Worldwide: FinTech Global FS Regulatory Round-up – w/e 3 June 2022

BCBS progresses cryptoasset work

Following its meeting on 27 May, the Basel Committee on Banking Supervision (BCBS) has issued a press release confirming. among other things, that it has progressed work on specifying the prudential treatment for cryptoassets in advance of issuing a second consultation paper 'over the coming month'. [1 Jun 2022]

FCA Executive Director addresses the Financial Inclusion Virtual Summit

The FCA has published the speech delivered by Sheldon Mills, Executive Director – Consumers and Competition, at the Financial Inclusion Virtual Summit 2022. Mr Mills set out how the FCA saw rising costs having an impact on consumers in terms of borrowing, and in terms of the ability to plan for the future. He particularly noted that as interest rates from cash savings remain low and with inflation rising, more people are being drawn towards the promise of high returns from risky investments, including speculative investment in crypto tokens. On crypto in particular, he noted that FCA research conducted in 2021 found that 14% of crypto purchasers used some form of borrowing to fund their investments. [1 Jun 2022]

BoE Executive Director comments on the impact of digital currencies on central bank balance sheets

The Bank of England (BoE) has published the remarks made by Andrew Hauser, Executive Director for Markets, at the Federal Reserve Bank of New York and Columbia SIPA Workshop on Monetary Policy Implementation and Digital Innovation. Mr Hauser spoke about how central bank balance sheets may need to adjust in response to digital currencies, including central bank digital currencies (CBDCs). He presented five key messages:

• retail CBDCs could be significant for central bank balance sheets – while many of the elements of a CBDC are familiar to central banks, a retail CBDC would see those elements brought together 'at scale';
• a systemic stablecoin which was fully backed by deposits at the central bank could have similarly significant implications for the central bank's balance sheet as a retail CBDC;
• digital currencies may alter the transmission mechanism for monetary policy;
• digital currencies may affect the way central banks deliver monetary control; and
• finally, digital currencies may alter the size and composition of central bank assets. [1 Jun 2022]

#CBDCs

#DigitalCurrencies

HMT: Consultation on managing the failure of systemic DSA firms

HM Treasury (HMT) has published a consultation on managing the failure of systemic digital settlement asset (including stablecoin) (DSA) firms by way of the application of a modified Financial Market Infrastructure Special Administration Regime (FMI SAR) to such firms. The consultation seeks the views of stakeholders on both the intention to appoint the FMI SAR as the primary legal framework through which to address the failure of a systemic DSA firm, as well as the necessary amendments that will be required to ensure the FMI SAR can operate effectively with regard to such a firm. Separately, HMT plans to consult in the coming months on the regulatory perimeter for systemic payments firms at large.

Responses are requested by 2 August 2022. [31 May 2022]

#Stablecoins

#Settlement

ECB's Fabio Panetta addresses ECRB meeting

The ECB has published the introductory remarks made by Fabio Panetta, Member of the Executive Board of the ECB, at the seventh meeting of the Euro Cyber Resilience Board (ECRB) for pan-European Financial Market Infrastructures. Mr Panetta outlined the evolving cyber threat landscape, noting that it is an increasingly complex picture. He explained that during the meeting, participants would discuss crisis communication, third party risk, information sharing, training, and more.

With regard to crypto assets, Mr Panetta noted that they were increasingly being used to conduct ransomware attacks, and that because crypto assets are increasingly linked to the more traditional financial system, such attacks could impact on financial stability. [3 Jun 2022]

#Crypto

#CyberResilience

#Ransomware

ESMA publishes draft RTS to postpone application of the CSDR buy-in regime

ESMA has published the final draft RTS for postponing the application of the Central Securities Depositories Regulation (CSDR) mandatory buy-in regime for three years. The draft is based on the expected changes to the CSDR buy-in regime presented in the Commission's legislative proposal for the CSDR Review and on the amendment made to CSDR through the Regulation on a distributed ledger technology (DLT) pilot, which allows ESMA to propose a later start date for the CSDR buy-in regime.

