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Global Regulator & Central Bank News Roundup (Vol. 26/2023)

July 10 - July 16 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,

At a glance - Highlights by topic


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EBA's Q1 2023 risk dashboard reports rising profitability in EU/EEA banks amidst looming asset quality and profitability risks
OSFI considers alterations to CAR and MICAT Guidelines to mitigate mortgage risks
EBA publishes latest Opinion on ML and TF in the EU and findings on competent authorities’ AML/CFT supervision practices
Bank Negara Malaysia announces winners of 2023 AML/CFT hackathon
EIOPA releases fourth installment in insurance stress testing series with focus on cyber risk resilience
Spanish CNMV releases comprehensive cybersecurity governance code
CNMV imposes strict limitations on the promotion and operation of CFDs and other leveraged product to retail investors in wake of increasing losses
South Africa Financial Sector Conduct Authority publishes first draft position paper on open finance
European Supervisory Authorities issue first set of consultations under MiCAR
FCA continues efforts to curb illegal cryptocurrency ATMs across UK
U.S. SEC accuses Celsius Network and CEO Alex Mashinsky of fraud, unregistered securities sale, and misleading business practices
BIS submits report on crypto ecosystem to G20
BIS Innovation Hub presents detailed CBDC Report to G20 Finance Ministers
ECB launches public survey seeking European input for new high-tech Euro banknote series
Maldives Monetary Authority partners with three Banks for instant payment system development project
IFRS Foundation to supervise climate-related disclosures monitoring
FSB releases 2023 progress report on climate roadmap
UN and global bodies launch sustainable finance taxonomy framework for Latin America and Caribbean to foster development and improve climate resilience
Single Resolution Board becomes observer member of Network for Greening the Financial System
Bank of France to implement climate indicator to assist companies in climate risk management and decarbonization efforts
EIOPA launches public consultation on draft statement for supervising reinsurance arrangements with third-country reinsurers
U.S. CFTC Technology Advisory Committee unveils leadership for new subcommittees on digital assets, cybersecurity, and evolving technologies

Prudential & financial stability


EBA's Q1 2023 risk dashboard reports rising profitability in EU/EEA banks amidst looming asset quality and profitability risks
The European Banking Authority (EBA) has released its quarterly Risk Dashboard (RDB) for Q1 2023. Data from the period indicates that banks maintained strong profitability, capital, funding, and liquidity ratios, with the fully loaded common equity tier 1 (CET1) ratio seeing a 30 bps increase to 15.7% from the previous quarter while the liquidity coverage ratio slightly declined from 164.6% to 163.7% and the net stable funding ratio rose from 125.6% to 126%. Banks’ profitability benefited from higher interest rates with the average return on equity (RoE) reaching 10.4%. Despite the solid positions, a decrease in banks’ liquidity and funding ratios is expected due to ECB due to repayments of the ECB’s targeted longer-term refinancing operations. Additionally, banks expect asset quality to deteriorate in the next 12 months across all segments, owing to the impact of inflation and increasing interest rates on overindebted borrowers. The publication of the EBA’s dashboard came on the heels of the European Central Bank’s statistics for Q1 2023.
OSFI considers alterations to CAR and MICAT Guidelines to mitigate mortgage risks
The Office of the Superintendent of Financial Institutions (OSFI) is consulting on potential changes to the Capital Adequacy Requirements (CAR) and Mortgage Insurer Capital Adequacy Test (MICAT) guidelines. The proposed tweaks aim to address the risk of mortgages in negative amortization, where payments are not enough to cover the interest rate. Banks could be required to hold more capital in accordance to the raised risk of mortgages with a loan-to-value ratio of over 65%. For mortgage insurers, the maximum loan-to-value ratio in the MICAT capital formula would rise from 100% to 105%. For consumers with a current mortgage term, the proposed changes would not result in an increase in monthly payments. Feedback on the consultation can be submitted until September 1, 2023.

