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. FDIC Board approves proposed rulemaking to recover costs of protecting uninsured depositors after Silicon Valley Bank and Signature Bank Closures BIS FSI paper explores the impact of rising interest rates on banking supervision HKMA releases new report on the use of network analytics to combat money laundering IOSCO publishes report on SPACs to help members enhance their regulatory frameworks RBI launches '100 Days 100 Pays' campaign to return unclaimed deposits to their rightful owners HK Insurance Authority releases latest issue of “Conduct In Focus” with a deep dive on chatbots U.S. FINRA and NFA expand memorandum of understanding to enhance investor protection for crypto assets BIS Innovation Hub Nordic Centre explores key aspects of CBDC offline payments in new comprehensive handbook Bank Indonesia and Bank Negara Malaysia launch cross-border QR payment linkage Buna launches new service to establish more accessible and secure foreign exchange market ECB seeks experts to join the Digital Euro infrastructure-related requirements and identification and authentication requirements workstreams ISSB calls for feedback on the international applicability of SASB Standards New ASIC report provides deep dive into greenwashing related interventions Malaysia’s Joint Committee on Climate Change delivers latest progress update Spain CNMV analysis reveals impact of climate change on investment funds and securities issuers IOSCO publishes good practices to enhance ETF principles and regulatory frameworks ESMA study highlights risks of EU natural gas derivatives markets and concentration of liquidity Abu Dhabi Global Market expands its jurisdiction CSA provides exemptions from filing requirements during SEDAR+ transition period
Prudential & financial stability
FDIC Board approves proposed rulemaking to recover costs of protecting uninsured depositors after Silicon Valley Bank and Signature Bank Closures
The FDIC Board of Directors has approved a proposed rule for a special assessment to recover costs associated with protecting uninsured depositors after the closures of Silicon Valley Bank and Signature Bank. The proposal aims to apply the assessment to banking organizations that benefited the most from the protection of uninsured depositors while ensuring fairness, transparency, and consistency based on the amounts of uninsured deposits. Under the Federal Deposit Insurance Act, the FDIC is required to recover any losses to the Deposit Insurance Fund resulting from protecting uninsured depositors through a special assessment. It estimates that approximately $15.8 billion of the total cost of the bank failures can be attributed to the protection of uninsured depositors. Large banks with significant uninsured deposits would be the primary subjects of the special assessment, with an estimated 113 banking organizations falling under its scope. Those with total assets over $50 billion would bear over 95 percent of the assessment burden, while banks with assets under $5 billion would be exempt. The FDIC proposes collecting the special assessment at an annual rate of approximately 12.5 basis points over eight quarterly assessment periods. However, the assessment rate remains subject to potential adjustments based on factors such as loss estimate changes, mergers or failures, and amendments to reported estimates of uninsured deposits. The impact of the special assessment is estimated to result in an average one-quarter reduction in income of 17.5 percent if realized in a single quarter. The assessment collection would begin in the first quarter of 2024, with an invoice payment date of June 28, 2024, and continue for a total of eight quarterly assessment periods.
BIS FSI paper explores the impact of rising interest rates on banking supervision
A new paper by the Bank for International Settlements (BIS) Financial Stability Institute examines the implications of rising interest rates on banking supervision. This article examines the implications of rising interest rates on banking supervision. It highlights the vulnerability of banks with long-term, fixed rate assets and shorter-term, less stable funding. The authors argue that regulatory requirements alone cannot address the risks posed by higher rates. Instead, the confluence of risks are more effectively addressed through a robust supervisory review process under Pillar 2. The principles-based nature of Pillar 2 may however result in divergent supervisory practices within and across jurisdictions. While this latitude may be necessary to accommodate jurisdiction-specific circumstances, any excessive discrepancies in implementation could lead to unwarranted fragmentation and could have an impact on financial stability. Consequently, there may be a case for additional guidance on the implementation of Pillar 2 to foster consistency and structure in supervisory decision-making.
AML & CFT
HKMA releases new report on the use of network analytics to combat money laundering
The Hong Kong Monetary Authority (HKMA) published a new report titled "AML Regtech: Network Analytics". The report offers a deep dive into the use of network analytics capability to strengthen banks’ AML systems including insights into banks already using the capability as well as expert perspectives to guide banks in their exploration and adoption of network analytics. It notes that the capability has already resulted in banks increasing the number of intelligence-led suspicious transaction reports by 319% in 2022 compared with 2021, leading to an increase of 113% in criminal proceeds restrained or confiscated.
