Worldwide: FinTech Global FS Regulatory Round-up – W/e 19 May 2023

FSI Insights paper on the regulatory landscape for crypto, tokens and DeFi

The Financial Stability Institute (FSI) has published a paper which provides an overview of policy measures taken in 19 jurisdictions to address the risks associated with cryptoassets and distributed ledger technology (DLT) in financial services. The paper classifies policy measures into three categories and identifies different types of initiatives across jurisdictions, including bans, restrictions, clarifications, bespoke requirements, and initiatives to facilitate innovation. [17 May 2023]

#crypto

#DLT

FCA authorisations operating service metrics – Q4 2022/23

The FCA has published its authorisations metrics for the period covering January to March 2023 (Q4 2022/23). For the quarter, the FCA's performance against eight metrics is green, amber for five and three metrics are red. The three red metrics include those relating to the processing of applications for ‘approved person' status submitted by an authorised person under the appointed representatives regime and the processing of applications under either payment services and e-money regulations. The metrics relate to solo-regulated firms only.  [19 May 2023]

#EMoney

HoC written question and answer – Limits on fund transfers to crypto exchanges

For HM Treasury (HMT), Economic Secretary Andrew Griffith MP has responded to a question from Alun Cairns MP about whether an assessment has been made of the implications for HM Government's (HMG's) policies of banks imposing transfer limits on customers sending funds to crypto exchanges. Mr Griffith replies that while HMT notes concerns about this practice by banks, HMG will not intervene at this stage as ‘these are commercial, risk-based decisions driven by a range of factors, including compliance with financial crime innovations'.  However, the Economic Secretary comments that the forthcoming UK regulatory framework for the crypto sector may influence decisions taken by UK banks on controls on payments.  [19 May 2023]

HoC Public Bill Committee accepting written evidence on the Digital Markets, Competition and Consumers Bill 

The HoC Public Bill Committee has announced that it is now able to receive written evidence on the Digital Markets, Competition and Consumers Bill. The written evidence will be considered by the Committee as it scrutinises the Bill line by line. The Committee will commence scrutiny on Tuesday 13 June 2023; it is scheduled to report by Tuesday 18 July 2023 though it may report earlier. Contributors are advised to submit evidence as soon as practicable to ensure the Committee is able to consider it.

For more information on the Bill, see the explanatory notes and the following HoC Library research papers:

• the first focuses on digital markets and proposed competition law reforms (Parts 1 and 2 of the Bill); and
• the second focuses on proposed reforms of consumer law enforcement and on new consumer rights (Parts 3 and 4 of the Bill).  [18 May 2023]

PRA Director outlines data developments

The PRA has published the speech delivered by Rebecca Jackson, Director of Authorisations, Regulatory Technology and International Supervision, to the Association of Foreign Banks at the Mansion House.  Ms Jackson outlined how the PRA is changing how it uses supervisory and firm data, covering both the Banking Data Review and the Transforming Data Collection initiatives. These initiatives, together with RegTech and innovation – though not, as yet, a ‘ChatPRA' – are expected to deliver efficiencies for both the regulatory and firms. [17 May 2023]

#suptech

#data

TSC report of inquiry into crypto regulation

The Treasury Select Committee (TSC) has published the report of its inquiry into the regulation of crypto. The TSC makes two recommendations in its report:

• ‘… that the Government takes a balanced approach to supporting the development of cryptoasset technologies. It should seek to avoid expending public resources on supporting cryptoasset activities without a clear, beneficial use case, as appears to have been the case with the Royal Mint NFT. It is not the Government's role to promote particular technological innovations for their own sake.'
• ‘… that the Government regulates retail trading and investment activity in unbacked cryptoassets as gambling rather than as a financial service, consistent with its stated principle of “same risk, same regulatory outcome”.' [17 May 2023]

ECB Supervision Newsletter

The European Central Bank (ECB) has released the May 2023 edition of its Supervision Newsletter. This edition includes an article on the need for strong governance during digital transformation which complements the survey feedback that the ECB received from banks on their digital transformation exercises in 2022.

The newsletter also rounds-up recent publications and forthcoming events. [17 May 2023]

Council adopts new rules on MiCA and transfer of funds

In what marks the final step of the legislative process, the Council of EU has formally adopted the regulation on markets in crypto-assets (MiCA). The Council has also adopted the related legislation which extends the rules on rules on information accompanying the transfers of funds by extending the scope of the rules to transfers of crypto assets. [16 May 2023]

#crypto

EC: Report on PAD

The European Commission (EC) has published  a report addressed to the European Parliament (EP) and the Council on the application of the Payment Accounts Directive (PAD). PAD was adopted as part of the EU's efforts to enhance the transparency and comparability of fees charged to consumers on their payment accounts, make it easier to switch payment accounts, and ensure access to payment accounts with basic features (PABF). The EC concludes that the PAD has largely met these objectives, and does not present any legislative proposals alongside the report. However, further consideration may be given to amending the PAD at a later stage. [15 May 2023]

HKEX appoints Andrew Loong as Head of Digital Assets

The HKEX has announced that Andrew Loong has joined as Managing Director and Head of Digital Assets.