AML & CFT


EBA publishes latest Opinion on ML and TF in the EU and findings on competent authorities’ AML/CFT supervision practices
The European Banking Authority (EBA) has released its fourth biennial opinion on money laundering and terrorist financing (ML/TF) risks affecting the EU's financial sector. This opinion, developed against the backdrop of a rapidly changing risk landscape impacted by geopolitical and legislative events, covers emerging risks like corruption, environmental crime and cybercrime. While awareness of ML/TF risks is increasing and AML/CFT supervision improving, the EBA states that the measures implemented by institutions are not fully effective, particularly regarding transaction monitoring and suspicious transaction reporting. Moreover, while cooperation between AML/CFT supervisors and other authorities has improved, issues with commensurate supervision remain.
In conjunction with the release of the Opinion, the EBA also published the findings of its 2022 across nine Member States. Consistent with the points highlighted in its Opinion, the EBA noted that despite notable progress made, many authorities continue to struggle with assessing AML/CFT risks. Other observed shortcomings include inter alia a lack of formalized processes and targeted training for AML/CFT, which according to the EBA impede opportunities for intervening at an early stage.
Other highlights
Bank Negara Malaysia (BNM) has revealed the winners of its Anti-Money Laundering/Counter Financing of Terrorism Hackathon 2023. The competition received over 660 participants from 140 teams across 20 countries in the Asia-Pacific region, including representatives from regulatory bodies, financial institutions, and law enforcement agencies. The participants developed digital tool prototypes to counter money laundering and terrorist financing. The competition offered workshops and mentoring from AML/CFT and tech experts. The champions in Public, Private, and Open categories, Verifier (Australia), RMATES (Malaysia), and KoderX (Singapore) respectively each won a cash prize of USD 5,000. These winners will also present their prototypes to a meeting of Financial Intelligence Units delegates in July.

Cyber & operational resilience


EIOPA releases fourth installment in insurance stress testing series with focus on cyber risk resilience
The European Insurance and Occupational Pensions Authority (EIOPA) has released its fourth paper in a series dedicated to the methodological principles of insurance stress testing, with this edition targeting the cyber risk component. The publication is part of EIOPA's efforts to refine its bottom-up insurance stress testing framework and intended to lay the foundation for evaluating the financial resilience of insurers in the face of severe but probable cyber incidents, with the methodological principles covering both the insurers’ own cyber resilience and the vulnerabilities related to cyber underwriting risk.
Spanish CNMV releases comprehensive cybersecurity governance code
On July 13, 2023, the CNMV announced the creation of the Code of Good Governance of Cybersecurity, prepared by the National Cybersecurity Forum. This code aims to provide organizations with practices to better manage cybersecurity within their network and information systems, thereby improving their decision-making processes. The Code, however, does not establish a new standard of controls, but rather provides 13 principles along with their practical recommendations to help organizations gauge their maturity in achieving necessary cybersecurity goals. The dissemination of this code by the CNMV aims to broaden knowledge of cybersecurity among listed and supervised entities, given the increasing risk of cyberattacks.

Conduct & consumer protection


CNMV imposes strict limitations on the promotion and operation of CFDs and other leveraged product to retail investors in wake of increasing losses
The Spanish National Securities Market Commission (CNMV) has announced restrictions on the promotion of Contracts for Differences (CFDs) and other leveraged products to retail investors in response to a majority of these investors suffering losses. The changes imposed bar the public and retail-focused advertising of these products, including event sponsorships, branded advertisements, and the use of public figures to endorse them as well as restrict remuneration policies and sales techniques designed to encourage the distribution of CFDs among retail investors. Furthermore, the resolution also includes measures to limit the maximum leverage exposure for retail investors in futures and options, requiring providers to close positions when they drop below 50% of the initial guarantee. The CNMV plans to monitor compliance with the resolution closely, utilising the co-operation of other European supervisors.The measures apply to entities authorized to provide investment services in Spain, regardless of the investment firm's origin or presence in Spain.

