Project Meridian FX. This initiative is set to advance the settlement process for foreign exchange (FX) transactions by leveraging the “synchronisation operator” (SO) concept from the original Project Meridian. To that end, the project will evaluate the SO’s potential to mitigate high costs, risks, and delays in cross-border payments by extending its application to various asset classes and technologies, with a particular emphasis on FX trades. It aims to reduce liquidity requirements for participants and explore how real-time gross settlement (RTGS) systems can work in tandem with distributed ledger technology (DLT). Project Meridian FX will conduct experiments connecting two RTGS systems from different jurisdictions and integrating an RTGS system with a DLT-based platform to enable smooth PvP FX transactions. These tests are currently planned for late 2024 using three solutions developed within the Eurosystem: Deutsche Bundesbank’s Trigger Solution, Banca d’Italia’s TIPS Hash-Link, and Banque de France’s DL3S DLT Interoperability Solution, with results expected in Spring 2025. The initiative is part of a broader effort by BISIH that includes projects like Mandala, which aimed at automating transaction monitoring for cross-border payments in compliance with local regulations, and mBridge, which explored DLT for efficient cross-border payments through a multi-CBDC platform.

 

Bank of Albania Initiates SEPA Membership Process
The Bank of Albania has formally submitted its application for membership in the Single Euro Payments Area (SEPA), marking a significant step towards Albania’s financial integration with Europe. The initiative is a collaborative effort among various Albanian public authorities, including the Ministry of Finance, Financial Intelligence Unit, and Ministry for Europe and Foreign Affairs, to ensure national legislation meets SEPA requirements. Additionally, the World Bank has provided extensive technical assistance in the application process. Membership is expected to yield economic benefits by facilitating increased trade with EU partners, providing access to a larger market, and strategically enhancing sectors such as tourism and foreign direct investment as well as contribute more broadly to streamlining electronic euro payments across members states.

 


ESG
 
BIS Innovation Hub and MAS Present Project Viridis Blueprint to Enhance Climate Risk Management
The Bank for International Settlements (BIS) Innovation Hub, in collaboration with the Monetary Authority of Singapore (MAS), has developed a blueprint for Project Viridis, a climate risk platform designed to improve financial authorities’ capacity to identify, monitor, and manage climate-related financial risks. Addressing the complexities of climate change and the need for comprehensive metrics, the blueprint outlines essential features such as data on financed emissions, physical risk exposure, and scenario-based assessments. Building MAS’s Ellipse Data and Knowledge Platform (EDKP), which was co-developed by the BIS Innovation Hub Singapore Centre and MAS within Project Ellipse’s framework, Project Viridis employs natural language processing to extract climate information from corporate disclosures and integrates it with regulatory data for the purpose of facilitating supervisory dialogue and inform decision-making by providing insights into entities’ climate-related risk exposures and vulnerabilities. The platform’s ongoing enhancement is supported by a network of over 15 central banks and financial regulators worldwide, ensuring its relevance and utility across various regulatory environments. The detailed summary of the final project report can be accessed here.

 

UAE Sustainable Finance Working Group Publishes Principles for Sustainability-Related Disclosures
The UAE Sustainable Finance Working Group (SFWG) has published the ‘Principles for Sustainability-Related Disclosures for Reporting Entities. The principles establish baseline expectations for financial sector institutions to improve transparency and stakeholder involvement in environmental, social, and governance (ESG) issues. Specifically, they require entities to implement appropriate policies, procedures, and systems for sustainability reporting. They must also ensure disclosures reflect their governance, strategy, risk management, and include relevant metrics and objectives while considering transparency and stakeholder engagement. Furthermore, market participants are expected to consider various aspects when dealing with and offering sustainability-related products to enhance product-level disclosure quality. The principles are aligned with international best practices, including the Paris Agreement and the United Nations Sustainable Development Goals for 2030.

