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
The roundup offers a curated selection of regulatory updates and events. For a complete listing of all developments and events with easy filtering and search options, visit Regxelerator’s dedicated and/or the . ESMA launches review into the marketing of financial products under MIFID II U.S. CFPB address consumers risks associated with negative option subscription services EIOPA and ESMA release annual reports on products costs and performance New BIS paper provides technical overview of DeFi Thai SEC expands digital asset regulations with additional requirements for digital wallet management U.S. SEC maintains strong crypto enforcement stance with two new actions U.S. FinCen calls out the virtual currency exchange Bitzlato as a “Primary Money Laundering Concern” in Connection with Russian Illicit Finance U.S. federal prosecutors seize USD 700 million in assets related to Sam Bankman-Fried U.S. CFTC Commissioner shares perspectives on lessons learned from the FTX implosion Chile Financial Market Commission commences implementation of new Fintech Act CPMI, BIS Innovation Hub, IMF and World Bank issue joint report on multilateral platforms ECB releases stocktake document on digital euro and seeks input on technical solutions Bank of Japan releases paper on privacy enhancing technologies Digital Dollar Project issues revised version of its inaugural white paper on “Exploring a U.S. CBDC” Federal Reserve Board shares details on upcoming pilot climate scenario analysis exercise EU has launched a new multi-country project to enhance sustainable finance supervisory capacity in Croatia, Malta and Poland. South Korea Financial Services Commission looks to implement new measures to improve capital market regulations FSB releases progress report on the implementation of the reforms for strengthening the oversight and regulation of non-bank entities
Market conduct & consumer protection
ESMA launches review into the marketing of financial products under MIFID II
The European Securities and Markets Authority (ESMA) has announced the launch of a new so-called common supervisory action to review marketing practices of financial products across the EU. The review, which will be carried out in cooperation with national competent authorities, will focus on the application of the MiFID II disclosure rules with respect to marketing communications by investment firms and credit institutions. Specifically, under the review it will be assessed whether marketing communications and advertisements are fair, clear and non-misleading and how firms select the target audience for the marketing communications, specifically in relation to riskier and more complex investment products. ESMA further noted that it is also looking to leverage the exercise to gather information about possible greenwashing practices.
U.S. CFPB address consumers risks associated with negative option subscription services
The U.S. Consumer Financial Protection Bureau (CFPB) has released a new circular to address the issues and risks associated with so-called “negative option” subscription services. Negative option marketing, according to the CFPB statement, refers to a term or condition under which a seller may interpret a person’s silence or failure to cancel an agreement as continued acceptance of the offer and can, depending on how it is practiced, represent a violation of the Consumer Financial Protection Act’s prohibition on unfair, deceptive, or abusive acts or practices. The new circular specifies that such a violation is present if firms engaging in these practices (a) fail to disclose to consumers the material terms of the negative option offer including the fact that charges will continue unless the consumer takes affirmative steps to cancel, (b) fail to obtain the consumer’s informed consent, and/or (c) mislead or impede consumers wishing to cancel. The circular comes in response to a wave of consumer complaints over such practices. Among other things, the CFPB found that firms often create undue complexities for consumers who wish to cancel these subscriptions including requiring repeated contact to customer service agents or subjecting them to extensive response times for cancellation requests.
The European Insurance and Occupational Pensions Authority (EIOPA) and the European Securities and Markets Commission (ESMA) have released their annual reports on the costs and performance of insurance and pensions products as well as retail investment products. Besides conventional products, the reports also review the costs and performance of products with an ESG-nexus relative to their non-ESG peers. Key findings from the report will be further discussed during a dedicated webinar in early February (see events below).
Fintech & ecosystem innovation
New BIS paper provides technical overview of DeFi
The Bank for International Settlements has released a new paper focused on DeFi. The paper is intended to provide an overview and classification of DeFi. To that end, it provides a comprehensive definition of DeFi and its key characteristics as well as introduces a conceptual DeFi stack reference model to illustrate and specify the technical primitives, financial functions, and compositions of DeFi protocols conceptually as encapsulated in the model’s three layers: (1) the settlement layer, (2) the distributed ledger technology application layer, and (3) the interface layer. In addition, the paper sets out a cryptoassets taxonomy and highlights the specific use of cryptoassets in a DeFi context, as well as offers an overview of different DeFi protocols and their interaction through DeFi compositions that enable the provision of new financial services through the combination of multiple protocols.