Conduct & consumer protection
IOSCO publishes report on SPACs to help members enhance their regulatory frameworks
The International Organization of Securities Commissions (IOSCO) has published a report focusing on Special Purpose Acquisition Companies (SPACs). SPACs became the dominant method of going public in the United States and some other markets between 2019 and 2022, leading to concerns about market integrity and investor protection. In response to these concerns, several IOSCO members reviewed their regulatory frameworks for SPACs, while others considered developing new regulations. In 2021, IOSCO established a SPAC Network to gather information from its members. The recently published report summarizes the different approaches to SPAC regulation,
identifies a set of common approaches and sets out considerations for designing or fine tuning SPAC Frameworks. In particular, the report addresses three focus areas: dilution, retail participation, and liquidation. Dilution is a distinctive feature of SPACs, and the report suggests approaches to disclose and manage potential dilution. Retail investor participation in SPACs is relatively low, and various regulatory measures are in place to protect investors. The report highlights the challenges associated with the significant backlog of SPACs seeking targets or in the liquidation process, raising concerns about target selection, completion timelines, and fund returns to investors.
While the recent market turbulence and decline in capital market activity has led to a significant reduction in SPAC activity, it is expected that in many jurisdictions SPACs will continue to be a viable alternative route to capital markets, with their activity rebounding and/or further increasing in the future.
RBI launches '100 Days 100 Pays' campaign to return unclaimed deposits to their rightful owners:
The Reserve Bank of India has announced the '100 Days 100 Pays' campaign to encourage members of the public to identify and claim unclaimed deposits. Unclaimed deposits refer to balances in savings / current accounts which have not been operated for 10 years, or term deposits not claimed within 10 years from date of maturity and which are transferred by banks to the Depositor Education and Awareness Fund maintained by the Reserve Bank of India. The campaign, which will commence in June, will involve banks tracing and settling the top 100 unclaimed deposits of every bank in every district of the country within 100 days. This measure is intended to reduce the quantum of unclaimed deposits in the banking system and return them to their rightful owners. The Reserve Bank of India has also announced the setting up of a Centralised Web portal to search unclaimed deposits across multiple banks.
The Hong Kong Insurance Authority has published the latest edition of its “Conduct in Focus”, which includes a deep dive on the use of chatbots powered by large language models in an insurance context. Among other things, the deep dive provides perspective on how existing regulatory requirements would apply to chatbots as well as discusses the limitations and risks of these bots.
Within the context of a recent summary focused on crypto assets, the U.S. Financial Industry Regulatory Authority (FINRA) and National Futures Association (NFA) have agreed to expand their Memorandum of Understanding (MOU) to include information sharing and collaboration regarding crypto assets, blockchain technology developments and crypto asset regulatory risks, including with a view to strengthening investor protection.
Payments & currency
BIS Innovation Hub Nordic Centre explores key aspects of CBDC offline payments in new comprehensive handbook
The Bank for International Settlements (BIS) Innovation Hub Nordic Centre has published an exhaustive handbook on central bank digital currencies (CBDCs) and their application for offline payments. This follows a survey conducted by the centre, which revealed that almost half of the central banks deem offline payments with retail CBDCs vital, while another 49% consider it advantageous. The handbook is designed to assist central banks in comprehending the intricacies of implementing offline payment capabilities. It covers a broad range of topics including available technologies, security measures, threats, risk management measures, privacy issues, inclusion needs, resilience options, and potential operational and change management issues. It also includes an overview of the main reasons and usage scenarios for offline payments as well as a map of the technology components based on current market solutions. The guidance acknowledges that there is no universal solution, as each country has unique needs and requirements and that therefore the type and suitability of solutions for offline payments will vary by country.
Bank Indonesia and Bank Negara Malaysia launch cross-border QR payment linkage
Following successful completion of the pilot phase, the Bank Indonesia (BI) and Bank Negara Malaysia (BNM) have announced the commercial launch of the new Indonesia-Malaysia cross-border QR payment linkage. The new linkage enables Indonesians and Malaysians to make instant retail payments in either country by scanning Quick Response Code Indonesian Standard (QRIS) or DuitNow QR codes at physical stores or online merchants using services offered by participating financial institutions. Its launch is intended to not only increase convenience in payments but also to benefit the tourism and retail sector of both jurisdictions and thus contribute to stronger post-pandemic economic recovery.
