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Global Regulator & Central Bank News Roundup (Vol. 24/2023)

June 19 - June 25 2023
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,
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At a glance - Highlights by topic


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Prudential & financial stability
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IAIS launches final public consultation on Insurance Capital Standard and Insurance Core Principles before December 2024 adoption
ESMA publishes final reports on CCP Resolution Regime Guidelines for NCAs and Resolution Authorities
Proposed rule to implement quality control standards for automated valuation models used by mortgage originators and secondary market issuers
ECB launches public consultation on revised guide to internal models, reflecting updates on legal framework and climate-related risks
Bank of England launches first system-wide exploratory scenario exercise to improve understanding of financial market behaviours in stressful conditions
ECB releases comprehensive banking data for EU banking system as of December 2022
EIOPA releases June 2023 financial stability report
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AML & CFT
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FATF concludes latest plenary session, making progress on critical strategic initiatives
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Cyber & operational resilience
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FSB releases toolkit to enhance third-party risk management and oversight for financial authorities and institutions
ESAs launch public consultation on first batch of policy products under DORA
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Fintech & ecosystem innovation
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ECB’s Panetta urges regulators to put safeguards in place for unsound crypto models at 22nd BIS Annual Conference
AMF calls for stakeholder input on regulatory framework for DeFi activities
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Payments & currency
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MAS collaborates with IMF, Banca d'Italia, Bank of Korea, and FinTech Firms to propose standards for digital money
ECB review reveals Euro remains second most widely used currency globally despite geopolitical risks and high inflation
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ESG
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UNDP, GLEIF and MAS Join Forces to Develop Digital ESG Credentials for MSMEs Worldwide with Project Savannah
OSFI launches Climate Risk Forum to support the financial sector in managing climate-related risks
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Other transversal themes
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BIS releases blueprint for the future of global monetary and financial system
IOSCO seeks inputs on goodwill risk management and disclosures from market participants

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Prudential & financial stability


