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 end-to-end automated and AI-powered regulatory intelligence platform for ongoing updates EIOPA insurance risk dashboard highlights macro risks as key concern for insurer's stability amid rising ESG-related and liquidity risks EBA initiates public consultation on draft regulatory technical standards for identifying exceptional market disruptions allowing derogation from certain market risk requirements EBA issues detailed follow-up report on machine learning implementation in internal ratings-based models, calls for GDPR clarification EBA initiates public consultation on Guidelines for disclosure of systemic importance indicators; seeks to align with BCBS annual data template European Central Bank reports 1.17% dip in Eurozone credit institutions' assets from March 2022 to March 2023 Cyber & operational resilience Bank of Mexico invites public consultation on updating cybersecurity and IT regulations for interbank payment systems Vanuatu Financial Services Commission announces regulatory framework for digital assets; aims to establish Vanuatu as a key Pacific financial centre National Bank of Georgia introduces Internal Control Compliance Questionnaire for Virtual Asset Service Providers as part of registration process MFSA hosts workshop on metaverse technologies, lays groundwork for future financial services advancements Bank of Russia releases Digital Ruble transaction fee structure Central Bank of The Bahamas intensifies promotional drive for SandDollar digital currency European Commission, ISSB, and EFRAG release the European Sustainability Reporting Standards for streamlined climate-disclosures Japan Financial Services Agency releases third Sustainable Finance Expert Panel Report National Bank of Georgia publishes paper delving into biodiversity-related financial risks and their impact on commercial banks New Zealand's Reserve Bank and Financial Markets Authority establish comprehensive standards for financial market infrastructures, effective from March 2024 CSA and CIRO publish joint notice to enhance conflict of interest practices among security firms and advisors, aligning with client-focused reforms obligations
Prudential & financial stability
EIOPA insurance risk dashboard highlights macro risks as key concern for insurer's stability amid rising ESG-related and liquidity risks
The European Insurance and Occupational Pensions Authority (EIOPA) has released its Insurance Risk Dashboard. Under the latest Dashboard, macro risks remain of highest concern while other risk categories remain at medium levels. Predicted GDP growth globally has increased slightly to 0.74% while CPI forecasts have seen a minor decrease to 3.22% for the coming four quarters. Credit and market risks are at a medium level, with the latter seeing a decrease from high to medium due to a decline in equity market volatility. Liquidity and funding risks have increased due to a rise in cash holdings and a decrease in the liquid assets ratio in Q1 2023. The same time period has seen profitability and solvency risks decrease largely due to significant unrealized losses arising from increased interest rates, resulting in a lower investment return for life insurers than in the previous year. The report also highlights an increasing trend of ESG-related risks, as exposure to climate-relevant assets saw a minor increase to 3.3% of total assets in Q1 2023, and an increased frequency of cyber incidents across all sectors. The Dashboard data, gathered from 96 insurance groups and 2103 solo insurance undertakings, is designed to identify the main risks and vulnerabilities in the EU insurance sector.
EBA initiates public consultation on draft regulatory technical standards for identifying exceptional market disruptions allowing derogation from certain market risk requirements
The European Banking Authority (EBA) has initiated a public consultation on draft Regulatory Technical Standards (RTS) to identify extraordinary market disruption circumstances. These conditions would allow the waiving of requirements for the calculation of own funds requirements based on internal models for market risk. The consultation will run through 3 November 2023. The draft RTS sets up a high-level framework to identify such circumstances and defines indicators for their identification. In these extraordinary circumstances, institutions can continue using their internal models for trading desks, even if they are not compliant with the back-testing requirements, fail profit and loss attribution tests, or have certain overshootings during back-tests. Stakeholders are invited to comment and attend a webinar on 20 September 2023. These draft RTS were developed as per Article 325az(9) of Regulation (EU) No 575/2013.
EBA issues detailed follow-up report on machine learning implementation in internal ratings-based models, calls for GDPR clarification
The European Banking Authority (EBA) has released a follow-up report summarizing feedback on its consultation concerning the use of machine learning (ML) in internal ratings-based (IRB) models. The report is a follow-up report to a discussion paper published in 2021. The new report reiterates that the use of ML may lead to issues that extend beyond prudential considerations. Additionally, the EBA called for clarification concerning the relationship with the General Data Protection Regulation (GDPR) and the Artificial Intelligence Act to limit legal uncertainty and prevent unintended outcomes.
The European Banking Authority (EBA) has begun a public consultation on changes to its Guidelines regarding the disclosure of systemic importance indicators. The chief goal of the proposed edits is to update the annex to mirror the yearly data template from the Basel Committee on Banking Supervision (BCBS). The consultation will run until September 1, 2023. The updates are required for consistency between international standards and the EU regulatory framework, following changes to BCBS's data template for identifying global systemically important banks (G-SIBs). The public can send comments on the EBA's consultation page. The EBA won't conduct a virtual public hearing due to the minor impact of the changes. Feedback will be published unless otherwise requested. The consultation only pertains to the amendments and additions.