Buna launches new service to establish more accessible and secure foreign exchange market
Buna, the cross-border payment system operated by Arab Regional Payments Clearing and Settlement Organization (ARPCSO) and owned by The Arab Monetary Fund (AMF), has announced the launch of a new service to establish a more accessible and secure foreign exchange (FX) market. The new service provides an open marketplace for FX deals to be made directly between financial institutions participating in Buna and enables safe and secure settlement of the resulting transactions. The Payment versus Payment mechanism is used to optimize liquidity in multiple currencies, create new business opportunities, and enhance the safety and efficiency of cross-border payments, in line with the agenda of the G20.
ECB seeks experts to join the Digital Euro infrastructure-related requirements and identification and authentication requirements workstreams
The European Central Bank (ECB) is calling on experts to join the work under the Digital Euro Scheme Rulebook. Specifically, the ECB is seeking experts to support the work of its infrastructure-related requirements workstream as well as the identification and authentication workstream. Work of the infrastructure workstream will involve developing a proposal for the rulebook in relation to technical and non-functional requirements covering relationships between intermediaries and end users, while the other workstream will focus on suggesting identification and authentication requirements for the digital euro, aiming to provide a best-in-class user experience and security. The workstreams will each run for two months starting later in May. Participation is not remunerated and all intellectual property rights will reside with the ECB.
ISSB calls for feedback on the international applicability of SASB Standards
The International Sustainability Standards Board (ISSB) is seeking feedback on a proposed methodology to enhance the international applicability of the Sustainability Accounting Standards board (SASB) Standards. Feedback from the consultation is intended to enable the ISSB to make targeted amendments to the SASB Standards, thereby ensuring that references within them are internationally applicable. The objective is to revise the metrics within the SASB Standards prior to IFRS S1 coming into effect in January 2024. The SASB are currently being applied by over 2,700 companies in more than 70 jurisdictions.
New ASIC report provides deep dive into greenwashing related interventions
The Australian Securities and Investments Commission (ASIC) has released a new report summarizing the regulatory action is has undertaken in response to greenwashing. In total, ASIC has made 35 interventions over the period from July 2022 to March 2023, which resulted in 23 corrective disclosure outcomes, 11 infringement notices issued as well as the commencement of civil penalty proceedings in one case. Specifically, the report provides details on ASIC’s intervention in relation to: (1) net zero statements and targets, use of terms such as ‘carbon neutral’, ‘clean’ or ‘green’, (3) fund labels, as well as the scope and application of investment exclusions and screens. Greenwashing represents one of the priority areas under ASIC’s latest enforcement strategy.
Malaysia’s Joint Committee on Climate Change delivers latest progress update
At its tenth meeting on 9 May 2023, Malaysia’s Joint Committee on Climate Change (JC3) reviewed developments in the financial sector’s response to climate-related risks and initiatives supported by JC3. JC3 is prioritizing the credible, consistent and reliable implementation of the Climate Change and Principle-based Taxonomy (CCPT). To align practices in the implementation of the CCPT, JC3 is publishing guidance, expanding use cases, developing due diligence and screening criteria, and addressing data gaps. JC3 is also reviewing the TCFD1 Application Guide for Malaysian Financial Institutions to take into account the requirements of the International Sustainability Standards Board (ISSB) standards. Furthermore, JC3 is also supporting three green pilot projects and several capital market initiatives to expand sustainable and transition finance. As a specific measure for SMEs, the Committee has also established a SME Focus Group to prioritize strategies and solutions that support transition by SMEs.
Spain CNMV Analysis Reveals Impact of Climate Change on Investment Funds and Securities Issuers
Spain’s National Securities Market Commission (CNMV) has published two working papers analyzing the impact of climate change on investment funds and securities issuers in Spain. The first analysis with focus on the measurement of transition risk in investment funds indicates that in the event of a disorderly transition scenario, investment funds would suffer an average loss of -5.7%. It further concludes that sustainable funds would perform better than the general sector of funds, and that Spanish investment funds present on average a lower transition risk than their European peers. The second paper, which analyzes Spanish issuers and their relationship with climate change including the incorporation of climate change challenges in corporate management, finds that there is a progressive decrease in greenhouse gas emissions from companies, with a 13.7% reduction between 2018 and 2021, mainly driven by scope 1 and part of scope 3 emissions. The authors caution that while large companies expect significant reductions in scope 1 and 2 emissions in line with the Paris Agreement and EU legislation, when considering scope 3 emissions with the mentioned limitations, the reductions may not be sufficient to meet the objectives.
