In this regular update, we round-up FinTech-related financial services regulatory developments for the week ending 10 June 2022.
HMT: UK-Japan Financial Regulatory Forum 2022 – Exchange of letters and joint statement
Building on arrangements for regulatory cooperation outlined in Annex 8-A of the UK-Japan Comprehensive Economic Partnership Agreement, HM Treasury (HMT) and the Japanese Financial Services Authority (FSA) signed an exchange of letters which formally established the UK-Japan Financial Regulatory Forum and set out how the parties would use the forum to progress on their shared priorities for financial services. HMT also published a joint statement from the parties confirming the importance of deference, and discussing access to UK and Japanese financial markets; asset management; the role of the insurance and reinsurance sectors; fintech and innovation; sustainable finance; anti-money laundering and combatting the financing of terrorism. [10 Jun 2022]
HMT: Policy statement on regime for critical third parties
HM Treasury (HMT) has published a policy statement on mitigating risks to the finance sector from increasing reliance by firms on critical third parties (CTPs) for key functions and services.
The policy statement, developed with the Bank of England (BoE), PRA and FCA (together, the regulators), proposes legislation to:
HM Government intends to legislate for this regime when parliamentary time allows.
The regulators will publish a joint Discussion Paper shortly after legislation is introduced, to set out details of how any powers granted to them in legislation might be exercised, and explore the role of the regulators during the designation process, and in coordinating the exercise of their powers with overseas financial regulators, and UK authorities and regulators from outside the financial services sector. Following Royal Assent, the regulators expect to publish a further Consultation Paper on their proposed rules.
HMT expects to begin designating the first CTPs under this new regime after those rules are finalised. [8 Jun 2022]
ASIC Executive Director (Markets), Greg Yanco, says that cyber safety is a company culture matter
Greg Yanco (Executive Director, Markets, Australian Securities and Investments Commission (ASIC)) authored an article about the responsibility of Australian companies to enhance their cyber security positions. Mr Yanco said ASIC encourages:
Guilty plea in respect of social media led 'pump and dump' campaign and market manipulation
Gabriel Govinda (known online as 'Fibonarchery') has pleaded guilty to 23 charges of manipulation of listed stocks on the Australian Securities Exchange and 19 charges of illegal dissemination of information relating to the manipulation. Between September 2014 and July 2015, Mr Govinda used 13 different share trading accounts, held in the names of friends and relatives, to manipulate the share price of 20 different listed stocks by trading between the accounts he controlled (wash trading), and by using fake, 'prop', or 'dummy' bids to falsely increase the perceived demand, and ultimate price, for listed stocks. In online posts on HotCopper, he illegally disseminated information about his wash trades and dummy bids, seeking to increase (or pump) the share price, then selling (or dumping) the listed stocks at a higher price. The prosecution, brought by the Commonwealth DPP after a referral from ASIC, has been adjourned part heard. [7 Jun 2022]
HKSCC announces FINI API technical workshops for participants and designated banks
The Hong Kong Securities Clearing Company Limited (HKSCC) has issued a circular to announce that it will host two application programming interface (API) workshops to explain the API development requirements for Fast Interface for New Issuance (FINI), an upcoming new platform that will modernise the IPO settlement process.
This follows the publication of the FINI implementation plan and technical guides in May 2022 (see our previous update).
The respective technology teams of HKSCC participants and designated banks are invited to attend the workshops (in the form of webinars) on 23 June 2022. There will be a Cantonese session and an English session.
The key topics to be covered in the workshops include:
HKSCC participants and designated banks should register for the sessions via Client Connect by 21 June 2022. A confirmation email with the webinar login information will be sent to successful registrants. [10 June 2022]
SFC reminds investors of risks associated with NFTs
The SFC has issued a press release to remind investors of the risks associated with investing in non-fungible tokens (NFTs), which have increased in popularity in recent years.
NFTs, like other virtual assets, are exposed to heightened risks including illiquid secondary markets, volatility, opaque pricing, hacking and fraud. Investors should be mindful of these risks and should not invest in NFTs if they cannot fully understand the risks or bear the potential losses.
The SFC notes that the majority of NFTs which it has seen are intended to represent a unique copy of an underlying asset such as a digital image, artwork, music or video. Where they are genuine digital representations of collectibles, they do not fall within the SFC's regulatory remit. However, the SFC has recently noted NFTs which cross the boundary between a collectible and a financial asset, such as fractionalised or fungible NFTs structured in a form similar to "securities" or interests in a "collective investment scheme" (CIS) as defined under the Securities and Futures Ordinance (SFO).
MAS strengthens financial institutions' Business Continuity to address evolving threats
MAS has published revised Guidelines on Business Continuity Management (BCM) for financial institutions (FIs), to help FIs strengthen their resilience against service disruptions arising from IT outages, pandemic outbreaks, cyber-attacks and physical threats. The revisions take into account learnings from the handling of the Covid-19 pandemic and increased digitalisation in the financial sector. Under the revised Guidelines, FIs should:
SEBI cautions Investors against dealing with unregulated platforms offering Algorithmic Trading
The Securities and Exchange Board of India (SEBI) has noted that many unregulated platforms are offering investors Algorithmic Trading services/facilities to automate their trades. Strategies are being marketed with "claims" of huge return on investment along with "ratings" assigned to the strategies and claims that similar returns would be earned in the future. These platforms are unregulated and no investor grievance redressal mechanism covers their activities. Investors are therefore cautioned against dealing with such unregulated platforms and cautioned against sharing any sensitive personal details with such platforms. [10 Jun 2022]
FSCC Launches Systemic Risk Crisis Management Framework
The Financial Stability Coordination Council (FSCC) has released the Systemic Risk Crisis Management (SRCM) Framework which identifies key actions required to assess, categorize, manage, and communicate systemic risks. The framework covers continuous surveillance of risk-related trends, review of infrastructures, conduct of systemic stress tests, and arrangements for communication, both under normal and stressed conditions. It also has a particular focus on climate-related and cyber security risks. The FSCC is an inter-agency council composed of the Bangko Sentral ng Pilipinas, Department of Finance, Insurance Commission, Philippine Deposit Insurance Corporation, and Securities and Exchange Commission. [7 Jun 2022]
CFPB terminates No-Action letter in respect of underwriting algorithm
On request, the Consumer Financial Protection Bureau (CFPB) has issued an order to terminate Upstart Network from its list of approved "no-action letters". The CFPB had granted special regulatory treatment to Upstart by immunizing the lender from being charged with fair lending law violations with respect to its underwriting algorithm, while the "no-action letter" remained in force. Upstart had notified the CFPB that it intended to add a significant number of new variables to its underwriting and pricing model. The CFPB needed sufficient time to review and rigorously evaluate the implications of the changes to Upstart's model. In response, Upstart requested termination of the "no-action letter," effectively ending the company's special regulatory status, and allowing it to be able to make changes to its model without need for CFPB review and approval. [8 Jun 2022]
Ukraine-related sanctions information
Regular updates on sanctions and other developments that may impact businesses with interests or operations in Ukraine and/or Russia are available on our FSR and Corporate Crime Notes blog here.
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