Until the buy-in regime is formally suspended, ESMA's December 2021 statement, which sets out its expectations that national competent authorities (NCAs) should not prioritise supervisory actions in relation to the application of buy-in under the CSDR settlement discipline regime, remains in place. [2 Jun 2022]

#DLT

OJ: DLT Pilot Regulation published

Regulation (EU) 2022/858 on a pilot regime for market infrastructures based on distributed ledger technology (DLT Pilot Regulation) has been published in the Official Journal of the European Union (OJ). The Regulation enters into force on the twentieth day following publication in the OJ. The majority of the provisions apply from 23 March 2023. [2 Jun 2022]

#DLT

ESAs publish report on approaches to withdrawing authorisation for AML/CFT breaches

The ESAs have published a joint report which sets out their analysis of the completeness, adequacy and uniformity of the applicable laws and practices on the withdrawal of licence for serious breaches of the rules on anti-money laundering and countering the financing of terrorism (AML/CFT). In the report, the ESAs:

• recommend the introduction of a specific legal ground to revoke licences for serious breaches of AML/CFT rules to be introduced in all relevant EU sectoral laws;
• call for the inclusion of assessments by competent authorities of the adequacy of the arrangements and processes to ensure AML/CFT compliance as one condition for granting authorisation or registration;
• highlight the importance of the appropriate integration of AML/CFT issues into prudential regulation and supervision, including in the proposal for the Markets In Crypto-Assets Regulation (MiCA);
• set out uniform criteria for use in determining if a breach of AML/CFT requirements is 'serious'; and
• provide a preliminary analysis of the interaction between serious AML/CFT breaches and the crisis management and resolution frameworks.

Annexes to the report present the results of surveys on the withdrawal of authorisation for serious breaches of AML/CFT rules under the various sectoral regulations, including: the Capital Requirements Directive (CRD); the Revised Payment Services Directive (PSD2) and the Second E-Money Directive (EMD2); MiFID 2; the Alternative Investment Fund Managers Directive (AIFMD) and the Units for Collective Investment in Transferable Securities (UCITS) Directive; and Solvency II and the Insurance Distribution Directive (IDD). [1 Jun 2022]

#MiCA

#Cryto

ASIC releases updated ePayments Code

ASIC has published an updated ePayments Code to provide enhancements to and clarity on a number of existing protections for consumers. The Code provides protection for consumers when transacting using electronic payment methods such as credit cards. In addition to extending the Code to cover payments made using the New Payments Platform, ASIC has also updated the following areas of the Code:

• compliance monitoring and data collection;
• mistaken internet payments;
• unauthorised transactions;
• complaints handling; and
• facility expiry dates. [2 Jun 2022]

ACCC Chair sets out priorities and approach to financial services

The Chair of the Australian Competition and Consumer Commission (ACCC), Gina Cass-Gottlieb, delivered a keynote address to the Australian Financial Review Banking Summit 2022. In her address, she noted the ACCC's priorities over the next year of:

• promoting effective competition;
• investigating allegations of anti-competitive conduct; and
• protecting the interests of consumers in the financial services sector.

Ms Cass-Gottlieb emphasised a shift in focus towards digital payment systems, as well as priorities in enforcement, market studies, scam disruption and promoting competition and consumer choice through the 'Consumer Data Right', which gives consumers the right to use the data Australian businesses hold about them for their own benefit. [31 May 2022]

#Data

MAS and ABS announce further digital banking security measures

MAS and the Association of Banks in Singapore (ABS) have announced additional measures to further safeguard customers from digital banking scams. These measures complement those announced on 19 January 2022. In consultation with MAS and the Singapore Police Force (SPF), banks are progressively implementing the following additional measures, which will be in full effect by 31 October 2022:

