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 BIS’ Carstens urges banking supervisors to strengthen independence, resources, and technology for crisis prevention ESMA launches fifth stress test exercise for EU and UK central counterparties ECB launches public consultation on counterparty credit risk governance and management BIS Innovation Hub Project Aurora successfully concludes FATF-MENAFATF publish mutual evaluation results for Qatar CBUAE issues new AML/CFT guidance on risks related to virtual asset and virtual asset service providers ADGM launches inaugural ML/TF risk assessment report focused on legal persons and arrangements EBA launches public consultation on amendments to ML/TF risk factors and guidelines on crypto-asset service providers UK FCA bans referral fees for debt packagers to help struggling consumers CSA launches review of chargebacks in mutual fund industry to enhance investor protection MAS and Google Cloud sign MoU to advance responsible generative AI solutions and technologist development U.S. CFTC Division of Clearing and Risk issues advisory on risks associated with an expansion of derivatives clearing organizations of products to digital assets CPMI launches expert panel to harmonize API Protocols for cross-border payments Bank of Mauritius invites public to provide views and suggestions on Digital Rupee Cash and debit cards remain most widely used payment instruments in Switzerland, despite increase in mobile payment app usage Dutch Minister of Finance proposes legislative measures to preserve cash availability and affordability Central Bank of Brazil releases study on tokenized finance NGFS releases guide on emerging practices in climate transition plans ESAs publish progress reports on risk of greenwashing MAS and Elevandi to focus on AI in financial services in 2023 edition of the Singapore Fintech Festival EBA launches public consultation on draft RTS and ITS for supervisory colleges under CRD ECB data reveals further decline in bank offices and employees in the EU, with wide variations in banking sector concentration CSA announces deferral in launch date for SEDAR+, confirms flat-fee model to reduce system fee costs by seven per cent
Prudential & financial stability
BIS’ Carstens urges banking supervisors to strengthen independence, resources, and technology for crisis prevention
Agustín Carstens, General Manager of the Bank for International Settlements (BIS), spoke at the European Banking Federation's International Banking Summit about the importance of investing in banking supervision. He argued that rising interest rates have challenged some banks, and that the main cause of recent bank crises was the failure of directors and senior managers to fulfil their responsibilities. He highlighted the need for supervisors to have operational independence, strengthen their forward-looking culture, and adopt a more intrusive stance. He also emphasized the need for supervisors to have sufficient resources and the right skills to keep up with relevant developments, as well as the use of technology to enhance the supervisory process.
ESMA launches fifth stress test exercise for EU and UK central counterparties
ESMA, the EU's financial markets regulator and supervisor, has launched its fifth Stress Test Exercise for Central Counterparties (CCPs) under the European Markets Infrastructure Regulation (EMIR). The exercise includes fourteen CCPs authorized in the EU and two UK CCPs classified as Tier 2. The CCP Stress Test framework assesses the resilience of CCPs to a range of risks, including credit, concentration, liquidity, and climate risk. The exercise also includes a new adverse market scenario developed by the European Central Bank, in collaboration with the ESRB and ESMA. Results of the exercise are expected to be published in H2 2024.
ECB launches public consultation on counterparty credit risk governance and management
The European Central Bank (ECB) is launching a public consultation on its report on “Sound practices in counterparty credit risk governance and management”. The report presents a summary of a targeted review carried out in 2022 on the governance and management of counterparty credit risk and summarizes good practices as well as areas for improvement. In particular, the review found that, despite some progress, there remain shortcomings in areas such as customer due diligence, risk appetite, default management processes and stress testing frameworks. Feedback to the report can be submitted until 14 July 2023.
AML & CFT
BIS Innovation Hub Project Aurora successfully concludes
The BIS Innovation Hub's Nordic Centre has successfully concluded Project Aurora, a proof of concept that explored new ways of combating money laundering with a combination of payments data, privacy-enhancing technologies, artificial intelligence (AI) and enhanced cooperation across institutions and borders. The project leveraged a comprehensive synthetic data set that was encrypted and employed advanced privacy-enhancing technologies and machine learning algorithms to detect various patterns associated with money laundering activities. The results evidenced that methods involving the use of advanced analytics and technologies that adopt a behavioural-based analysis approach, which focuses on understanding the relationships between different individuals and businesses and identifying anomalies from normal behaviour are more effective in detecting money laundering networks than the current rules-based approach. The project was successfully delivered in partnership with Lucinity, an Icelandic AI software-as-a-service company in the field of financial crime compliance.