IAIS launches final public consultation on Insurance Capital Standard and Insurance Core Principles before December 2024 adoption
The International Association of Insurance Supervisors (IAIS) has launched the fourth and final public consultation on the Insurance Capital Standard (ICS) before its planned adoption in December 2024. The ICS as a prescribed capital requirement (PCR) will provide a consolidated, risk-based measure of capital adequacy for Internationally Active Insurance Groups (IAIGs). The IAIS is also launching public consultations on two Insurance Core Principles (ICPs): ICP 14 (Valuation) and 17 (Capital Adequacy). The consultation period will close on September 21, and a public background webinar will be held on June 29. The IAIS is also collecting data for an economic impact assessment to inform the decision on adoption of the ICS.
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ESMA publishes final reports on CCP Resolution Regime Guidelines for NCAs and Resolution Authorities
The European Securities and Markets Authority (ESMA) has published two final reports containing guidelines on the central counterparties (CCPs) Resolution Regime under the CCP Recovery and Resolution Regulation (CCPRRR). The package includes guidelines on the template written arrangements for resolution colleges, which are intended to assist National Competent Authorities (NCAs) in the creation of the resolution colleges, as well as guidelines on the template summary resolution plans which offer guidance to resolution authorities on the type of information that should be included in the summary that would be shared with the CCP. The Final Reports take into account responses to the two public consultations published in May 2022 and the advice of the Securities and Markets Stakeholder Group. The Guidelines will apply following their publication by ESMA on its website in the relevant official languages of the European Union.
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ECB launches public consultation on revised guide to internal models, reflecting updates on legal framework and climate-related risks
The European Central Bank (ECB) has launched a public consultation on its revised Guide to internal models. The revision reflects updates on the legal framework and builds on the ECB’s experience gained over the years in supervising internal models. It clarifies how banks should go about including material climate-related and environmental risks in their models, provides clarifications for banks that wish to revert to the standardised approach for calculating their risk-weighted assets, and details how to measure default risk in trading book positions. The consultation period ends on 15 September 2023.
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Bank of England launches first system-wide exploratory scenario exercise to improve understanding of financial market behaviours in stressful conditions
The Bank of England has launched its first system-wide exploratory scenario (SWES) exercise to improve understanding of the behaviours of banks and non-bank financial institutions (NBFIs) in stressed financial market conditions. In particular, the exercise, which will involve participation by large banks, insurers, central counterparties and a variety of funds, will explore the risks to and from NBFIs, and the behaviour of NBFIs and banks in stress, including what drives that behaviour as well as how these behaviours and market dynamics can amplify shocks in markets and potentially lead to risks to UK financial stability. Further, the Bank will seek to understand the collective actions and responses of these firms and how they might amplify the initial stress in UK financial markets. The SWES markets of focus include the gilt market, gilt repo market, sterling corporate bond market and associated derivative markets. The Bank will publish the full list of participants and details of the stress scenario later in the year, with a final report to be published in 2024.
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U.S. OCC proposes rule to implement quality control standards for automated valuation models used by mortgage originators and secondary market issuers
The U.S. Office of the Comptroller of the Currency (OCC), along with other agencies, is proposing a rule to implement quality control standards for automated valuation models (AVMs) used by mortgage originators and secondary market issuers in valuing residential real estate. The proposed rule would require banks that use AVMs in certain credit decisions or securitization determinations to adopt policies, practices, procedures, and control systems to ensure that AVMs adhere to quality control standards designed to ensure a high level of confidence in the estimates produced, protect against manipulation of data, avoid conflicts of interest, require random sample testing and reviews, and promote compliance with applicable nondiscrimination laws. The proposed rule reflects the increasing use of AVMs in the real estate valuation process and would give banks the flexibility to set quality controls for AVMs as appropriate based on the size of the bank and the risk and complexity of transactions in which AVMs are used.
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Other highlights
The European Central Bank (ECB) has released consolidated banking data as of December 2022 for the EU banking system. This dataset covers 314 banking groups and 2,375 stand-alone credit institutions operating in the EU, accounting for nearly 100% of the EU banking sector’s balance sheet. Aggregates and indicators are provided for total assets, non-performing loans ratio, return on equity, Common Equity Tier 1 ratio, and the net stable funding ratio.
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The European Insurance and Occupational Pensions Authority (EIOPA) has released its June 2023 Financial Stability Report, which assesses the key developments and risks in the European insurance and occupational pensions sectors. The report concludes that despite a challenging economic environment, insurers and pension funds have remained resilient.
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AML & CFT


FATF concludes latest plenary session, making progress on critical strategic initiatives
The Financial Action Task Force (FATF) held its third plenary session under the presidency of T. Raja Kumar of Singapore, attended by delegates from over 200 jurisdictions of the Global Network and international observers. The FATF reinforced its commitment to a global response against money laundering, terrorist financing, and proliferation.
FATF members continued to condemn the Russian Federation's ongoing military aggression in Ukraine, maintaining the suspension of Russia’s FATF membership due to violations of FATF’s principles. In response to the circumvention attempts of measures against Russia, the FATF encouraged jurisdictions to remain vigilant to protect the international financial system.
The FATF further agreed to publish the fourth targeted update on the implementation of FATF Recommendations for virtual assets and virtual asset service providers, emphasizing the urgency of global regulation of virtual assets and noting that nearly three-quarters of jurisdictions are only partially compliant with FATF's requirements.
Further progress was also made in relation to other strategic initiatives. This included the work. on revising the FATF Standards related to asset recovery, combating corruption, and mitigating unintended consequences of incorrect implementation of the FATF Recommendations. The latter addressed measures to curb the misuse of non-profit organizations for terrorist financing. Among other things, the plenary discussed proposals for revising Recommendation 8, which aims to protect non-profit organizations from potential terrorist financing abuse, with a view to addressing the problem of over-application of preventive measures to the non-profit organization sector in some countries and agreed to release the revisions for consultation.
Finally, the FATF also identified new jurisdictions subject to increased monitoring, including Cameroon, Croatia, and Vietnam, based on strategic deficiencies in their regimes to counter illicit financing, as well as continued preparations for the fifth round of mutual evaluations.
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Cyber & operational resilience


