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
Visit Regxelerator’s new end-to-end automated and AI-powered regulatory news platform for ongoing updates. IAIS report finds consistent and strong implementation of holistic framework standards across ten major insurance markets EBA quarterly risk dashboard reveals positive capital and liquidity ratios for EU/EEA banks South African Reserve Bank establishes corporation for deposit insurance to promote financial stability Indonesia’s OJK considers financial services sector stable amid global volatility FATF joint experts meeting 2023 discusses new risks of money laundering, terrorism financing in New Delhi U.S. Treasury releases inaugural DeFi illicit finance risk assessment MAS hosts inaugural financial sector cloud resilience forum to discuss appropriate public cloud risk management practices FCA and ASA partner with influencer Sharon Gaffka to help fin-fluencers understand risks of promoting financial products GCC states join forces in unprecedented effort to combat financial fraud and misleading promotional campaigns Riksbank provides latest progress updates on e-krona in third report BIS study finds that CBDC could increase output and welfare by 6% and 2% respectively IAIS and Financial Stability Institute release online course to help insurance supervisors address climate change risks ISSB grants companies transitional reliefs to focus on climate change information in first year of reporting IOSCO publishes 2023-24 work programme
Prudential & financial stability
IAIS report finds consistent and strong implementation of holistic framework standards across ten major insurance markets
The International Association of Insurance Supervisors (IAIS) has released its report on the targeted jurisdictional assessment (TJA) of the implementation of their Holistic Framework standards, which are aimed at assessing and mitigating systemic risk in the insurance sector. The assessment, which was performed during 2021-22 across 10 major insurance markets including Canada, China, Hong Kong, France, Germany, Japan, the Netherlands, Switzerland, as well as the U.S. and the UK, found that the standards have been overall consistently and strongly implemented, indicating enhanced macroprudential supervisory practices. While some gaps in implementation were identified, overall most jurisdictions showed good levels of observance and implementation of the standards. Specific aspects assessed included requirements on macroprudential supervision, liquidity risk management and disclosures, supervisory powers of intervention, crisis management and planning, including recovery and resolution frameworks. The IAIS will continue monitoring implementation progress in other jurisdictions to inform their considerations of systemic risk in the insurance sector.
EBA quarterly risk dashboard reveals positive capital and liquidity ratios for EU/EEA banks
The European Banking Authority (EBA) published its quarterly Risk Dashboard for the EU/EEA banking sector. Overall, latest figures up until the end of Q4 2022 continue to indicate strong capital and liquidity ratios as well as increasing profitability. Specifically, the average Common Equity Tier (CET1) ratio further increased from 14.8% to 15.3% while the average Liquidity Coverage Ratio (LCR) also rose by over 2% to 164.7%. Average return on equity (RoE) underwent a significant increase from to 8% from 7.3% in the previous quarter, in part driven by the rise in net interest margins. Furthermore, the ratio of non-performing loan remained stable at 1.8% while the share of stage 2 loans decreased slightly by 0.2% to 9.4%, yet staying significantly above historical levels. While the contagion from the Silicon Valley and Credit Suisse related events was significant and caused a material drop in banks’ share prices as well as higher yields and wider credit spreads, direct exposures to EU/EEA banks were limited. Prompted by the total write-down of Credit Suisse AT1 holders, the AT1 markets were particularly negatively affected, Since late March, a partial recovery has been observed.
South African Reserve Bank establishes corporation for deposit insurance to promote financial stability
The South African Reserve Bank has established the Corporation for Deposit Insurance (CODI), a deposit insurance body to protect bank depositors and bring further confidence to the financial sector. CODI became a legal entity in late March 2023 and is due to become operational in 2024. It is responsible for establishing, maintaining and administering a deposit insurance fund and to inform depositors of its benefits and limitations in the event of a bank resolution. Development of supporting secondary legislation is underway and expected to be passed later in 2023. The establishment of CODI forms part of the Twin Peaks regulatory reforms and is overseen by an independent board. It has been collaborating with South African financial institutions and the World Bank to ensure a smooth implementation of the deposit insurance scheme.
