Your weekly summary of key regulatory updates in an objective bite-size format, drawing on official news and press releases from 400+ financial services regulators, central banks as well as global and regional standard setters
At a glance - Highlights by topic
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EBA’s latest quarterly risk dashboard indicates continued strong capital and liquidity ratios OSFI proposes introduction of new debt serviceability measures in relation to residential mortgage underwriting Saudi Arabia Capital Markets Authority finalizes amendments to its prudential rules Central Bank of the UAE releases AML/CFT guidance on digital identity European Supervisory Authorities release joint thematic report on good practices for financial education initiatives on scams, fraud and cyber security New BIS bulletin discusses options for addressing risks of crypto Bank of Thailand consults on virtual bank licensing framework National Bank of Angola inaugurates first regulatory sandbox Saudi Arabia Monetary Authority launches of new open banking lab U.S. Federal Agencies call out cryptoassets-related risks to the banking sector in joint statement Thailand SEC launches crypto academy Bank of Tanzania reports on CBDC progress JAM-DEX pilots government wage payment and onboards new bank as wallet provider Digital Dollar Project expands team to further its research and experimentation agenda EBA publishes peer review on the authorization of payment and e-money institutions The New Self-Regulatory Organization of Canada and the Canadian Investor Protection Fund commence operations UK PRA outlines 2023 supervisory priorities Pakistan SEC issues Guidelines for Offering Islamic Financial Services
New in this edition: An overview of key upcoming events with a financial regulatory dimension.
Prudential & financial stability
EBA’s latest quarterly risk dashboard indicates continued strong capital and liquidity ratios
The European Banking Authority (EBA) has published the latest quarterly risk dashboard for the European banking sector, covering the period up to the end of Q3 2022. Overall, the data confirms continued strong capital and liquidity ratios, with the CET1 ratio and the Liquidity Coverage Ratio each having only marginally declined by 0.2% to 14.8% and 2.4% to 162.5%, respectively, while the average Net Stable Funding Ratio stayed at 126.9%. Additionally, the long-term trend in the decline of non-profit loans persisted with non-performing loan ratio remaining stable at 1.8%. However, there remain concerns over asset quality with an increasing number of banks expecting a further deterioration, mainly in relation to SMEs and consumer finance. Likewise, the share of stage 2 loans has remained elevated and above pre-pandemic levels at a ratio of 9.5%.
OSFI proposes introduction of new debt serviceability measures in relation to residential mortgage underwriting
The Office of the Superintendent of Financial Institutions (OSFI) has launched the consultation on proposed amendments to its guideline on residential mortgage underwriting. The consultation comes in response to mounting concerns over mortgage lending risks due to high consumer indebtedness and the resulting implications for debt serviceability. Under the proposed amendment, the OSFI is looking to introduce additional debt serviceability measures including loan-to-income and debt-to-income restrictions, debt service coverage restrictions as well as interest rate affordability stress tests. Debt service coverage restrictions would limit ongoing debt service obligations as a percentage of borrower income while interest rate affordability stress tests relate to the minimum interest rate that is applied in debt service coverage calculations to test a borrower’s ability to afford higher debt payments in the event of negative financial shocks. The new measures would complement the existing the existing minimum qualifying rate or stress test that is currently applied to assess the borrower’s capacity to service their debt obligations.
The Saudi Arabia Capital Markets Authority has finalized the amendments to its prudential rules. The updates cover inter alia changes to the requirements of credit, market, operational and concentration risks as well as amendments to the methodology for calculation minimum capital adequacy.
AML & CFT
Central Bank of the UAE releases AML/CFT guidance on digital identity
The Central Bank of the UAE has released new AML/CFT guidance with a focus on digital identity. Supplementing the Central Bank’s existing AML/CFT procedures and guidelines, the new guidance discusses the use of digital ID systems by licensed financial entities to address their customer due diligence obligations. To that end, it provides a general overview over digital ID systems and participants, discusses their application in the context of customer identification and verification at onboarding or account opening and for ongoing customer due diligence monitoring, outlines the associated risks and challenges as well as sets out considerations for assessing the reliability and independence of these systems. The guidance applies to all licensed entities under the Central Bank’s remit.