FATF-MENAFATF publish mutual evaluation results for Qatar
The Financial Action Task Force (FATF) and the Middle East and North Africa Financial Action Task Force (MENA FATF) have concluded the mutual evaluation of Qatar. The assessment found that Qatar is overall compliant or largely compliant with all 40 recommendations. Among other things, the findings highlight that Qatar has implemented a strong legal and institutional framework for combating money laundering and terrorist finance and that it has achieved a substantial level of effectiveness in areas such as risk assessment, supervision, and sanctions.
CBUAE issues new AML/CFT guidance on risks related to virtual asset and virtual asset service providers
The Central Bank of the UAE (CBUAE) has issued new AML/CFT guidance for its licensed financial institutions addressing the risks associated with virtual assets and virtual asset service providers. The guidance, which builds on the FATF standards, discusses the risks arising from dealing with virtual assets and virtual asset service providers and sets out key requirements for licensed institutions when opening new accounts for these providers as well as measures that must be implemented including in relation to customer due diligence and transaction monitoring with respect to virtual asset service provider customers and virtual asset related customer transactions. The guidance will come into effect within one month.
ADGM launches inaugural ML/TF risk assessment report focused on legal persons and arrangements
Abu Dhabi Global Markets (ADGM) has launched its inaugural money laundering and terrorist financing (ML/TF) risk assessment of ADGM legal persons and arrangements (LPA) report. The new assessment addresses the specific ML/TF risks associated with each of ADGM’s 16 distinct legal person and arrangements and is designed to supplement and support the UAE's national LPA risk assessment. The underlying model builds on the FATF’s recommendations as well as other national best practices and employs a systematic approach to evaluate threats, inherent vulnerabilities, the probability of exploitation and the effectiveness of mitigation actions for each LPA type. A panel discussion featuring leading experts from UAE government and industry is scheduled for Thursday 8 June at ADGM to discuss the findings of the report.
EBA launches public consultation on amendments to ML/TF risk factors and guidelines on crypto-asset service providers
The European Banking Authority (EBA) has launched a public consultation on amendments to its guidelines on money laundering and terrorist financing (ML/TF) risk factors. The proposed changes extend the scope of the guidelines to crypto-asset service providers (CASPs) and are intended to provide for common, regulatory expectations of the steps CASPs should take to identify and mitigate these ML/TF risks as well as include new sector-specific guidance for CASPs, which highlights factors that may indicate their exposure to higher or lower ML/TF risk. Furthermore, the guideline also introduces guidance to other credit and financial institutions on risks to consider when engaging in a business relationship with a CASP or when otherwise exposed to crypto assets. The consultation complements the EBA’s ongoing consultation on its amended risk-based supervision guidelines that outline CASP-specific guidance for AML/CFT supervisors. Responses to the amended ML/TF risk factor guideline can be submitted until the end of August. A virtual public hearing on the consultation paper is scheduled for 7 June 2023.
Conduct & consumer protection
UK FCA bans referral fees for debt packagers to help struggling consumers
The UK Financial Conduct Authority has banned certain providers of debt advice from receiving referral fees from debt solution providers, in order to save consumers struggling with debt thousands of pounds in unnecessary fees and ensure they receive better quality advice. This ban will put a stop to the business model which incentivises debt packagers to recommend certain options that make them more money rather than what is in the customer’s best interest. The FCA has seen evidence of debt packagers manipulating customers’ details and using persuasive language to promote products without explaining the risks involved. Existing debt packager firms have been given four months to adapt or face regulatory action, and the ban is effective immediately for new entrants to the market. Consumers who need help with their debts can get free and impartial advice from the MoneyHelper website provided by the Money and Pensions Service.