Indonesia’s OJK considers financial services sector stable amid global volatility
The Financial Services Authority (OJK) has stated that the financial services sector remains stable despite global volatility caused by banking issues in the US and Europe. The OJK has assessed that the intermediation performance of financial services institutions is increasing, with capital and liquidity at adequate levels. In response to global economic dynamics, domestic economic indicators have recorded solid growth. However, public optimism and consumption have slightly declined as confirmed by a decrease in the Consumer Confidence Index and Retail Sales Index. The banking sector has experienced growth, with credit increasing by 10.64% YoY in February 2023, largely supported by investment credit.
AML & CFT
FATF joint experts meeting 2023 discusses new risks of money laundering, terrorism financing in New Delhi
The FATF Joint Experts Meeting 2023 was held in New Delhi this week, with over 140 experts from the FATF global network discussing new and emerging money laundering and terrorist financing risks, as well as ways to address them. Key focus topics covered during the 3-day event included cyber-enabled fraud, the misuse of citizenship and residency investment programs, and terrorist financing through crowdfunding, as well as hawala and similar service providers. Participants also discussed challenges faced by law enforcement authorities investigating and prosecuting money laundering and good practices and methods to overcome them. The event was hosted by the Indian Ministry of Finance, Department of Revenue and was opened by the FATF President Raja Kumar. The outcomes of the discussion will be further discussed at the June 2023 FATF Plenary in Paris.
U.S. Treasury releases inaugural DeFi illicit finance risk assessment
The U.S. Department of Treasury has published its inaugural DeFi illicit finance risk assessment report. The assessment, which is the first of its kind globally, reviews the risk associated with decentralized finance services. This includes an overview of DeFi market structure, the implications for illicit finance threats and vulnerabilities as well as an outline of mitigation options. In particular, the report assesses how actors such as the Democratic People’s Republic of Korea, cybercriminals, ransomware attackers, thieves and scammers exploit DeFi for transfer and launder their illicit proceeds, noting that “primary vulnerability that illicit actors exploit stems from non-compliance by DeFi services with AML/CFT and sanctions obligations.
Cyber & operational resilience
MAS hosts inaugural financial sector cloud resilience forum to discuss appropriate public cloud risk management practices
The Monetary Authority of Singapore (MAS) recently hosted the inaugural Financial Sector Cloud Resilience Forum (Forum) for Asia Pacific financial regulators and Cloud Service Providers (CSPs) to discuss appropriate public cloud risk management practices for the financial sector. The Forum was attended by representatives from various financial regulatory authorities and CSPs, such as Amazon Web Services, Google Cloud and Microsoft Azure. The Forum discussed the increasing adoption of public cloud services by financial institutions (FIs), and the need for CSPs to assist their FIs clients to maintain a high standard of operational resilience. The participants also called for greater information sharing between financial regulators and CSPs on cloud technology and cyber security risk management practices, to build collective competencies to address these risks. The Forum will convene twice a year.
Conduct & consumer protection
FCA and ASA partner with influencer Sharon Gaffka to help fin-fluencers understand risks of promoting financial products
The Financial Conduct Authority (FCA) and the Advertising Standards Authority (ASA) have partnered with influencer Sharon Gaffka to help inform fin-fluencers about the potential risks of promoting financial products. They are providing influencers and their agents with clear information and an infographic to explain what they should check before promoting a financial product or service. The FCA and ASA are concerned about the misuse of social media by influencers and the harm it can cause their followers. To help prevent this, they are offering training and advice to influencers and have taken action to amend or withdraw 8,582 promotions in 2022 and published 1882 consumer warnings on their website. The FCA will continue to collaborate with other regulatory partners for better results.
GCC states join forces in unprecedented effort to combat financial fraud and misleading promotional campaigns
The Kuwait Capital Markets Authority and other Gulf financial regulatory authorities have joined forces to coordinate initiatives to respond to the rise in financial fraud. Based on recommendations from a joint awareness task force and the direction of the Committee of the Heads of GCC Capital Markets Authorities, it was agreed to expand awareness efforts against misleading promotional campaigns and advertisement. To that end, links on the official website have been added to the lists of licensed and unlicensed entities as well as those entities whose licenses have been suspended by the Gulf authorities with a view to prompting consumers to validate licenses in advance of engaging in business with these entities. The Gulf authorities also encouraged individuals to submit reports about suspected or materialized fraud via the available official channels.