 


Other transversal themes
 
New BIS FSI Insights Paper Explores Suptech’s Role in Enhancing Financial Supervision Efficiency
Following its recent brief, which discussed the evolution of the suptech ecosystem including the associated challenges faced by authorities and vendors, the Bank for International Settlements Financial Stability Institute (BIS FSI) has released the latest suptech Insights Paper. Titled “Peering through the hype – assessing suptech tools’ transition from experimentation to supervision”, the paper examines the potential of suptech to enhance supervisory capabilities and reviews its evolution from experimental applications to becoming an essential component of the supervisory framework. Against this backdrop, it highlights key factors for successful suptech deployment and integration, including aspects such as user accessibility, process integration, and granular data utilization, as well as discussed challenges that may obstruct suptech’s effective incorporation into supervisory processes. The detailed summary of the insights paper can be accessed here.

 


Leadership changes
 
ESMA Reappoints Michele Siri as Board of Appeal President and Margarida Lima Rego as Vice-President
During its Annual Meeting on June 13, 2024, the European Securities and Markets Authority confirmed Michele Siri’s renewal as President of the Board of Appeal for a subsequent 2.5-year term. Siri, a Professor of Insurance and Financial Markets Law at the University of Genoa, will maintain his leadership role. Concurrently, Margarida Lima Rego was elected as Vice-President. Rego is an Associate Professor and Vice-Dean at NOVA School of Law, NOVA University in Portugal. The President oversees the Board’s business and administration, with the Vice-President stepping in under circumstances that prevent the President from fulfilling these duties. Appointments to this joint body are made by the three European Supervisory Authorities (EBA, EIOPA, and ESMA – ESAs), drawing on individuals with significant professional experience across various financial services sectors and legal expertise pertinent to ESA activities. The Board operates as an autonomous adjudicatory body that provides parties affected by decisions of the ESAs with a mechanism to appeal against certain decisions, thereby safeguarding their rights effectively.

 

Christy Goldsmith Romero Nominated as FDIC Chair Amidst Internal Agency Turmoil
Christy Goldsmith Romero has been nominated by President Biden to succeed Martin Gruenberg as the Chair of the Federal Deposit Insurance Corporation (FDIC). This decision follows reports of a negative work environment at the FDIC during Gruenberg’s tenure. Goldsmith Romero, if confirmed, is expected to implement the recommendations from the law firm Cleary Gottlieb, which was selected end of 2023 to undertake an independent review and identified over 500 instances of misconduct, and take the required measures to resolve the FDIC’s internal issues. The announcement followed statements earlier in the week by Michael J. Hsu and Jonathan McKernan, in their capacity as FDIC Board of Directors and co-chairs of the Special Review Committee before the Committee on Financial Services of the United States House of Representatives, reiterating their commitment to implementing the roadmap laid out by Cleary Gottlieb.

 


Cross-border cooperation
 
Bermuda Monetary Authority and ADGM’s FSRA Establish Digital Assets Regulatory Cooperation with New MoU
The Abu Dhabi Global Market Financial Services Regulatory Authority (ADGM FSRA) and the Bermuda Monetary Authority (BMA) have entered into a MoU to establish a cooperative framework for the supervision and support of digital asset entities within their respective jurisdictions. This MoU lays the groundwork for a collaborative framework between the two regulatory bodies, aimed at fostering the establishment and effective supervision of digital assets entities within their jurisdictions. Specifically, the agreement is intended to facilitate regulatory and supervisory collaboration, investigative assistance, and capacity building initiatives, thereby promoting the responsible innovation of digital assets, regulatory harmonization and controlled industry expansion. The MoU also outlines joint efforts in areas such as knowledge sharing through publications, media content, supervisory colleges, working groups, and training programs. The chief executive officers of both authorities, Craig Swan and Emmanuel Givanakis, underscored the significance of international cooperation in fostering innovation and enhancing regulatory capabilities through shared expertise and strengthened regulatory collaboration.