FSB releases toolkit to enhance third-party risk management and oversight for financial authorities and institutions
The Financial Stability Board (FSB) has released a toolkit for public consultation which provides guidance for financial authorities and financial institutions on third-party risk management and oversight. The initiative builds on the FSB’s previous efforts with focus on outsourcing and third-party relationships and aims to serve multiple purposes: to consolidate regulatory and supervisory approaches, to bolster financial institutions' capacity to handle third-party risks, and to foster coordination among relevant stakeholders. Adopting a broader perspective than the historical focus on outsourcing, the toolkit takes a holistic view of third-party risk management, with a particular focus on critical services given the potential consequences on financial operations and stability that would come with their disruption. The toolkit has further been designed on the basis of the principle of proportionality, thereby allowing it to be adapted for smaller or less complex institutions or for intra-group third-party service relationships. Feedback on the toolkit is open until 22 August 2023.
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ESAs launch public consultation on first batch of policy products under DORA
The European Supervisory Authorities (ESAs) have launched a public consultation on the first batch of policy products under the Digital Operational Resilience Act (DORA). This includes four draft regulatory technical standards (RTS) and one set of draft implementing technical standards (ITS) to ensure a consistent and harmonised legal framework in the areas of ICT risk management, major ICT-related incident reporting and ICT third-party risk management. The consultation runs until 11 September 2023. A public hearing will be organised in the form of a webinar on 13 July 2023 and comments can be submitted by 11 September 2023. The ESAs expect to submit these draft technical standards to the European Commission by 17 January 2024. DORA is scheduled to apply from 17 January 2025.
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Fintech & ecosystem innovation


ECB’s Panetta urges regulators to put safeguards in place for unsound crypto models at 22nd BIS Annual Conference
Fabio Panetta, a member of the Executive Board of the ECB, spoke at a panel on the future of crypto at the 22nd BIS Annual Conference. He highlighted the limitations of cryptocurrencies, their lack of intrinsic value, and the fact that they have become increasingly centralised. He called for regulatory safeguards to be put in place and for regulators to treat unsound crypto models as a form of gambling. Panetta also emphasised the need for the public sector to focus on the development of reliable digital settlement assets, such as central bank digital currencies.
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AMF calls for stakeholder input on regulatory framework for DeFi activities
The Autorité des marchés financiers (AMF) has released a discussion paper on the regulatory issues posed by decentralized finance (DeFi) activities. The DeFi ecosystem, based on crypto-assets and automated, decentralized, and disintermediated protocols, remains unfamiliar to the general public but has experienced significant growth in recent years, including in the wake of the Terra-Luna ecosystem collapse in 2022, leading to questions about the maturity and viability of certain protocols. The AMF’s discussion paper seeks to provide an overview of the DeFi ecosystem, blockchain protocols, smart contracts, and decentralized exchange protocols. It also explores market trends, and identifies potential risks such as liquidity, valuation, price manipulation, value slippage, and leverage, as well as discusses the governance challenges presented by DeFi activities. Against this backdrop, the AMF advocates for a progressive, proportionate approach for DeFi regulation, grounded in the principle "same activity, same risk, same regulations". Feedback on the discussion paper is welcomed until September 30.
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Payments & currency


