Worldwide: FinTech Global FS Regulatory Round-up – W/e 5 August 2022

EC: Final report on disclosure, inducements, and suitability rules for retail investors study

The European Commission (EC) has published its final report on disclosure, inducements, and suitability rules for retail investors study. The study assessed the existing investment environment across the EU, with an analysis of the product costs, current practices in advice and product provision. It will feed into the development of the retail investment strategy announced for 2022, which is one of the actions planned under the Capital Markets Union's Action Plan. [2 Aug 2022]

MAS thematic review of operational risk management – third parties

The Monetary Authority of Singapore (MAS) has published the findings from its thematic inspections on the operational risk management standards and practices of selected banks, which focused on third party risk management. The inspections were conducted over 2020 and 2021. In the report of findings, MAS sets out its supervisory expectations, good practices, improvement areas and case examples observed from inspections. MAS comments that banks have room to raise risk management standards as regards third party risk. MAS observed that while banks were familiar with outsourcing risk, it found that some banks had only started to consider the risks posed by other service providers.

MAS notes that while the findings relate to its inspections of banks, the good practices highlighted should inform all financial institutions. [5 Aug 2022]

#Outsourcing

#ThirdParties

SGX RegCo speech: Governance and transparency – cryptocurrencies, sustainability

Singapore Exchange Regulation (SGX RegCo) has published the GOH address by Prof Tan Cheng Han, Chair of SGX RegCo, at the Singapore Governance and Transparency Forum on 'Why we need Corporate Governance and Transparency'. Prof Tan Cheng Han's remarks focused on how the downturn in cryptocurrency markets had affected confidence and on the ongoing development of sustainability reporting. [3 Aug 2022]

MAS response to Parliamentary Question – Singapore as a crypto hub

MAS has published the response to a Parliamentary Question regarding digital payment token (DPT) licences and plans to promote Singapore as a cryptocurrency hub. In the response, MAS makes the following points:

• cryptocurrency market capitalisation is down by about two-thirds since the peak in November 2021, but this has not posed financial stability risks in Singapore;
• to date, the impact of the cryptocurrency market on DPT service providers has been limited;
• given the cross-border character of cryptocurrencies, there needs to be global regulatory consensus on rules to preserve market integrity, investor protection and financial stability;
• from a development perspective, MAS is focusing on innovations that can enhance efficiencies in key wholesale market activities such as trade finance, cross-border payments, and the capital market;
• MAS intends to consult on measures to enhance the regulatory framework in the coming months; and
• MAS will continue to discourage retail cryptocurrency trading. [1 Aug 2022]

#Token

#DPT

MAS response to Parliamentary Question – Collapse of TerraUSD and Luna token

MAS has published the response to a Parliamentary Question regarding the extent of Singaporeans' exposure to the collapse in value of the TerraUSD stablecoin and the Luna token. In its response, MAS comments that the collapse 'illustrates the high risks involved in cryptocurrencies'. While data on cryptocurrency holdings by members of the public is not available, MAS explains that its own statistical data shows that banks in Singapore have 'insignificant exposure' to cryptocurrencies. Concluding, MAS says that it is looking at the merits of tailoring the regulatory regime for stablecoins to address specific characteristics and risk, for example regulating the reserve requirements and the stability of the peg. MAS intends to consult in the coming months. [1 Aug 2022]

#Token

SCM consults on technology risk management framework

The Securities Commission Malaysia (SCM) has published a consultation paper on a proposed regulatory framework relating to the management of technology risks by capital market entities. The consultation paper seeks feedback on areas such as governance and compliance process, management of technology risks, cyber security, data and third party service provider, as well as the principles relating to the adoption of artificial intelligence (AI) and machine learning.

The proposed regulatory framework aims to further improve capital market entities' ability and effectiveness in detecting and addressing an increasing range of technology risks due to the prevalent use of technology, emergence of new technologies and the growing sophistication of cyber threats.

Feedback is requested by 19 September 2022. [1 Aug 2022]

#RiskManagement

#AI

BoT to pilot Retail CBDC

The Bank of Thailand (BoT) has set out progress on development of a retail central bank digital currency (CBDC). The BoT explains that it will extend the scope of Retail CBDC development to a Pilot phase in which real-life application of Retail CBDC will be conducted in cooperation with the private sector within a limited scale. The BoT will assess the benefits and associated risks from the Pilot in order to formulate related policies and improve the CBDC design in the future. The Pilot will be separated into two tracks – foundation and innovation.

The foundation track will assess efficiency and safety, including the technological design. During this phase, CBDC will be used in conducting cash-like activities, such as paying for goods and services, within limited areas and with a scale of approximately 10,000 retail users. This phase is expected to begin at the end of 2022 and last until mid-2023.

The innovation track will focus on programmability which will facilitate the development of innovative use cases for CBDC, resulting in new financial services for a wide range of customers. This will help the BoT develop and improve the design of CBDC to suit the Thai context in the future. The BoT will allow the private sector and the public to participate in presenting business use cases for Retail CBDC via a CBDC Hackathon. Applications to participate in the Hackathon should be submitted by 12 September 2022. [5 Aug 2022]

RBI statement on developmental and regulatory policies – outsourcing

The Reserve Bank of India (RBI) has published a statement on developmental and regulatory policies. Among the developments highlighted is that the RBI plans to issue draft Reserve Bank of India (Managing Risks and Code of Conduct in Outsourcing of Financial Services) Directions, 2022, for comment shortly. [5 Aug 2022]

Advisory to FDIC-insured institutions regarding deposit insurance and dealings with crypto companies

To address certain misrepresentations about FDIC deposit insurance by some crypto companies, the Federal Deposit Insurance Corporation (FDIC) has issued an Advisory to FDIC-insured institutions on 'Deposit Insurance and Dealings with Crypto Companies' (FDIC Crypto Advisory). Additionally, a Fact Sheet on 'What the Public Needs to Know About FDIC Deposit Insurance and Crypto Companies' (Deposit Insurance Fact Sheet) was posted to FDIC's website to provide additional information about deposit insurance coverage.

The FDIC Crypto Advisory reminds insured banks that they need to be aware of how FDIC insurance operates and need to assess, manage, and control risks arising from third-party relationships, including those with crypto companies. In dealings with crypto companies, FDIC-insured banks should confirm and monitor that these companies do not misrepresent the availability of deposit insurance.

Simultaneous with the issuance of this Crypto Advisory, the FDIC issued a press release announcing the posting of a 'Deposit Insurance Fact Sheet' to the FDIC's webpage to clarify for customers of non-bank entities, such as crypto companies, and the public generally, that deposit insurance does not cover non-deposit products, including crypto assets. [29 Jul 2022]