Mr Loong succeeds Andrew Walton, who leaves the HKEX in July 2023.  He will report to HKEX Group Head of Emerging Business & FIC, Glenda So.  In his role, he will oversee the development of the digital assets ecosystem in HKEX's markets, including digital product offerings and building robust digital infrastructure.  [19 May 2023]

HKMA announces commencement of pilot programme for retail CBDC, e-HKD 

The HKMA has announced the commencement of a pilot programme for the retail central bank digital currency (CBDC), ie, the e-HKD.  The pilot programme is a key component of Rail 2 of the HKMA's three-rail approach in paving the way for the possible implementation of the e-HKD in the future.

A total of 16 firms from the financial, payment and technology sectors have been selected to participate in the first round of pilots for 2023.  The HKMA's Chief Executive, Eddie Yue, gave opening remarks at the commencement event of the pilot programme which was attended by senior executives of the 16 selected firms.

The firms will work on 14 pilots spanning across six categories, namely, full-fledged payments, programmable payments, offline payments, tokenised deposits, settlement of Web3 transactions and settlement of tokenised assets.  The HKMA will work closely with various stakeholders to examine the use cases, implementation and design issues relating to the e-HKD. The outcomes and insights gained from each pilot will help enrich the HKMA's perspective in order to determine whether to introduce the e-HKD.

While the actual outcome and results of the pilots may evolve over time, the HKMA aims to share the key learnings with the public at Hong Kong FinTech Week in November 2023.  The HKMA plans to conduct more rounds of pilots with the industry in the future.

To facilitate collaboration between the Government, industry and academia on CBDC research, the HKMA plans to establish a CBDC Expert Group, comprising leading academics from local universities who will contribute valuable insights on the key policy and technical issues surrounding CBDC, such as privacy protection, cybersecurity and interoperability.  [18 May 2023]

#CBDC

#eHKD

HKMA concludes consultation on proposed amendments to AML/CFT Guideline for AIs

The HKMA has published the conclusions to its consultation (see our previous update) on proposed amendments to the Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Authorised Institutions) (AML/CFT Guideline).  The proposed amendments are to provide guidance to authorised institutions (AIs) in light of the recent enhancements to the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) (see our previous update).

The revised AML/CFT Guideline (in mark-up) is set out in the annex to the HKMA's conclusions paper and will be published in the Gazette on 25 May 2023, to take effect on 1 June 2023 (at the same time as the amended AMLO).

The key comments in the consultation surround the following areas (among others):

• Digital identification system – The HKMA clarified what is meant by a “digital identification system that is recognised by the HKMA”, and whether technology solutions being used by AIs for remote customer on-boarding would be recognised digital identification systems.
• Beneficial ownership of a trust – Concerns were expressed over the new definition of “beneficial owner” in the AMLO in relation to trusts and similar legal arrangements, particularly the removal of the 25% threshold for trust beneficiaries resulting in more persons needing to be verified by AIs.  Additional guidance is provided in the AML/CFT Guideline regarding class of beneficiaries and reasonable measures to verify trust beneficiaries.
• Politically exposed persons (PEPs) – The HKMA has fine-tuned the proposal by removing the regulatory requirement for senior management approval when AIs decide to disapply enhanced due diligence measures to former PEPs.  The HKMA will consult the industry later this year on a new guidance paper relating to PEPs.
• Virtual assets (VAs) and virtual asset service providers (VASPs) – The HKMA has clarified the requirements to be complied with by AIs (including registered institutions) with regard to VA-related activities, and the application of the updated SFC guideline on AML/CFT requirements for licensed corporations and VASPs, which will be published shortly.
• Bearer shares and nominee directors – The HKMA provided clarification on the proposed amendments in relation to bearer shares, nominee directors and nominee shareholders, and how the proposed amendments would affect the way customer due diligence is conducted if a business relationship involves bearer shares, nominee directors or nominee shareholders.

AIs are welcome to use existing channels to raise any further AML/CFT questions.  The HKMA will consider whether any issue raised is of wider industry interest that may warrant further guidance and, if so, the appropriate channel for providing such guidance.  [16 May 2023]

#virtualassets

#vasps

#digitalID

#AML

#CFT

CFTC: Commissioner Pham seeks input on proposed work program for GMAC

Commissioner Caroline D. Pham has announced the 2023-2025 proposed work program for the CFTC's Global Markets Advisory Committee (GMAC), including the Global Market Structure Subcommittee, the Digital Asset Markets Subcommittee, and the Technical Issues Subcommittee. Commissioner Pham is the sponsor of the GMAC and is seeking input to the proposed work program.  The 2023-2025 proposed work program for the GMAC includes the following initiatives for the Digital Asset Markets Subcommittee:

• provide recommendations for industry standards and best practices for tokenized asset markets including (i) digital assets taxonomy, (ii) pre-trade, execution, and post-trade requirements, and (iii) governance, risk, and control frameworks;
• provide recommendations for the regulation of non-fungible tokens (NFTs) and utility tokens; and
• identify other issues to address in digital finance and tokenization of assets, non-financial activities and Web3, and blockchain technology.

The deadline for input is May 30, 2023.  [15 May 2023]

#digitalassets

#NFTs

#utilitytoken

#web3

#blockchain