CSA launches review of chargebacks in mutual fund industry to enhance investor protection
The Canadian Securities Administrators (CSA) is launching a review of the use of chargebacks in the mutual fund industry due to potential conflicts of interest. This review is part of the CSA's 2022-2025 Business Plan and will involve a survey of securities registrants and Canadian Investment Regulatory Organization (CIRO) staff participation. Chargebacks involve a compensation practice where a dealer or dealing representative is paid upfront commissions and/or fees when their client purchases securities and then pays back all or part of the upfront commission/fees when the investor redeems their securities before a fixed schedule. The CSA is committed to enhancing investor protection and determining whether further regulatory reform is needed to align certain mutual fund sales practices with the interests of clients. The review follows the review of the practices of mutual funds that have principal distributor relationships with registrants to distribute their securities, announced in September 2022. The CSA will use the information obtained from both reviews to determine whether regulatory amendments to National Instrument 81-105 Mutual Fund Sales Practices or other instruments are needed.
Fintech & ecosystem innovation
MAS and Google Cloud sign MoU to advance responsible generative AI solutions and technologist development
MAS and Google Cloud have signed an MoU to collaborate on generative AI solutions grounded in responsible AI practices. The partnership will explore technology opportunities to advance the development and use of responsible generative AI applications within MAS, as well as cultivate technologists with deep AI skillsets. The MoU covers three areas: identifying potential use cases, conducting technical pilots, and co-creating solutions; cooperating on responsible generative AI technology application development; and supporting the technical competency development on responsible generative AI. Google Cloud's generative AI technologies and capabilities include Vertex AI Model Garden, Generative AI Studio, Generative AI App Builder, and skilling and certification programmes.
U.S. CFTC Division of Clearing and Risk issues advisory on risks associated with an expansion of derivatives clearing organizations of products to digital assets
The U.S. Commodity Futures Trading Commission’s (CFTC) Division of Clearing and Risk (DCR) has issued an advisory on the risks associated with the expansion of Derivatives Clearing Organization (DCO) clearing of digital assets. The DCR notes that it has observed increased interest by DCOs and DCO applicants in expanding the types of products cleared and business lines, clearing models, and services DCOs offer, including related to digital assets. The advisory emphasizes that DCO applicants and registrants are expected to implement appropriate risk mitigation measures to accommodate for the added risks associated with digital assets. DCR on its part will place particular emphasis on assessing DCO’s compliance with requirements on system safeguards, physical settlement procedures, and conflicts of interest, the advisory states.
Payments & currency
CPMI launches expert panel to harmonize API Protocols for cross-border payments
The Committee on Payments and Market Infrastructures (CPMI) has established an expert panel to address the harmonization of application programming interface (API) protocols for cross-border payments and is calling for experts to join the panel. APIs play a crucial role in facilitating efficient and faster cross-border payments by enabling timely data exchange and reducing manual intervention. To that end, the panel will assess proposals for API standards in cross-border payment information exchange, develop recommendations for greater API harmonization, and create a long-term global governance proposal and process with the objectives is to improve the speed, transparency, and accessibility of cross-border payments while reducing costs. The panel will consist of approximately 20 members, with representation from both public and private sectors. Central banks, financial infrastructures, payment service providers, and industry associations are invited to nominate API experts for the panel.
Bank of Mauritius invites public to provide views and suggestions on Digital Rupee
The Bank of Mauritius has released a public consultation paper on the issuance of a Central Bank Digital Currency (CBDC), the Digital Rupee. The release of the paper follows technical assistance by the IMF. The Bank is planning to roll out the Digital Rupee under a pilot phase in November this year. To that end, the consultation paper outlines several considerations for a potential Digital Rupee. Among other things, it proposes the adoption of a two-tier structure under which the Digital Rupee would be issued to commercial banks, which would then distribute it to their customers. Desired features highlighted in the paper include inter alia an offline capability, 24/7/365 availability as well as programmability. The CBDC would furthermore be interest-free. Stakeholders are invited to express their views on consultation document through an online survey by 16 June.