Fintech & ecosystem innovation


South Africa Financial Sector Conduct Authority publishes first draft position paper on open finance
The South African Financial Sector Conduct Authority (FSCA) has published its inaugural draft position on Open Finance. The paper outlines the FSCA’s proposed policy on the concept of Open Finance and offers suggestions to maximise the opportunities while effectively managing the associated risks, such as in relation to privacy and protection of personal data, cybersecurity, misconduct and fraud. Against this backdrop, the FSCA suggests an incremental approach to Open Finance implementation whereby “prioritization may focus on particular sectors and be shaped by aspects like the relative market size, stakeholder appetite and anticipated positive impact”. The FSCA collaborates with various financial sector regulators as a member of the Open Finance Integration Working Group.
European Supervisory Authorities issue first set of consultations under MiCAR
The European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) have issued the first set of regulatory and implementing technical standards under the Markets in Crypto-assets Regulation (MiCAR) for public feedback.
Specifically, EBA has released proposed standards related to the issuance of asset-referenced tokens (ARTs), addressing the authorisation as issuer of ARTs and the assessment of acquisition of qualifying holdings in issuers of ARTs. The draft regulatory technical standards on the information for authorisation specify the information requirements to be included when applying for such an authorization, covering aspects such as ARTs’ business model, internal governance, including ICT risk management, liquidity, reserve of assets, and the reputation and good standing of members of its management body and qualifying shareholders. Complementary to these standards, the EBA has also outlined proposed regulatory technical standards (RTS) on complaint handling for issuers of ARTs. Drawing heavily on existing guidelines, the RTS set out inter alia criteria for defining complaints and complainants, as well as outline standards for complaint management and investigation procedures.
The ESMA, on its part, is seeking stakeholder input on , covering matters such as authorization, identification, conflict of interest management and complaint handling.
A virtual hearing for the EBA’s proposed standards is scheduled for 21 September 2023, with the deadline for consultation feedback set for 12 October. Feedback to the ESMA’s standards can be provided until 20 September.
FCA continues efforts to curb illegal cryptocurrency ATMs across UK
Since the start of 2023, the UK's Financial Conduct Authority (FCA) has been actively conducting inspections at locations believed to host illegal cryptocurrency ATMs. In conjunction with other law enforcement agencies, it has since disrupted 26 such machines operating unlawfully. Inspections have targeted sites in various UK locations such as East London, Leeds, Exeter, Sheffield, and Nottingham. Cryptoasset exchange providers, which include crypto ATMs, are required to be registered with the FCA and comply with UK Money Laundering Regulations, with non-compliance potentially leading to a criminal offence carrying a punishment of up to 2 years in prison, a fine or both.
U.S. SEC accuses Celsius Network and CEO Alex Mashinsky of fraud, unregistered securities sale, and misleading business practices
The US Securities and Exchange Commission (SEC) has charged cryptocurrency lending platform Celsius Network Limited and its founder Alex Mashinsky with fraud and failure to register the offer and sale of securities. The charges relate to Celsius's Earn Interest Program, which offered interest payments to investors who provided their crypto assets. The SEC alleges that the program constituted the offer and sale of securities, but did not have an appropriate registration in place. The complaint also accuses Celsius and Mashinsky of making false statements about the company's business practices, and manipulating the market of CEL, the company's crypto asset security. The government agency is seeking legal action to prevent the repeat of such activities, as well as monetary relief. Parallel charges were also announced by the U.S. Attorney’s Office for the Southern District of New York and the Commodity Futures Trading Commission. The latter asserts that Celsius illegally functioned as an unregistered commodity pool operator and Mashinsky as an unregistered associated person. Monetary restitution, trading bans, registration bans, and a discontinuation of CEA and CFTC regulation violations is sought for Mashinsky with ongoing litigation. The platform was presented from 2018 to June 2022 as a safe and profitable option for customers looking for high yield interest, amassing $20 billion of investment. However, mismanagement found the company employing risky trading strategies and subsequently declaring bankruptcy while owing over $1 billion in liabilities.
Other highlights
The Bank for International Settlements (BIS) has submitted to the G20 Finance Ministers and Central Bank Governors a new report on the crypto ecosystem. The report reviews key aspects of the crypto ecosystem and suggests various policy options to address the risks that crypto poses to investors, the prevailing financial system, and the macroeconomy.

