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. Prudential & financial stability ESAs launch public consultation to amend ECAI mapping regulations for credit risk IAIS publishes issues paper on insurance sector operational resilience ESAs seek stakeholders' input on criteria and fees for ICT third-party providers in DORA discussion paper ESMA publishes final report on market outages IOSCO unanimously supports global regulation of crypto-assets with detailed recommendations HK SFC releases consultation conclusions on regulatory requirements for virtual asset trading platform operators DFSA calls for evidence on crowdfunding ECB report confirms significant decline in card fraud in 2021 ECB investigation phase of digital euro project yields positive results Central Bank of Brazil selects 14 institutions to participate in digital real pilot project Malaysia SC sets up national Advisory Committee on Sustainability Reporting European Supervisory Authorities submit draft regulatory technical standards for ESG impact disclosure in STS securitisations Joint BCBS, IOSCO and CPMI report findings support international policy work to enhance transparency of initial margin requirements in centrally cleared commodities markets FSS, KRX, Prosecutors' Office, and FSC join forces to combat unfair trading activities in capital markets MAS and financial institutions join forces to launch AIDA talent development programme and consortium to tackle financial sector talent shortage in AI and data analytics New report examines Gen Z attitudes and behaviors towards investing OSFI launches policy architecture renewal initiative to streamline policy and guidance documents and support financial stability
Prudential & financial stability
ESAs launch public consultation to amend ECAI mapping regulations for credit risk
The Joint Committee of the three European Supervisory Authorities (ESAs) has launched a public consultation to amend the Implementing Regulations on the mapping of credit assessments of External Credit Assessment Institutions (ECAIs) for credit risk. The proposed amendments reflect the outcome of a monitoring exercise on the adequacy of existing mappings, including changes to the credit quality steps (CQS) allocation for four ECAIs and the introduction of new credit rating scales for seven ECAIs. The consultation runs until 26 June 2023, and a public hearing will be held on 7 June 2023.
Cyber & operational resilience
IAIS publishes issues paper on insurance sector operational resilience
Following consultation, the International Association of Insurance Supervisors (IAIS) has released the final version of its Issues Paper on insurance sector operational resilience. The paper addresses key issues impacting operational resilience with a focus on the three sub-topics cyber resilience, third-party outsourcing as well as business continuity management. For each of the topics it discusses the main challenges involved in addressing them and provides an overview of the available supervisory tools and techniques that can assist, complete with case studies on measures that peer supervisors and/or countries have adopted. The report also reviews the applicability and interaction of the Insurance core Principles vis-à-vis operational resilience more broadly as well as discusses how robust governance and board accountability at insurance firms and information sharing mechanisms between insurance supervisors and under the umbrella of public/private partnerships can contribute to ensuring proper operational resilience oversight. A public discussion session will be held on 31 May via webinar to present the Issues Paper and respond to stakeholder queries.
ESAs seek stakeholders' input on criteria and fees for ICT third-party providers in DORA discussion paper
The European Supervisory Authorities (ESAs) have issued for consultation a new discussion paper to clarify key aspects of the Digital Operational Resilience Act (DORA). The paper is composed of two main parts. The first one addresses proposals for identifying indicators to support the evaluation of critical third-party providers (CTPPs) in line with the four principal criticality criteria outlined under DORA. For each of the four criteria, it proposes a set of qualitative and quantitative indicators, along with the necessary information for interpreting these indicators and setting minimum relevance thresholds. The second part focuses on the proposed fees to be levied on CTPPs, discussing factors such as fee calculation methodology and the necessary types of expenses to be covered by these fees. Stakeholder input to the consultation will inform the finalization of the ESA’s joint technical advice to the European Commission, due by 30 September 2023.
ESMA publishes final report on market outages
The European Securities Markets Authority (ESMA) has published its final report on market outages. The report sets out the rationale for having a robust outage plan, provides guidance on communication protocols for trading venues with their stakeholders in case of an outage as well as lays out the steps trading venues should take to reopen trading in an orderly manner. The report follows a review report on algorithmic trading published in September 2021 where ESMA committed to provide further guidance on the approach to communication in the event of an outage.
Fintech & ecosystem innovation
IOSCO unanimously supports global regulation of crypto-assets with detailed recommendations
Under the umbrella of its cryptoassets roadmap, the IOSCO has issued for consultation a new paper that sets out detailed recommendations for the regulation of cryptoassets with a view to fostering consistency and harmonization as member jurisdictions continue to develop and evolve their regulatory frameworks to accommodate for cryptoassets activities. To that end, the paper sets out 18 specific recommendations, grouped into six thematic areas as follows:
Conflicts of interest arising from vertical integration of activities and functions Market manipulation, insider trading and fraud Cross-border risks and regulatory cooperation Custody and client asset protection Operational and technological risk Retail access, suitability, and distribution
The recommendations follow an outcomes-focused, principles-based approach that seek to address the key risks associated with cryptoassets activities. Core to the proposal is the notion articulated under the overarching Recommendation 1 that “the regulatory approach [for cryptoassets] should seek to achieve regulatory outcomes for investor protection and market integrity that are the same as, or consistent with, those that are required in traditional financial markets.”. Feedback to the consultation can be provided until July 31. A final report is planned to be published by the end of the year.