• require additional customer confirmations to process significant changes to customer accounts and other high-risk transactions identified through fraud surveillance;
• set the default transaction limit for online funds transfers to S$5,000 or lower;
• provide an emergency self-service 'kill switch' for customers to suspend their accounts quickly if they suspect their bank accounts have been compromised;
• facilitate rapid account freezing and fund recovery operations by co-locating bank staff at the SPF Anti-Scam Centre; and
• enhance fraud surveillance systems to take into account a broader range of scam scenarios. [2 Jun 2022]

MAS: Speech delivered by the Deputy Prime Minister and Coordinating Minister for Economic Policies at the Asia Tech X Singapore Summit

MAS has published the remarks delivered by Mr Heng Swee Keat, Deputy Prime Minister and Coordinating Minister for Economic Policies, at the Asia Tech X Singapore Summit on 31 May 2022. Citing the context of increasing digitalisation, the Deputy Prime Minister highlighted the need to remain open to emerging disruption while also being vigilant against intensifying threats.

In a wide-ranging address, Mr Heng Swee Keat spoke about: the continuing evolution of the crypto asset space; trading in cryptocurrencies (commenting that, 'Retail investors especially should steer clear of cryptocurrencies'); uses of decentralised finance (DeFi); Web 3.0; central bank digital currencies (CBDCs); regulatory sandboxes; and cybersecurity. He also discussed the game changing potential of quantum computing and explained some of the quantum computing research and initiatives underway in Singapore. [31 May 2022]

#Crypto

#DeFi

#Quantum

MAS launches Project Guardian – working with the industry to pilot digital asset use cases

Following on from the announcement made the Deputy Prime Minister and Coordinating Minister for Economic Policies in his address to the Asia Tech x Singapore Summit, MAS has announced the commencement of Project Guardian. Project Guardian is a collaborative initiative with the financial industry that seeks to explore the economic potential and value-adding use cases of asset tokenisation. Project Guardian. MAS aims to develop and pilot use cases in four main areas:

• Open, interoperable networks – Explore the use of public blockchains to build open, interoperable networks that enable digital assets to be traded across platforms and liquidity pools. This includes interoperability with existing financial infrastructure. Open, interoperable networks can mitigate against the formation of walled gardens in digital exchanges and fragmented private markets.
• Trust anchors – Establish a trusted environment for the execution of DeFi protocols through a common trust layer of independent trust anchors. Trust anchors are regulated financial institutions that screen, verify and issue verifiable credentials to entities that wish to participate in DeFi protocols. This ensures that participants trade only with verified counterparties, issuers and protocol developers.
• Asset tokenisation – Examine the representation of securities in the form of digital bearer assets and the use of tokenised deposits issued by deposit-taking institutions on public blockchains. The project aims to build upon existing token standards, incorporate trust anchor credentials and enable asset-backed tokens to be interoperable with other digital assets used in DeFi protocols on the open networks.
• Institutional grade DeFi protocols – Study the introduction of regulatory safeguards and controls into DeFi protocols to mitigate against market manipulation and operational risk. The project will also examine the use of smart contract auditing capabilities to detect code vulnerabilities. [31 May 2022]

#DigitalAssets

#DeFi

#SmartContracts

MAS launches 2022 Global FinTech Hackcelerator on Web 3.0 and Green Finance

MAS has announced the launch of the 7th edition of the Global FinTech Hackcelerator, with the theme 'Accelerating A Greener Digital Future'. The competition seeks to leverage the potential of FinTech in accelerating the development of Web 3.0 and Green Finance. MAS is inviting FinTech firms and solution providers from around the world to submit innovative solutions to address over 50 problem statements that have been collected from financial institutions and industry players. Proposals must be submitted by 26 June 2022.

• The Web 3.0 problem statements focus on embedding blockchain technology to overcome scalability and implementation challenges, as well as expanding DeFi to enable the development of real-world use cases.
• The Green Finance problem statements focus on enhancing investor and financial institution's ease of monitoring commitments and measuring impact of loans and investments against their sustainability goals.