Payments & currency


BIS Innovation Hub presents detailed CBDC Report to G20 Finance Ministers
The Bank for International Settlements (BIS) Innovation Hub has submitted a report to the G20 Finance Ministers and Central Bank Governors, summarizing its findings from 12 pilot projects on central bank digital currencies (CBDCs). The research discusses CBDCs in the context of domestic and cross-border use cases, covering both retail and wholesale CBDCs, and highlights three major findings: (1) wholesale CBDCs will be driven by both public and private sector desire to modernize trading and settlement systems; (2) Retail CBDC development, however, is seen as a complex undertaking involving several challenges including in relation to privacy and combating cybersecurity threats; (3) Cross-border CBDC arrangements are coined as novel and complex, but the use of common platforms are expected to yield operational efficiencies. Nevertheless, hub-and-spoke designs provide more adaptability for domestic systems, making them more feasible in the short term.
In parallel to the G20 report, the BIS has furthermore released the results of its . The study, which evaluated responses from 86 central banks, found that 93% were engaged in some form of CBDC activity with progress on retail CBDCs being more advanced than its wholesale counterparts. Additionally, the research suggested that most central banks recognize the potential benefits of having both retail and fast payment systems. The survey forecasts that by 2030, there could be 15 retail and nine wholesale CBDCs in public circulation.
ECB launches public survey seeking European input for new high-tech Euro banknote series
The European Central Bank (ECB) has launched a public survey seeking opinions from Europeans on potential themes for a new series of Euro banknotes. The survey will be open from 10 July to 31 August 2023, and is aiming to get representative feedback from across the euro area. Seven themes have been shortlisted, including depictions of European culture, values, future potential, communal lifestyle, and nature. The selected theme will be used for a series of high-tech banknotes aimed at thwarting counterfeiting and minimizing environmental impact. The ECB's Governing Council is expected to decide on the chosen theme by 2024 and finalize the designs in 2026.
Other highlights
The Maldives Monetary Authority (MMA) has signed a "participation agreement" with three banks as part of the Maldives Payment System Development Project, which aims to facilitate quicker and safer transactions. Bank of Maldives Public Limited, Maldives Islamic Bank Public Limited, and State Bank of India are the first to join this instant payment system (IPS). The agreement outlines the responsibilities and rights of the participating banks. After passing user acceptance tests, the IPS will undergo pilot testing in the coming weeks. MMA is aiming to include more banks in the system based on their preparedness. Final arrangements are being made to make the service available to the public following successful pilot tests.

ESG


IFRS Foundation to supervise climate-related disclosures monitoring
The Financial Stability Board (FSB) has requested the IFRS Foundation to oversee the monitoring of the progress on companies’ climate-related disclosures, following the release of the initial ISSB Standards—IFRS S1 and IFRS S2. These standards incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), marking the culmination of its work since its establishment in 2017 upon FSB's request. Starting from 2024, the IFRS Foundation will take over the TCFD's monitoring functions. ISSB Chair, Emmanuel Faber, welcomed the transfer of responsibilities and recognized the TCFD’s contribution in improving the practice and quality of climate-related disclosures.
FSB releases 2023 progress report on climate roadmap
The Financial Stability Board (FSB) has released its annual progress report on the Roadmap for Addressing Climate-Related Financial Risks, for the G20 Finance Ministers and Central Bank Governors. The report discusses progress by various bodies, outlines areas needing further attention, and updates the detailed Roadmap actions. Progress has been noted across all four blocks of the Roadmap:
Firm-level disclosures: The International Sustainability Standards Board's (ISSB) final standards for sustainability-related disclosures, IFRS S1 and IFRS S2, mark a significant achievement. They aim to standardize disclosures globally. Swift consideration of the standards by the International Organization of Securities Commissions (IOSCO) is now a priority. The FSB requested the ISSB to monitor the adoption of climate-related disclosures. Future steps include promoting interoperability, preventing double reporting, and developing a global assurance framework for reporting.
Data: Efforts are underway to enhance the quality, availability, and cross-border comparability of climate data. Goals include creating global repositories providing open access to data and facilitating the use of consistent metrics across sectors and jurisdictions. There is also a need to develop forward-looking metrics for climate-related risks.
Vulnerabilities analysis: Work is progressing on conceptual frameworks and metrics for monitoring climate-related vulnerabilities. There is a need to include climate scenarios in financial vulnerabilities monitoring and to understand the transmission of climate shocks across borders and sectors.
Regulatory and supervisory practices and tools: Efforts to integrate climate-related risk into risk management and prudential frameworks are ongoing. Interest is growing in transition plans as sources of information to assess micro- and macroprudential risks. The FSB is establishing a working group to explore the relevance of transition plans for financial stability.
Across all blocks, financial institutions' progress relies on the non-financial corporate sector also progressing, particularly in firm-level disclosures, addressing data gaps, and transition plans.
UN and global bodies launch sustainable finance taxonomy framework for Latin America and Caribbean to foster development and improve climate resilience
The United Nations (UN) and other international bodies have launched a Common Framework of Sustainable Finance Taxonomies for Latin America and the Caribbean (LAC). The LAC Taxonomy Common Framework aims to increase the implementation of sustainable finance, provide regional alignment opportunities, and finance for long-term value creation and sustainable development as well as ensure that taxonomies are science-based and thus promote a credible transition to net-zero emissions. The framework was funded by the European Union and developed by the Working Group on Sustainable Finance Taxonomies for Latin America and the Caribbean.
Other highlights
The Single Resolution Board (SRB) has become an observer member of the Network for Greening the Financial System (NGFS) as part of its initiative to develop a responsible investment framework for the Single Resolution Fund. The SRB plans to participate in the evolution of environmental and climate risk management in the financial sector and to ensure responsible investment within the SRF, according to SRB Chair Dominique Laboureix.
The Bank of France has announced the distribution of a dedicated "climate indicator" to companies, designed to track exposure to climate risks. The indicator is currently being tested and validated with over 500 companies across the country and will gradually be extended to all large companies, mid-caps, and then SMEs. Offered for free, it is intended to help companies align with a decarbonization trajectory for their sector to facilitate their transition efforts.