HK SFC releases consultation conclusions on regulatory requirements for virtual asset trading platform operators
The Securities and Futures Commission (SFC) has released the consultation conclusions on its proposed regulatory requirements under its new licensing regime for virtual asset trading platform operators, which it issued in late February this year. The proposed requirements, which encompass among other things requirements in relation to AML/CFT, fitness and properness, financial soundness, operations as well as dealing with clients and the custody of client assets, were largely endorsed by stakeholders. Following targeted amendments by the SFC in response to feedback received, the new requirements will come into force on June 1, as originally scheduled. As part of the consultation, the SFC had also sought views on its proposal to allow all types of investors, including retail investors, access to virtual asset trading platforms, in response to which it also received strong support. Additional guidance along with further implementation details will be made available in due course.
DFSA calls for evidence on crowdfunding
The Dubai Financial Services Authority (DFSA) has issued a call for evidence on crowdfunding. Intention of the call for evidence is to review the effectiveness of the DFSA’s existing crowdfunding framework as well as operational challenges and unintended consequences that have been encountered and/or observed. Specific questions raised for consideration focus on a broad range of matters including the appropriateness of current limits placed on retail clients’ participation, the ability to offer rewards or incentives to clients, issues associated with privileged access to confidential information where staff and their family members are permitted to participate in proposals on a crowdfunding platform and the management of conflicts of interest. The DFSA also seeks views on the potential benefits of offering tokenization as well as commercial property, refurbishment and short-term ownership of properties on crowdfunding platforms. Operators of crowdfunding platforms, their advisers and clients, applicants and other interested stakeholders can submit input until July 24.
Payments & currency
ECB report confirms significant decline in card fraud in 2021
The European Central Bank (ECB) has released the latest edition of its card fraud report. The report, which reviews both card-not-present fraud and card-present fraud, highlights that card fraud in 2021 has fallen to its lowest level since inception of the data collection, with card-not-present fraud declining by 12% year-on-year and card-present fraud by 6%, and attributes this to the implementation of strong customer authentication under the revised EU Payment Services Directive (PSD2) and the roll-out of global industry standards, which have been effective in reducing opportunities to commit magnetic stripe counterfeit fraud. Of the total value of fraud in 2021 of total value of EUR 5.40 trillion, card-not-present fraud accounted for 84% and cross-border transactions accounted for 63%.
ECB investigation phase of digital euro project yields positive results
The European Central Bank (ECB) has released two new reports on the ongoing digital euro project, with focus on its market research and prototyping exercises. To that end, the market research has highlighted that there are sufficient European providers with the capability to develop digital euro solutions, with varied architectural and technological designs available. As regards the prototyping exercises, the trials which were carried out between July 2022 and February 2023 have demonstrated the technical feasibility of incorporating a digital euro into the existing payment landscape, for both online and offline use with different technological designs. The exercise included the integration of five user interfaces developed by different providers for each use case (front-end prototypes) and a settlement system designed and developed by the Eurosystem (back-end prototype). Despite the favorable outcomes, it however remains questionable whether an offline solution that meets the Eurosystem's requirements and is of the required scale, can be achieved with the current technology.
Central Bank of Brazil selects 14 institutions to participate in digital real pilot project
The Central Bank of Brazil has announced the selection of 14 institutions to participate in the Digital Real Pilot Project from a pool of 36 proposals received from more than 100 institutions. The pilot program is intended to test privacy and programmability functionalities through the implementation of a specific use case – a federal public title delivery against payment (DvP) protocol between clients of different institutions. The Central Bank will begin incorporating the participants into the Real Digital Pilot platform by mid-June 2023.
Malaysia SC sets up national Advisory Committee on Sustainability Reporting
The Malaysia Securities Commission has set up a national Advisory Committee on Sustainability Reporting (ACSR) to support the implementation of the International Sustainability Standards Board (ISSB) Standards in Malaysia. The mandate of the ACSR involves identifying enablers that would support the implementation of the standards, including the approach and timeline for implementation, reliability of the information, and assurance of sustainability statements. The ACSR is chaired by the Securities Commission and comprises representatives from Bank Negara Malaysia, Bursa Malaysia, the Companies Commission of Malaysia, the Audit Oversight Board and the Financial Reporting Foundation.