Market conduct & consumer protection
European Supervisory Authorities release joint thematic report on good practices for financial education initiatives on scams, fraud and cyber security
The European Supervisory Authorities have published a new joint thematic report on national financial education initiatives on digitalization. The report comes in response to the rising risks posed to consumers by the increasing digitalization of financial services and the resulting concern over consumers’ potential lack of financial literacy and unfamiliarity with new digital technologies. To that end, the report provides an aggregate view of the implementation of financial education initiatives across EU national competent authorities with a focus on cybersecurity, scams and fraud. It identifies 12 good practices that authorities can consider to help increase the effectiveness of financial education initiatives and improve consumers’ digital financial literacy. Highlighted good practices include among other things:
Publishing a blacklist of fraudulent providers Using novel ways to package financial education initiatives to improve reach, such as practical examples and entertaining elements Reaching technology-averse consumers via non-digital channels in addition to digital ones to help them understand how to use digital tools to access financial services safely Applying search engine optimization to improve visibility of authorities’ financial education websites
Fintech & ecosystem innovation
New BIS bulletin discusses options for addressing risks of crypto
Prompted by the 2022 crypto market developments, the Bank for International Settlements (BIS) in its latest bulletin has summarized possible options for addressing the increasing set of risks stemming from crypto. The bulletin presents and at a high level evaluates the pros and cons of three, non-mutually exclusive options, namely: (1) banning specific crypto activities; (2) containing crypto activity by isolating it from and/or limiting the flow of crypto funds in and out of traditional finance and thus limiting interlinkages with the real economy; (3) regulating crypto similar to traditional finance. The authors highlight that regulating crypto comes at the challenge of properly mapping activities and entities in crypto and their traditional finance counterparts and identifying the entities suited as entry points for regulation. Containment, on the other hand, would avoid giving crypto a regulatory seal of approval that could otherwise further spur its growth, yet requires finding alternative mechanisms to address consumer protection and market integrity concerns the authors find. Furthermore, across all options, the ability to properly enforce the relevant rules would be central to their effectiveness in practice. Besides pursuing these three options, the authors argue that central banks and public authorities could draw attention away from crypto by striving to enhance the attractiveness of traditional finance and encouraging sound innovation including via central bank digital currencies.
Bank of Thailand consults on virtual bank licensing framework
In furtherance of the development towards a digital economy, the Bank of Thailand has issued for consultation the proposed virtual banking licensing framework. The framework provides the basis for introducing virtual, branchless banks as new financial services providers in the country and enabling them to provide full-service banking businesses. Under the framework, the same regulatory and supervisory requirements currently in place for traditional commercial banks would apply to virtual banks with particular emphasis being placed on governance, risk culture, technology infrastructure and outsourcing arrangements. As part of the licensing, virtual banks would undergo a restricted phase during the first 3-5 years of operation during which they would be subject to specific conditions and close monitoring and upon successful completion could then engage in full-fledged operations. Consistent with this approach, it would be expected that a virtual bank has a minimum paid-up capital of the value of 5,000 million baht (~USD 150 million) at the start of its operations, which is then gradually increased to at least 10,000 million baht prior to exiting the restricted phase.
National Bank of Angola inaugurates first regulatory sandbox
The National Bank of Angola has formally launched its first regulatory sandbox. The sandbox, which is introduced under the umbrella of Angola’s Payments System Innovation Laboratory, is intended to facilitate the evaluation and testing process of new business models and emerging technologies in the country. It will operate under a cohort model and accommodate the testing of up to 10 projects annually, which will be selected through a dedicated application process.
Saudi Arabia Monetary Authority launches of new open banking lab
The Saudi Arabian Monetary Authority (SAMA) has proceeded with the launch of its open banking lab. The lab is intended to accelerate the development of open banking services in the Kingdom by offering banks and fintech firms with a technical testing environment. Specifically, the lab comprises of three core features:
A sandbox environment that simulates a real bank’s open banking APIs Ready retail and corporate use cases complete with mock data available to participants to test their solutions Conformance suites available to participants to test and certify their APIs to ensure the conformance with the open banking framework
The launch of the lab follows the release of SAMA’s open banking regulatory framework in Q4 2022, which governs the implementation of open banking in the Kingdom. The open banking program forms a key initiative under the country’s Financial Sector Development Program and the associated fintech strategy.
U.S. Federal Agencies call out cryptoassets-related risks to the banking sector in joint statement
The Federal Deposit Insurance Company (FDIC), the Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board have issued a new joint statement to address the exposure of banking organizations to the cryptoassets sector. Against an outline of the key risks and vulnerabilities associated with cryptoassets, the three-page statement summarizes the Agencies’ supervision approach. Specifically, the Agencies reiterate that they will continue to pursue a cautious, case-by-case approach in the evaluation of proposals by banking organizations wishing to carry out activities involving cryptoassets with a view to assessing “whether or how current and proposed crypto-asset-related activities […] can be conducted in a manner that adequately addresses safety and soundness, consumer protection, legal permissibility, and compliance with applicable laws and regulations, including anti-money laundering and illicit finance statutes and rules”. While not being outright prohibited in engaging in cryptoassets-related activities, banking organizations must consult with their supervisor and seek the required permissions prior to commencing such activities. In particular, the statement notes, Agencies remain fundamentally concerned over business models with material concentrations in crypto-asset-related activities or exposures to the crypto-asset sector as well as activities involving the issuance or holding as principal of crypto-assets that are issued, stored, or transferred on an open, public, and/or decentralized network.
The Thailand Securities and Exchange Commission has launched the “SEC Crypto Academy”, a new platform providing foundational knowledge on digital assets and blockchain technology to the public via free e-learning media channels.