Cash and debit cards remain most widely used payment instruments in Switzerland, despite increase in mobile payment app usage
The Swiss National Bank conducted a survey in autumn 2022 to investigate payment methods of private individuals in Switzerland. Results showed that the shift from cash to cashless payment methods is continuing, although at a slower pace than in previous years. Mobile payment apps are likely to play an increasingly important role for the population. Despite this, the population desires for cash to remain available as a payment method. The survey found that cash and debit cards are the two most widely owned payment instruments, with mobile payment apps showing a strong increase in ownership. Cash is still used in 36% of transactions, with debit cards and credit cards being used in 33% and 13% of transactions respectively. Mobile payment apps are being used increasingly often, with their value share doubling to 8%. Online banking transfers are the most significant instrument for recurring payments. Finally, the study also finds that while the population is satisfied with the extent of cash acceptance and infrastructure in Switzerland, it would be prepared to reduce their use of cash if the infrastructure were to be reduced or if fees were to be raised for cash withdrawals.
Dutch Minister of Finance proposes legislative measures to preserve cash availability and affordability
The Minister of Finance of the Netherlands has taken initiative to preserve cash by proposing legislative measures to prevent a further deterioration in the availability and affordability of cash facilities. The initiative comes on the back of a study commissioned by the Ministry of Finance and De Nederlandsche Bank (DNB) on the future structure of the system for banknote and coin deposits and withdrawals for consumers and retailers. The legislative measures announced are intended to prevent a further deterioration in the availability and affordability of cash facilities. In particular, the Minister is looking to secure the accessibility of ATMs while also ensuring that there will be no charges to banks’ retail consumers when withdrawing cash from ATMs.
Central Bank of Brazil releases study on tokenized finance
The Central Bank of Brazil (BC) has published a new study titled "Digital Real: A Platform for Tokenized Finance,", discussing how the Digital Real and tokenized versions of digital currencies issued by entities regulated by the Central Bank can meet the demand for a digital representation of liquidity in a tokenized finance environment. In particular, the report highlights the accelerating transition to a digital economy where tokens play a prominent role. Among other things, it elaborates on the critical role of CBDCs in facilitating innovation in financial markets as well as discusses the rising trend of asset tokenization and its potential to increase transaction efficiency, automated and conditional token exchange, and the possibility of registering different assets in the same distributed ledger technology environment.
NGFS releases guide on emerging practices in climate transition plans
The Network for Greening the Financial System (NGFS) released a report evaluating emerging practices concerning climate transition plans and the role of central banks and supervisory bodies in these plans. The NGFS underlines the importance of forward-looking transition plans by corporations and financial institutions to assess climate-related risks. These plans are instrumental in enabling the financial sector to support the transition to a net-zero future, as they provide insight into the real economy's decarbonization pathway.
Six key findings have been identified in relation to the role of transition plans in micro-prudential authorities' work:
Transition plans, though having multiple definitions, are widely recognized for their potential. Transition planning (designing a strategy) should be distinguished from a transition plan (transparency for an audience). Current frameworks for transition plans primarily pertain to climate-related corporate disclosures. Transition plans can offer valuable information for micro-prudential authorities for forward-looking risk assessment. Common elements exist across all transition plans that can assess safety and soundness. The role of micro-prudential authorities must be seen in context with other financial and non-financial regulators' actions.
Looking forward, the NGFS will engage with international authorities and standard setters, and will work to advance discussions on the relevance of transition plans to micro-prudential authorities.
The report highlights the critical role of transition plans in meeting the Paris climate goals and emphasizes the need for collaboration across regulatory agencies and standard setters to ensure an orderly transition.
ESAs publish progress reports on risk of greenwashing
The European Supervisory Authorities (ESAs) have published their individual progress reports on Greenwashing in the financial sector. The ESAs define greenwashing as a practice where sustainability-related statements, declarations, actions, or communications do not accurately reflect the underlying sustainability profile of an entity, a financial product, or financial services, potentially misleading consumers, investors, or other market participants. The reports set out a common high-level understanding of greenwashing applicable to market participants across their respective remits, i.e. financial markets, banking, and insurance and pensions. From a banking perspective, the European Banking Authority (EBA) report indicates a clear increase in the total number of potential cases of greenwashing across all sectors under its remit with pledges about future ESG performance are considered to be most prone to greenwashing, in addition to the ESG strategy and objectives as well as ESG labels and certificates. The European Securities and Markets Authority (ESMA) in its report, identified areas of the sustainable investment value chain (SIVC) that are more exposed to the risk of greenwashing, and indicates that greenwashing is the result of multiple inter-related drivers. Finally, the European Insurance and Occupational Pensions Authority (EIOPA) on its part, also finds that greenwashing may materialize at all stages of the insurance (e.g. entity level, product manufacturing, delivery and management) and pensions (e.g. scheme design, delivery and management) lifecycles and demonstrates this through a set of specific examples. The ESAs will publish final greenwashing reports in May 2024 and will consider final recommendations, including on possible changes to the EU regulatory framework at that point.