European Supervisory Authorities submit draft regulatory technical standards for ESG impact disclosure in STS securitisations
The European Supervisory Authorities (ESAs) have submitted Draft Regulatory Technical Standards (RTS) to the European Commission that specify ESG disclosures for Simple, Transparent and Standardised (STS) securitisations under the Securitisation Regulation (SECR). The key proposals focus on residential loans, auto loans and leases. The standards are designed to ensure consistency with those developed under the Sustainable Finance Disclosure Regulation (SFDR), which differentiate between mandatory and additional indicators. The European Commission is expected to endorse the RTS within three months of their publication.
Other transversal themes
Joint BCBS, IOSCO and CPMI report findings support international policy work to enhance transparency of initial margin requirements in centrally cleared commodities markets
The Basel Committee on Banking Supervision (BCBS), the Bank for International Settlements’ Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) have published a joint report analyzing margin dynamics in centrally cleared commodities markets. Drawing on input from central counterparties (CCPs), the report examines margin calls in centrally cleared commodities markets during the volatility following the Russian invasion of Ukraine in 2022, assessing the dynamics of CCPs’ margin models, the use of discretion and its effect on margin procyclicality, and the other ways in which CCPs adapted their risk management during this period. The report finds that central counterparties are sensitive to the impact of margin calls on market participants and have introduced measures to limit the speed and size of initial margin requirement increases. It also finds that end users of commodities derivatives are concerned about the current level of transparency and predictability of CCPs' margin requirements, and that there is scope to improve the transparency and predictability of additional margin requirements applied by clearing brokers. The report’s findings will inform the international policy work set out in the BCBS-CPMI-IOSCO Review of margining practices, aimed at evaluating the responsiveness of initial margin models and enhancing the transparency of margin requirements in centrally cleared markets.
FSS, KRX, Prosecutors' Office, and FSC join forces to combat unfair trading activities in capital markets
At a joint conference on May 23, the Financial Supervisory Service (FSS), Korea Exchange (KRX), Seoul Southern District Prosecutors’ Office, and Financial Services Commission (FSC) discussed measures to stamp out unfair trading activities in capital markets. FSC Chairman Kim Joo-hyun opened the conference with remarks on the need for inter-agency cooperation to investigate and punish those suspected of breaking laws. The conference featured presentations on diversifying sanctions, strengthening early detection mechanisms, KRX’s handling of recent stock price manipulation cases, and an overview on the current status of unfair trading activities in capital markets. Authorities plan to review ways to freeze suspicious accounts, impose a penalty surcharge of up to twice the amount of unfairly gained profits, and ban capital market transactions for up to ten years. The FSC and FSS will also bolster coordination and collaboration and meet more regularly to check the overall response system.
MAS and financial institutions join forces to launch AIDA talent development programme and consortium to tackle financial sector talent shortage in AI and data analytics
The Monetary Authority of Singapore (MAS) has launched the Financial Sector Artificial Intelligence and Data Analytics (AIDA) Talent Development Programme to increase the supply of AIDA talent to build deep AI capabilities in the financial sector. The initiative is a joint effort between MAS and the Smart Nation and Digital Government Group and includes the establishment of an AIDA Talent Consortium with financial institutions, established training providers, and Institutes of Higher Learnings (IHLs). The consortium will facilitate the matching of participating FIs to the relevant training institutions and contribute their expertise in designing curriculums for AI-related modules. The programme will also include a whitepaper detailing the current AIDA talent landscape in the financial sector, a skills progression pathway, and financial sector case studies.
New report examines Gen Z attitudes and behaviors towards investing
The U.S. Financial Industry Regulatory Authority (FINRA) Investor Education Foundation and the CFA Institute have released a new report examining the attitudes and behaviors around investing among Gen Z. Specifically, the report reviews two Gen Z segments (ages 18 to 25) in the United States, namely hose with and those without any investment accounts, and compares them with their investing millennial and Gen X counterparts. It also profiles Gen Z investors in Canada, the United Kingdom and China. Key findings include that Gen Zs in the United States invest primarily in cryptocurrency and individual stocks, learn about investing and finances primarily through social media, internet searches and parents/family, and are willing to take substantial or above-average financial risks. Barriers to investing include lack of savings, not having enough income/living paycheck-to-paycheck and lack of knowledge about investing.
OSFI launches policy architecture renewal initiative to streamline policy and guidance documents and support financial stability
The Canadian Office of the Superintendent of Financial Institutions (OSFI) has launched a new so-called Policy Architecture Renewal (PAR) initiative. Objective of the initiative is to simplify policy and guidance documents by reducing redundancy and duplication, reorganizing documents in a more understandable manner, and increasing consistency in how information is written and presented. The initiative forms an integral part of OSFI’s Blueprint for Transformation, which aims to support financial stability and establish OSFI as a global leader in prudential policy. A stakeholder consultation on the initiative is planned for this summer.
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