Payments & currency
Riksbank provides latest progress updates on e-krona in third report
Sweden’s Riksbank has published its third report on the e-krona. The work under Phase 3 comprised multiple workstreams and focus areas. Among other things, the Riksbank has assessed how it would interact with other actors in the payment market to provide access to a possible e-krona to the general public. The pilot further examined the option of carrying out conditional payments using the e-krona platform and completed a successful test in that regard, involving a customer buying a specific car at an agreed price, but on the condition that the payment was only made when the customer was registered as the owner of the car. Finally, the e-krona pilot also involved participation in the cooperation project with the Bank of Israel, Norges Bank and the Bank for International Settlements (BIS), to investigate whether digital central bank currencies could facilitate cross-border payments.
A new study by the Bank for International Settlements (BIS) has analyzed the macroeconomic and monetary policy implications of a CBDC in an open economy. Based on a quantitative model, the study examines (1) the consequences of transitioning to a CBDC economy, (2) the design of optimal simple rules for CBDC policy, in terms of interest rate or quantity, and (3) the open economy effects of introducing CBDC. The study finds that the introduction of an interest-bearing CBDC could bring about notable welfare gains that could amount to an increase in output and welfare of 6% and 2%, respectively.
IAIS and Financial Stability Institute release online course to help insurance supervisors address climate change risks
The IAIS and the Financial Stability Institute have released online training materials to help insurance supervisors understand the risks of climate change. The course covers a framework for climate scenario analysis and provides practical tips for supervisors. It is hosted on the Climate Training Alliance (CTA) platform, and IAIS members must register for an account in order to access it.
ISSB grants companies transitional reliefs to focus on climate change information in first year of reporting
The International Sustainability Standards Board (ISSB) has decided at their meeting on April 4th, 2023 to provide companies applying their first two standards (S1 and S2). Under this new relief, companies have the option to focus their efforts during year 1 of reporting under the ISSB standards on climate risk related disclosure as well as more broadly to prepare their systems for the new reporting requirements. From the second year onwards, companies will then be required to expand the reporting to other sustainability-related risks and opportunities. The new relief complements the previously introduced reliefs including the exemption to disclose Scope 3 GHG emissions and the option to release the annual sustainability-related disclosures at a different point in time than the annual financial statements.
Other transversal themes
IOSCO publishes 2023-24 work programme
The IOSCO has released its latest work programme for the period 2023-24. Priorities have been grouped under five main themes: (1) Strengthening financial resilience, (2) supporting market effectiveness, (3) protecting investors, (4) addressing new risks in sustainability and fintech, and (5) promoting regulatory cooperation and effectiveness. As part of its work under theme (4) on new risks in sustainability and fintech, the IOSCO will inter alia conduct comprehensive analysis of whether the IFRS international Sustainability Standards Board can serve as a global framework for climate disclosures standards against Board-agreed endorsement criteria, set out its vision and recommendations for assurance standards by the audit and ethics standard setters, as well as advance its work in relation to voluntary and compliance carbon markets. It will also maintain its focus on crypto, digital assets and DeFi and issue consultation reports in H1 and H2 2023, respectively, with the goal of finalizing its recommendations before year-end. Furthermore, in response to the risks, trends and vulnerabilities identified in its 2023 risk outlook, the Commission elevated private finance as a new priority under theme (1). “The renewed regulatory interest stems from the unprecedented growth of private finance activities and its increasing role in funding the real economy, combined with emerging concerns around the increasing interconnectivity of the sector with regulated public markets at a time of inflationary pressures, recessionary concern and monetary tightening”, the statement noted.
The Malta Financial Services Authority has appointed Kenneth Farrugia as the next Chief Executive Officer. His term will commence on April 12.
The Brunei Darussalam Central Bank and the Dubai Financial Services Authority have entered into a MoU to strengthen information exchange and cooperation including in relation to the licensing and supervision of cross-border establishments.
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