Thai SEC expands digital asset regulations with additional requirements for digital wallet management
The Thailand Securities and Exchange Commission (SEC) has issued three new digital asset regulations with a view to strengthening digital wallet management systems of digital asset business operators and the custody of digital assets and keys. Among other things, the new regulations require the establishment of policies, guidelines and procedures for the design, development and management of digital wallets as well as the creation, maintenance and access to keys designing, including the associated risk management. The regulations also mandate operators to create contingency plans to accommodate for incidents that could impact the management system of digital wallet and keys.
U.S. SEC maintains strong crypto enforcement stance with two new actions
The U.S. Securities and Exchange Commission (SEC) continues its strong enforcement stance vis-à-vis bad crypto actors. Following charges during the first half of January against Genesis and Gemini in response to the unregistered sale and offer of crypto asset securities as well as charges against several individuals perpetrating a fraudulent crypto investment scheme that raised more than USD 45 million, the SEC has taken two additional actions in a matter of a week. This involves action against the crypto platform Nexo Capital with a fine of USD 22.5 million over the platform’s failure to register the offer and sale of its retail crypto asset lending product after the Commission’s review concluded that the product constituted a security that was not eligible for a registration exemption. The fine was mirrored by an equal amount of fines levied by state regulatory authorities against the firm. In addition, the Commission also issued against a U.S. citizen for orchestrating an attack on a crypto asset trading platform by manipulating the platform’s governance token that was offered and sold as a security.
U.S. FinCen calls out the virtual currency exchange Bitzlato as a “Primary Money Laundering Concern” in Connection with Russian Illicit Finance
In parallel to the U.S. SEC’s actions, the U.S. Financial Crimes Enforcement Network (FinCEN) has issued an order against the virtual currency exchange Bitzlato, identifying it as a primary money laundering concern in connection with Russian illicit finance. FinCEN’s investigation found that the exchange critically contributes to laundering convertible virtual currency by facilitating illicit transactions for ransomware actors operating in Russia including those with ties to the Russian Government. This order constitutes the first order issued pursuant to the new section 9714(a) of the Combating Russian Money Laundering Act, which grants FinCEN with certain rights to take action in such circumstances. Specifically, the order requires covered institutions to cease all transmittals of funds, including convertible virtual currency, from or to Bitzlato, or from or to any account or convertible virtual currency address administered by Bitzlato, as well as to incorporate the Bitzlato’s determination as being of primary money laundering concern into their AML/CFT program.
As part of their ongoing efforts in the investigation in the FTX case, U.S. federal prosecutors have now seized approximately USD 700 million in assets associated with Sam Bankman-Fried. This involves the previously announced seizure of over ~USD 525 million of Robinhood shares as well as the seizure of additional accounts identified since then in multiple accounts that are linked to FTX, including cash and assets held at Binance’s crypto exchange.
In a keynote address at the Wharton School and the University of Pennsylvania Carey Law School, CFTC Commissioner Christy Goldsmith Romero shared her perspectives on the FTX implosion. In her remarks, she outlines seven lessons learned, discussing among other things the role of trust, the failure of gatekeepers and the critical importance of corporate governance as well as sets out her views on the steps that the crypto industry can take to start regaining trust and how this should be cemented by targeted changes to the legislative framework.
The Chile Financial Market Commission has officially launched the implementation of its new Fintech Act, which is due to come into force in early February. The implementation will involve the issuance of over 70 regulations over a period of 18 months.
Payments & currency
CPMI, BIS Innovation Hub, IMF and World Bank issue joint report on multilateral platforms
Building on the initial article released in July 2022, the Committee on Payments and Market Infrastructure (CPMI), the Bank for International Settlement’s Innovation Hub, the International Monetary Fund and the World Bank have released a joint report discussing the potential of multilateral platforms for cross-border payments. The work on multilateral platforms, which are defined as “a payment system intended for payments between payers and payees in different jurisdictions”, represents one of the nineteen building blocks of the G20 roadmap for enhancing cross-border payments. The report further details the roles and types of multilateral platforms, presents an overview of the current platforms in development and operation, discusses their potential contribution to addressing some of the current frictions in cross-border payments as well as the risks, challenges and barriers associated with their operation. Based on these considerations and the recognition of their potential, the paper assesses two conceptual implementation approaches for increasing the role of these platforms. This includes a growth approach under which existing multilateral platforms are expanded to additional jurisdictions, currencies and participants and a greenfield approach that would involve the design of new platforms.