MAS collaborates with IMF, Banca d'Italia, Bank of Korea, and FinTech Firms to propose standards for digital money
The Monetary Authority of Singapore (MAS) has collaborated with the International Monetary Fund, Banca d'Italia, Bank of Korea, financial institutions, and FinTech firms to develop a whitepaper proposing a common protocol for the use of digital money, such as central bank digital currencies, tokenised bank deposits, and stablecoins on a distributed ledger. The whitepaper outlines (1) technical specifications for a Purpose Bound Money (PBM) lifecycle and protocol to interface with digital currencies backing it, as well as (2) business and operating models for how arrangements could be programmed such that money is transferred only upon fulfilment of service obligations or terms of use. In conjunction with the whitepaper, MAS has also released software prototypes and open source codes to demonstrate the concept of PBM as well as foster continued learning and development.
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Other highlights
In 2022, the euro remained the second most widely used currency globally, with its share across various indicators of international currency use averaging close to 20%. This was one of the main findings in the annual review of the international role of the euro, published by the European Central Bank (ECB). Despite geopolitical risks and high inflation, the euro's global appeal was linked to a stronger Economic and Monetary Union. The review also included three special features, which looked at the future of the international monetary system, the evidence on how one leading international currency can be replaced by another, and the role international currencies play in global finance.
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ESG


UNDP, GLEIF and MAS Join Forces to Develop Digital ESG Credentials for MSMEs Worldwide with Project Savannah
UNDP, GLEIF and MAS have signed a Statement of Intent to embark on Project Savannah, a collaborative initiative to develop digital Environmental, Social and Governance (ESG) credentials for micro, small and medium-sized enterprises (MSMEs) worldwide. Project Savannah aims to help simplify the ESG reporting process for MSMEs by establishing a common framework of ESG metrics for MSMEs to generate their basic sustainability credentials. To that end, MAS will leverage its ESGenome disclosure platform as a digital reporting tool for MSMEs to populate the ESG metrics needed to generate their basic ESG credentials and, where possible, pre-fill these metrics using verified data to simplify and streamline MSMEs’ reporting process. The data will further be recorded in the MSMEs’ Legal Entity Identifier and made available via the Global LEI System, enabling the credentials to be accessed by any authorized third-party globally. The project will culminate in a multi-jurisdictional proof of concept targeted to be launched at the 2023 UN Conference of the Parties (COP28).
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OSFI launches Climate Risk Forum to support the financial sector in managing climate-related risks
The Office of the Superintendent of Financial Institutions (OSFI) has launched the Climate Risk Forum (CRF) to increase awareness and capacity within the Canadian financial sector to address climate-related risks. The CRF is a virtual forum for OSFI to connect with domestic partners and stakeholders to help the financial sector manage these risks. OSFI's first CRF activity is a consultation on draft Climate Risk Returns, in partnership with the Bank of Canada and the Canada Deposit Insurance Corporation, which will be launched this summer. OSFI has also established the Climate Risk Hub, a team of experts to lead OSFI's response to climate-related risks.
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Other transversal themes


BIS releases blueprint for the future of global monetary and financial system
As part of its Annual Economic Report 2023, the Bank for International Settlements has released a special chapter outlining a blueprint for the future of the global monetary and financial system. Under the proposal, a unified ledger would combine tokenised forms of central bank digital currency (CBDC) with tokenised bank deposits and other tokenised claims, enabling new types of economic arrangements and transactions. The new infrastructure would have the potential to enable a variety of innovations, such as new methods for securities settlements, tokenised deposits with built-in regulatory checks, smart contract-enabled credit, and enhanced sharing of data on potential borrowers.
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IOSCO seeks inputs on goodwill risk management and disclosures from market participants
The International Organization of Securities Commissions (IOSCO) has published a Consultation on Goodwill, seeking inputs from market participants to identify good practices for addressing the risk of unrecognized impairment on accumulated goodwill balances and related disclosures arising from business combinations. The feedback received will be used to formulate a set of recommendations for regulators, auditors, issuers and those charged with governance (TCWG).
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Leadership changes

Governor Olli Rehn of the Bank of Finland has announced his candidacy for the 2024 presidential election in Finland and has taken immediate leave from his duties. In the interim Deputy Governor Marja Nykänen will serve as Acting Governor while Tuomas Välimäki will serve as a member of the Governing Council of the European Central Bank with full voting rights.
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© 2023 REGXELERATOR

At a glance - Highlights by topic
Prudential & financial stability
AML & CFT
Cyber & operational resilience
Fintech & ecosystem innovation
Payments & currency
ESG
Other transversal themes
Leadership changes
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