Payments & currency
Bank of Tanzania reports on CBDC progress
In a new statement, the Bank of Tanzania has shared an update on its national CBDC efforts to date and planned next steps. Stressing that it “has adopted a phased, cautious and risk based approach to adoption of CBDC”, the Bank indicated that it presently remains at a research stage. Led by a dedicated multidisciplinary technical team, the research focuses on assessing various aspects of a possible CBDC adoption in a Tanzanian context including but not limited to the type of CBDC to be issued, models for issuance and management as well as considerations in relation to remuneration and privacy. While not specifying a concrete timeline, the Bank noted that upon conclusion of the research phase, it will communicate its further ambitions including the decision on whether to move forward with a CBDC and, if so, details on the implementation roadmap.
JAM-DEX pilots government wage payment and onboards new bank as wallet provider
The Bank of Jamaica has successfully trialed the use of its CBDC JAM-DEX to facilitate the payment of government wages. As part of the limited-scale trial in the context of a Christmas work programme, three contractors as well as over 100 workers and over 70 small merchants were onboarded to the Lynk app, the main platform through which JAM-DEX can be transacted, to facilitate the receipt of wages in the CBDC and its subsequent spending at participating merchants, which included among other things market vendors and owners of food shops, restaurants and bars. In a subsequent , the Bank of Jamaica further announced the completion of the onboarding of a second bank, JN Bank Limited, as a wallet provider to distribute the country’s CBDC. The selected bank is in the process of finalizing its digital wallet application and is scheduled to make it available to the public later in the year. Several other providers are currently undergoing assessment in the central bank’s regulatory sandbox.
Digital Dollar Project expands team to further its research and experimentation agenda
The Digital Dollar Project has announced the expansion of its team through the addition of three new positions. The additional members include a new Policy Research Director, an Industry Engagement and Experimentation Director as well as an Operations Manager. The team expansion comes in support of further strategic growth of the non-profit’s policy 2023 research and experimentation as well as stakeholder engagement efforts through which it seeks to contribute to the national and international dialogue on CBDC.
The European Banking Authority has published the results of a peer review into practices adopted by EU national competent authorities for the authorization of payment institutions and e-money institutions under the Payment Services Directive (PSD2).
Other transversal themes
The New Self-Regulatory Organization of Canada and the Canadian Investor Protection Fund commence operations
The Canadian Securities Administrators have announced the formal launch of operations of the New Self-Regulatory Organization of Canada (New SRO) and the new Canadian Investor Protection Fund (CIPF). The CIPF integrates the Canadian Investor Protection Fund and the MFDA Investor Protection Corporation into a single fund and serves as the compensation fund that provides protection to eligible clients of member firms suffering losses if client property comprising securities, cash, and other property held by such member firms is unavailable as a result of the insolvency of the member firm. It is governed by an independent board of directors and its inaugural president and CEO, Toni Ferrari. The New SRO, in turn, consolidates the functions of the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada and is responsible for the oversight of all investment dealers, mutual fund dealers and trading activity on Canada’s debt and equity marketplaces. It is likewise headed by a newly appointed CEO, Andrew Kriegler, who is joined by an independent board comprising of 14 members. A new permanent name for the New SRO is planned to be selected during 2023.
UK PRA outlines 2023 supervisory priorities
The UK Prudential Regulation Authority (PRA) has in three separate letters set out the 2023 supervision priorities for deposit takers, insurance firms as well as international banks active in the UK. Specific priorities for each domain are as follows:
Financial resilience including a focus on risk management and governance Operational risk and resilience Financial risk arising from climate change Diversity, equity and inclusion
Implementing financial reforms Ease of market exit for insurers Non-natural catastrophe risk Financial risk arising from climate change Diversity, equity and inclusion
Financial resilience including a focus on risk management and governance Operational risk and resilience Financial risk arising from climate change Diversity, equity and inclusion
The Securities and Exchange Commission of Pakistan has issued Guidelines for Offering Islamic Financial Services. The guidelines are intended to foster the growth of Shariah-compliant financial products and addresses all financial sectors under the Commission’s regulated remit.
The European Securities and Markets Authority revealed its new logo. According to the Authority’s statement, the new logo is intended to reflect the twin drivers of its long-term strategy, sustainability and technological and data innovation.
Samir Sabharwal has been appointed as the new Executive Director of the Alberta Securities Commission, effective April 1, 2023.
Martin J. Gruenberg has been sworn in as the new Chairman of the U.S. Federal Deposit Insurance Corporation for a term of five years. He previously served as the Chairman from 2012 to 2018 and prior to that as Vice Chairman.
The UK Government and the Securities and Exchange Commission of Thailand have entered into a new MoU to further deepen their partnership in the financial sector with a view to promoting inclusive economic growth and supporting Thailand in the transition towards a low carbon and sustainable economy.
Key upcoming events
Event title and organizer
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