The European Central Bank has reported that the total assets of EU-based credit institutions fell by 1.17%, from €31.71 trillion in March 2022 to €31.34 trillion in March 2023. The aggregate non-performing loans ratio also declined by 0.13 percentage points to 1.83% over the same period. Additionally, a return on equity of 2.53% and a Common Equity Tier 1 ratio of 15.58% were recorded in March 2023. The financial data covers all EU27 countries, including Croatia, as the country is now part of the Euro area from 2023. The ECB has compiled this information from 316 banking groups and 2369 single credit institutions in the EU, accounting for almost 100% of the EU banking sector’s balance sheet.
Bank of Mexico invites public consultation on updating cybersecurity and IT regulations for interbank payment systems
The Bank of Mexico has announced a public consultation for draft provisions to modify the regulations of the Interbank Electronic Payment System (SPEI) and the Interbank Payment System in Dollars (SPID) with regards to cybersecurity and information technologies. The bank aims to ensure the continued efficient operation of payment systems, foster the robust development of the financial sector, and protect public interests. Further, the Bank of Mexico seeks to strengthen regulatory frameworks applicable to SPEI and SPID participants. An amendment is also proposed to the SPEI rules to bolster the operational continuity of securities depository institutions. Feedback on the draft provisions can be submitted until August 30, 2023, via the Banco de México's portal.
Fintech & ecosystem innovation
Vanuatu Financial Services Commission announces regulatory framework for digital assets; aims to establish Vanuatu as a key Pacific financial centre
The Vanuatu Financial Services Commission (VFSC) has announced plans to establish a robust regulatory licencing regime to make Vanuatu a stable and regulated financial centre for digital assets in the Pacific. The announcement was made at a symposium on 22nd June 2023 and is supported by the Vanuatu government. The VFSC has created a Class D licence for supervising digital asset business activities. Under VFSC supervision, businesses offering excessively speculative or fraudulent assets are unlikely to be licenced. The jurisdiction aims to comply with international best practices and standards set by the FATF, IOSCO, and FSB. Digital assets, including cryptocurrencies, security tokens, and crypto-securities, are stored and recorded on the blockchain ledger and are considered high-risk, volatile, and speculative investments. The VFSC is the primary authority to regulate digital assets in Vanuatu and is currently consulting on draft laws for virtual assets.
National Bank of Georgia Introduces Internal Control Compliance Questionnaire for Virtual Asset Service Providers as Part of Registration Process
The National Bank of Georgia has released the Internal Control Compliance Questionnaire for Virtual Asset Service Providers (VASPs) as part of the registration process. VASPs intending to register must submit to the bank an AML/CFT internal policy and procedure that includes an organisational risk assessment. Along with or as an alternative to these instructions, the Bank may request additional information through the questionnaire, an electronic version of which is now available on the bank's website. The Bank reviews these documents for completeness and also has the authority to conduct comprehensive reviews based on a risk-based approach.
The Malta Financial Services Authority (MFSA), in preparation for its role in the future of financial services in the Metaverse era, has recently held a workshop that delved into Web 3.0 and Metaverse technologies. Led by Metaverse pioneers Andre Causon, Aaron Zarb, and Sean Ellul, the workshop showcased how these technologies can transform customer engagement, risk management, compliance, and sales training within the financial industry. A virtual reality headset was also available for participants to experience Metaverse technology firsthand. Herman Ciappara, MFSA’s Head of FinTech Supervision, emphasised the need for regulations that foster the exploration of new financial technologies while ensuring consumer protection. Furthermore, the MFSA's COO, Ivan Zammit, highlighted the organization's commitment to ongoing learning and professional development to augment the preparedness for future technological advancements in financial services.
Payments & currency
Bank of Russia releases Digital Ruble transaction fee structure
The Bank of Russia's Board of Directors has announced the transaction fees for digital rubles, the country's national digital currency. The new fee structure, to become effective from January 1, 2025, does not require individuals to pay any fee for digital ruble payments and transfers. Businesses accepting payments in digital rubles will incur a fee of 0.3% of the payment amount, capped at ₽1,500, while housing and utility firms will be charged 0.2%, not exceeding ₽10. Business-to-business transfers will cost ₽15 per transaction. Until 2025, all transactions with digital rubles will be exempt from fees on the regulator's platform. Additionally, everyone is permitted to open a digital ruble account without incurring fees. Finally, the bank plans to kickstart the pilot program for the digital ruble this month, with the views of a complete rollout by 2025.