Other transversal themes
MAS and Elevandi to focus on AI in financial services in 2023 edition of the Singapore Fintech Festival
The Singapore FinTech Festival 2023 (SFF 2023) will be held from 15-17 November and will focus on the growth and adoption of Artificial Intelligence (AI) in financial services. The event, organized by the Monetary Authority of Singapore (MAS) and Elevandi, will bring together leaders from the government, financial services, investment, and technology sectors. It will include five thematic zones, a Capital Meets Policy Dialogue, Elevandi Insights Forum, Innovation Lab Crawl, and the SFF Global FinTech Awards. The event will also feature a ChatGPT and AI in Finance certificate program in collaboration with the National University of Singapore Asia Institute for Digital Finance. Registration is now open with complimentary passes available for policymakers, regulators, think tanks, academics, coders and students.
EBA launches public consultation on draft RTS and ITS for supervisory colleges under CRD
The European Banking Authority (EBA) has launched a public consultation on draft Regulatory Technical Standards (RTS) and draft Implementing Technical Standards (ITS) on the functioning of supervisory colleges under the Capital Requirements Directive (CRD). The consultation runs until 30 August 2023 and seeks to ensure that the Level 2 framework for the functioning of supervisory colleges is better aligned with the Level 1 regulation and able to promote a more efficient and effective supervision of cross-border banking groups. The consultation covers areas such as enhanced information exchange, effective risk identification, and appropriate use of entrustment of tasks and delegation of responsibility. Comments can be sent to the EBA by 30 August 2023 and a public hearing will be held on 28 June 2023. The EBA plans to submit the draft TS to the European Commission in Q4 2023, and the current RTS and ITS on colleges of supervisors issued by the European Commission in 2016 will be repealed as soon as the new ones are issued.
ECB data reveals further decline in bank offices and employees in the EU, with wide variations in banking sector concentration
The European Central Bank (ECB) has released its annual dataset of structural financial indicators for the banking sector in the European Union (EU) for the end of 2022. The data shows a further decline in the number of bank offices in the EU, averaging 5.39% across Member States, and a drop in the number of employees of credit institutions in 18 EU Member States, with an average decrease of 1.25%. The degree of banking sector concentration (measured by the share of assets held by the five largest banks) continues to vary widely between EU Member States, ranging from 31.16% (Luxembourg) to 95.72% (Greece) at the end of 2022, with an EU average of 68.27%. Further breakdowns of structural financial indicator statistics are available in the ECB Statistical Data Warehouse.
CSA announces deferral in launch date for SEDAR+, confirms flat-fee model to reduce system fee costs by seven per cent
The Canadian Securities Administrators (CSA) have announced a deferral of the launch of the new SEDAR+ filing system, originally planned for June 13, 2023, to July 25, 2023, with a contingency date of September 12, 2023. The delay is due to the process of assuring quality migration of large volumes of data from multiple legacy systems taking longer than planned. The CSA will confirm the SEDAR+ go-live date by the end of June. Until SEDAR+ goes live, all capital market participants are required to continue using SEDAR and the other systems in current use. The flat-fee model announced on March 23, 2023, which reduces overall annual system fee costs by seven per cent, will still come into effect on June 9, 2023. The CSA and member jurisdictions will issue a CSA Notice and Blanket Orders to support the date change on June 8, 2023. SEDAR+ will be used by all market participants to file, disclose and search for issuer information in Canada’s capital markets and will consolidate and replace SEDAR, the national Cease Trade Order (CTO) database, the Disciplined List (DL) database and certain filings currently made in paper or in the British Columbia Securities Commission’s eServices system and the Ontario Securities Commission’s electronic filing portal.