Other transversal themes
IOSCO publishes good practices to enhance ETF principles and regulatory frameworks
The International Organization of Securities Commissions (IOSCO) has published Good Practices Relating to the Implementation of the IOSCO Principles for Exchange Traded Funds (ETFs). The Good Practices, which were developed through a comprehensive review of the ETF market and extensive stakeholder engagement, highlight issues for regulators, responsible entities and/or trading venues to consider when putting into practice the ETF Principles and other relevant IOSCO standards and guidance. The Practices are grouped into four main categories, each further specified via a set of measures. Highlights of the proposed Practices include the following:
Effective Product Structuring: Regulators and responsible entities are encouraged to consider a wide range of asset classes and investment strategies suitable for ETFs, taking into account factors such as their nature, novelty, and complexity. Transparency of the ETF's portfolio and the provision of relevant information to market participants should be ensured to facilitate effective arbitrage. Additionally, efforts should be made to enhance the accuracy and usefulness of iNAV, which aids in monitoring the ETF's performance. Disclosure: Regulators are encouraged to establish appropriate requirements for disclosures regarding ETF-specific aspects. This is particularly important for ETFs that invest in complex or novel asset classes or utilize intricate investment strategies. Disclosures should be presented in an understandable manner, addressing the risks associated with the ETF's strategies. Furthermore, disclosures of fees and expenses, including secondary market trading costs, should be provided to enable investors to make informed decisions. Liquidity Provision: Regulators and trading venues are encouraged to monitor secondary market trading and market-making activities of ETFs. Rules should be implemented to govern the orderly trading of ETF shares, ensuring sufficient liquidity for investors and maintaining market stability. Volatility Control Mechanisms: Regulators and trading venues should calibrate VCMs considering the liquidity profile and volatility profile of the ETF. In cases where an ETF is listed or traded on multiple venues, effective communication between the venues is encouraged when VCMs are triggered. This coordination helps in appropriately managing and responding to market volatility in a way that safeguards the interests of investors.
ESMA study highlights risks of EU natural gas derivatives markets and concentration of liquidity
The European Securities and Markets Authority (ESMA) has released a study on the structure and functioning of EU natural gas derivatives markets, and potential risks for financial stability. The study is intended to provide an overview of the structure and functioning of EU natural gas derivatives markets including the size and type of market participants. size as well as an analysis of the potential risks, drawing on the developments since Russia’s invasion of the Ukaine and the resulting impact on derivative prices and volatility. Among other things, the study finds that the annual turnover of natural gas derivatives on EU futures exchanges was EUR 4,150bn in 2022, with open positions of EU counterparties amounting to EUR 500bn. It further characterizes the market as highly concentrated, with liquidity and concentration risks identified as the main vulnerabilities in addition to concerns over a ack of transparency and bespoke margin and collateral requirements that have resulted from the migration of some activity from exchange-traded to over-the counter derivatives trading.
CSA provides exemptions from filing requirements during SEDAR+ transition period
In the context of the forthcoming upgrade of the System of Electronic Document Analysis and Retrieval (SEDAR) to SEDAR+, members of the Canadian Securities Administrators have announced exemptions from certain filing requirements. The exemptions will be in effect from June 9, 2023 until SEDAR+ becomes available (expected to be June 13, 2023). The exemptions will provide filers with an extension to file or deliver documents that would ordinarily be required to be transmitted during this time window.
Abu Dhabi Global Market expands its jurisdiction
Abu Dhabi Global Markets (ADGM) is expanding its jurisdiction as an international financial centre. The announcement follows the issuance of the UAE Cabinet Resolution No. 41 for 2023. The resolution expands ADGM’s jurisdiction as a Financial Free Zone to Al Reem Island, adjacent to its current home of Al Maryah Island, making it one of the largest concentrated Financial Districts in the world, with a combined geographic area of 1438 hectares. The expansion comes in response to increased demand from international companies and is seen as a key contributor to Abu Dhabi’s economic vision and diversification strategy. ADGM and its authorities are currently working with key government stakeholders and other local authorities to finalise the necessary transitional arrangements. This expansion will create one of the largest concentrated Financial Districts in the world and will position Abu Dhabi as a leading global city in the financial sector.
Leadership change and appointments
The Monetary Authority of Singapore has confirmed Ravi Menon’s re-appointment as Managing Director and a member of its Board a for two-year term from 1 June 2023 to 31 May 2025.
Rhys R. Mendes has been appointed as the Deputy Governor of the Bank of Canada, effective July 17 2023, with responsibility for overseeing economic and financial research and analysis of international economic developments.
The Financial Services Authority (OJK) of Indonesia has signed a Memorandum of Agreement (MoA) with the Korean Financial Supervisory Service (FSS) to further strengthen cooperation and engage in employee capacity building programs.
© 2023 REGXELERATOR