By 19 August 2022, those shortlisted for a virtual programme where they will be paired with a Corporate Champion to develop customised prototypes on the API Exchange (APIX) will be announced. Each finalist will also receive a S$20,000 cash stipend and be eligible for a fast-tracked application for the MAS Financial Sector Technology and Innovation Scheme Proof-of-Concept Grant of up to S$200,000. Finalists will pitch their solutions at the Demo Day that will be held as part of this year's Singapore FinTech Festival (SFF), which runs from 2 to 4 November. Three winners will be selected, with each receiving S$50,000 in prize money. [27 May 2022]

#Hackcelerator

#Web3.0

#GreenTech

RBI announces results of first global hackathon – HaRBInger 2021

The Reserve Bank of India (RBI) has announced the results of its first global hackathon. HaRBInger 2021, which had the theme of smarter digital payments, received 363 proposals submitted by teams from within India and from 22 other countries including the USA, UK, Sweden, Singapore, Philippines, and Israel.

Final evaluation was held on May 26-27 and saw 24 finalist teams present their solutions for the four problem statements. A jury of external experts selected the winners and runners-up based on parameters like innovation, technology, demonstration, user experience, security, and ease of implementation. [2 Jun 2022]

BSP works closely with stakeholders to tackle cyber crimes

The Bangko Sentral ng Pilipinas (BSP) has issued a press release to advise that it is coordinating closely with BSP-supervised financial institutions (BSFIs), industry associations, and other government agencies to curtail illegal online gambling, money-laundering, and terrorist-financing activities. Recently, the BSP issued memoranda that outlined supplementary controls that BSFIs can use to prevent unauthorized transactions in online channels, and also reiterated enhanced know-your-customer (KYC) mechanisms to detect possible suspicious transactions. [31 May 2022]

SCM reports findings on clone firm scams

The Securities Commission, Malaysia (SCM) has reported the findings of its investigation into clone firm scams – companies that fraudulent impersonate a legitimate or licensed entity to solicit funds and dupe investors.

The SCM found that these scams typically involve:

• using social media to lure investors with investment packages guaranteeing high returns and seemingly managed by 'licensed intermediaries';
• using large number of 'agents' to lure potential victims, and soliciting investments through online chat apps once the victims clicked on the link provided; and
• requesting that victims deposit monies for the 'investment schemes' into bank accounts held by mule account holders to layer and launder the illegal proceeds received.

The SCM also found that clone firm scams will target victims/investors who are willing to part with small amount with the expectation of making huge returns in a short period of time. As most of the victims had lost only a small amount of money, many were reluctant to come forward. [31 May 2022]

#SocialMedia

#ChatApps

SECT consults on proposed changes to the regulatory approach on ready-to-use utility tokens and digital asset exchange supervision

The Securities and Exchange Commission, Thailand (SECT) is seeking feedback on its proposal to strengthen the rules on the public offering of listed, ready-to-use utility tokens and on digital asset exchange supervision. Under the proposal, any ready-to-use token issuer that seeks to list its tokens on a digital asset exchange will have to obtain approval from the SECT and file a registration statement with a draft prospectus. Newly issued, ready-to-use utility tokens must be offered via an SECT-approved initial coin offering (ICO) portal operator and the tokens must not be for use as a mean of payment (MOP).

The proposal also provides the exemption from the SECT's authorisation, if a ready-to-use utility token will not be listed on the exchange and qualifies as a plain-vanilla or uncomplicated utility token. In addition, the issuers of listed, ready-to-use utility tokens are required to disclose the information about the tokens and the projects on an ongoing basis in order to ensure that there is adequate information in inform decision-making by investors/purchasers.

Feedback is requested by 29 June 2022. [30 May 2022]

#UtilityTokens

#DigitalAssets

#ICOs

#Payments