Other transversal themes


EIOPA launches public consultation on draft statement for supervising reinsurance arrangements with third-country reinsurers
The European Insurance and Occupational Pensions Authority (EIOPA) has initiated a public consultation on its draft supervisory statement concerning the regulation of reinsurance arrangements with third-country reinsurers. The statement details supervisory expectations for national supervisors and industry participants in such scenarios, considering factors such as assessment of the business context, early supervisory dialogue, analysis of reinsurance agreements, and risk management systems. Intention of the statement is to strengthen quality and convergence in the supervision of insurers engaged with third-country reinsurers. Stakeholders are encouraged to give feedback through an online survey until October 10, 2023.
U.S. CFTC Technology Advisory Committee unveils leadership for new subcommittees on digital assets, cybersecurity, and evolving technologies
The U.S. Commodity Futures Trading Commission’s (CFTC) Technology Advisory Committee (TAC) has announced the leaders and members of its three new subcommittees. These teams will provide expert advice to the Commission on technology in financial markets and its associated risks. Subcommittees include Digital Assets and Blockchain Technology, chaired by Carole House of Terranet Ventures Inc and Dan Awrey of Cornell Law School; Cybersecurity, led by Tim Gallagher from Nardello & Co and Dan Guido of Trail of Bits; and Emerging and Evolving Technologies, co-chaired by Nicol Turner Lee from The Brookings Institution and Todd Smith from National Futures Association. All subcommittee members are current TAC members. The TAC aids the Commission in understanding the impact of technology on financial service and markets, with its advice informing the Commission's surveillance and enforcement responsibilities. The group is one of five advisory committees overseen by the CFTC.

Leadership changes

The European Banking Authority (EBA) Board of Supervisors has elected Helmut Ettl, Executive Director of the Austrian Financial Market Authority as Vice-Chairperson for a period of two and a half years, commencing from 10 July.
Fabio Panetta has been appointed as the new Governor of the Bank of Italy, effective from 1 November 2023.
Michele Bullock has been appointed as the new Governor of the Reserve Bank of Australia, for a term of seven years, starting from 18 September 2023.

Leadership changes

The National Bank of Cambodia and UnionPay International have signed a memorandum of understanding (MOU) focused on payment cooperation with the objective to establish a framework of cooperation that will promote cross-border operations between the KHQR system and UnionPay International's QR Code network.
The Monetary Authority of Singapore (MAS) and the National Bank of Cambodia (NBC) have signed a Memorandum of Understanding to establish a Financial Transparency Corridor (FTC). This initiative is intended to provide support to small and medium-sized enterprises (SMEs) in both countries by establishing digital infrastructures that facilitate trade and cross-border financial services. The FTC allows financial institutions in both countries to gain trusted information on SMEs, improving access to digital trade networks and enhancing trade connectivity.
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