Central Bank of The Bahamas intensifies promotional drive for SandDollar digital currency
The Central Bank of The Bahamas continues its promotional efforts for its digital currency, SandDollar. In July, the SandDollar rebate campaign at local supermarkets and participation in the Eleuthera Chamber of Commerce’s Digital Payments Expo facilitated adoption efforts. Furthermore, the SandDollar mobile app is undergoing technical upgrades and testing, with a public release scheduled for end of September 2023. Mobile payments trends have been impacted due to reduced government transfer payments, with wallet top-up reaching $7.1 million in the first five months of 2023, compared to $38.4 million in the same period in 2022. To enhance public education and adoption, a team of SandDollar Ambassadors offering on-demand assistance is being trained. Rebate campaigns and giveaways are also ongoing. As of June 2023, there are $1,093,293.93 SandDollars in circulation, with 9 approved and 7 active digital wallet providers, 108,707 consumer wallets, and 1,622 merchant wallets.
European Commission, ISSB, and EFRAG release the European Sustainability Reporting Standards for streamlined climate-disclosures
The European Commission, in collaboration with the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG), has issued the European Sustainability Reporting Standards (ESRS), set to take effect in 2024. The standard are intended to minimize complexity and duplication for firms wishing to incorporate both ESRS and ISSB standards. The collaborating bodies are set to guide entities through interoperability, highlighting unique disclosures required by each set of guidelines. As part of ongoing efforts, the digital tagging of disclosures will be initiated to further interoperability. Efforts to align climate requirements in the ISSB Standards and ESRS have seen substantial progress, per the ISSB Chair, Emmanuel Faber. He also highlighted plans for a proposed table by EFRAG under review which will contribute to developing suitable interoperability guidance material, offering clarity for the market.
Japan Financial Services Agency releases third Sustainable Finance Expert Panel Report
The Financial Services Agency has published the Third Report of the Sustainable Finance Expert Panel. Chaired by Tsuyoshi Mizuguchi, the committee first introduced various measures for improving sustainable finance in financial administration in June Reiwa. This report aimed to track the progress of the initiatives recommended in the first report and address significant matters. In July Reiwa 4, the second report was published after undergoing a similar process. The third report has also conducted progress checks on the recommended measures and further discussed important issues in four meetings since the publication of the second report. The report is available to the public, with appendices and references detailing its content. The agency encourages inquiries through their Sustainable Finance Promotion Office.
The National Bank of Georgia has published a new paper on biodiversity-related financial risks as part of its NBG Working Paper Series. Authored by Elene Nikuradze and Salome Tvalodze, the paper studies the relationship between biodiversity loss and financial stability in Georgia. It reports that around 46% of the Georgian commercial banks' lending portfolio to legal entities could be exposed to physical risk due to significant dependence on ecosystem services. Additionally, approximately 54% of the banks' business lending portfolio are exposed to sectors causing substantial harm to ecosystem services, resulting in a high transition risk. The paper forms part of the ongoing research to understand and inform central bank policy and is open to comments and debate.
Other transversal themes
New Zealand's Reserve Bank and Financial Markets Authority establish comprehensive standards for financial market infrastructures, effective from March 2024
The Reserve Bank of New Zealand and the Financial Markets Authority have issued the final standards for Financial Market Infrastructures (FMIs). These standards, which resulted from two rounds of public consultation, are based on international best practices and address 28 specific areas, ranging from governance to risk management, as well as offer guidelines and a structure for regulating foreign FMIs. Coming into effect from March 2024, the Standards will be implemented as part of the FMI Act.
CSA and CIRO publish joint notice to enhance conflict of interest practices among security firms and advisors, aligning with client-focused reforms obligations
The Canadian Securities Administrators (CSA) and the Canadian Investment Regulatory Organization (CIRO) have jointly published Staff Notice 31-363, providing a review of conflicts of interest within 172 firms and offering additional guidance to securities advisers, dealers, and representatives. This notice, according to CSA Chair Stan Magidson, is designed to ensure these entities align with the obligations set by the Client Focused Reforms, prioritizing clients' interests and addressing material conflicts of interest. The regulatory bodies highlight several areas where improvements can be made, including better identification and control of conflicts of interest, and updated written policies. Further assessments will be made later in the year to gauge compliance with the Reforms' standards and contemplate possible additional rules if necessary.
Sarah Breeden has been appointed as Deputy Governor of the Bank of England, effective from November 1, 2023. Breeden will assume for Financial Stability as well as represent the Bank on various national and international bodies.
The European Central Bank (ECB) and the Single Resolution Board (SRB) have formalized a MoU for the exchange of confidential statistical information to better analyze bank resolution. The MoU solidifies cooperation between the two entities, replacing an earlier ad-hoc data exchange.
The Central Bank of the Republic of Uzbekistan, as part of their annual Knowledge Partnership Program, signed an agreement for joint research with the Bank of Korea, with a focus on payment systems oversight.
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