ECB releases stocktake document on digital euro and seeks input on technical solutions
The European Central Bank (ECB) has released a stocktake document on the digital euro. The document summarizes the key arguments in favour of and main design principles for a digital euro as well as outlines the roadmap of activities for 2023. The release of the document follows a from market participants for information on the technical design of a possible digital euro. Specifically, the ECB is seeking to gain a better understanding of the potential solutions for the digital euro’s components and services and the options for a digital euro technical architecture, such as data centres, network services, supplemented by details on the anticipated operating costs and considerations for their development and maintenance. Insights from the market feedback are intended to inform the ECB Governing Council’s decision during the second half of 2023 on whether to move forward with a realization phase. Ahead of the decision, several other milestones are planned, including the launch of the drafting process for a scheme rulebook in February as well as the release of a new report in Q2 on the findings of the prototyping exercise and the second round of focus group research.
The Bank of Japan’s Payment and Settlement Department has released a new paper on privacy enhancing technologies as part of its broader work on privacy protection and handling of end-user information. The paper describes six different technologies that contribute to privacy protection, discusses their application to payments and financial services as well as highlights at a high level their relevance in a CBDC context.
The Digital Dollar Project has released an updated version of its inaugural white paper on “Exploring a U.S. CBDC”. Among other things, the revised paper provides an updated view on the global status of CBDC exploration, shares an updated perspective on the key tenets for a digital dollar as well as highlights the Project’s contributions to shaping the dialogue on CBDCs domestically and internationally.
Federal Reserve Board shares details on upcoming pilot climate scenario analysis exercise
The U.S. Federal Reserve Board has released additional details on its inaugural climate scenario analysis exercise, which it initially announced at the end of 2022. The exercise, which will involve participation from six U.S. bank holding companies, is intended to improve the banks’ and supervisors’ capability to identify, measure, monitor and manage climate-related financial risks. To that end, the exercise has been designed to comprise of a separate and independent physical risk module and transition risk module. The physical risk module entails a common physical risk shock with varying levels of severity that is applicable to all participants and affects their residential and commercial real estate portfolios as well as an additional idiosyncratic physical risk shock specified by each participant individually based on the most material risks to their respective real estate portfolios. Under the transition module, banks are due to assess the impact on their corporate loan and commercial real estate portfolios using the two opposite NGFS scenarios “current policies” and “net-zero by 2050”. The former is grounded in the assumption that only currently implemented policies are preserved, leading to high physical but low transition risks, while the latter assumes that global warming can be limited to 1.5 °C thanks to the immediate implementation of ambitious climate policies, which in turn leads to moderate transition risks. Besides the assessment of the quantitative impact of climate change under these modules, the participating banks must also share qualitative information including on their governance and risk management practices, measurement methodologies, risk metrics and data challenges. Following completion of the exercise in mid-2023, the Board is expected to release report with aggregate findings by the end of the year.
The EU has launched a new multi-country project to enhance supervisory capacity in the area of sustainable finance. Under the project, the national competent authorities of Croatia, Malta, Poland and Romania will receive dedicated support from the EU in building out their expertise and capacity with respect to sustainable finance with a view to assisting the authorities in successfully driving forward the sustainable finance reform agenda in their respective countries.
Other transversal themes
South Korea Financial Services Commission looks to implement new measures to improve capital market regulations
On the heels of its latest financial regulatory innovation committee, the South Korea Financial Services Commission (FSC) announced new plans to improve the regulations in its capital markets and bring them in line with international standards and practices. Under the initiative, the Commission is looking to enhance foreign investor access to and attractiveness of South Korea’s capital markets through three targeted measures including by (1) eliminating the existing foreign investor registration system and instead enabling investments through a more streamlined identification process based on personal passport numbers and corporate legal entity identifiers, (2) increasing the availability of OTC transactions for foreign investors, and (3) expanding the English disclosure requirement on material information for listed firms with assets equivalent of or exceeding KRW 10 trillion (~USD 8 billion). In addition, the FSC is also planning to establish a regulatory framework for the issuance and distribution of security tokens and to promote the development of a safe secondary market. Further details on the planned measures are scheduled to be released in the coming weeks, the FSC noted.
The Financial Stability Board has released a new progress report on the implementation of the reforms for strengthening the oversight and regulation of non-bank entities. It finds that while in many areas robust progress has been achieved, implementation of recommendations for dampening procyclicality and other financial stability risks associated with securities financing transactions remains incomplete and delayed in most jurisdictions.
The National Association of Insurance Commissioners has announced its 2023 committee and task force chairs and vice chairs as well as assigned members to its standing committees.
Louis Morisset, current President and CEO of the Quebec Autorité des marchés financiers, has announced that he will not be seeking a third term and leave the organization at the end of his term on July 1, 2023.
The Japan Financial Services Agency and the European Central Bank have entered into a MoU on the cooperation and exchange of information for jointly supervised entities.
The State Bank of Vietnam and the Bank of the Lao have signed a MoU with a view to strengthening cooperation in the areas of financial innovation and payments systems.
Key upcoming events
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