Global Regulator & Central Bank News Roundup (Vol. 3/2023)
Global Regulator & Central Bank News Roundup (Vol. 3/2023)
January 23 - January 29 2023
At a glance - Highlights by topic
The roundup offers a curated selection of regulatory updates and events. For a complete listing of all developments and events with easy filtering and search options, visit Regxelerator’s dedicated and/or the .
Prudential & financial stability
ESRB issues recommendations amid elevated vulnerabilities in the European commercial real estate sector
The European Systemic Risk Board (ESRB) has issued four new recommendations to EU and national authorities to strengthen oversight of systemic risk in the European’s commercial real estate sector. The recommendations come in response to concerns over elevated vulnerability of the sector to cyclical risks as a result of the challenging economic environment, including high inflation, tightened (re)financing conditions and a subdued growth outlook, in combination with longer-term structural changes such as those stemming from climate change and shifts in demands for commercial real estate. As part of its recommendations, the ESRB calls on authorities to enhance monitoring of current and emerging vulnerabilities, to ensure that financial institutions that provide finance have in place prudent risk management practices as well as to consider the application of additional capital-based and macroprudential measures to maintain institutions’ financial resilience if their commercial real estate exposure is deemed a source of risk to financial stability. Besides this, the ESRB also called on the European Commission to assesses the current macroprudential framework in the EU with a view to ensuring that consistent rules for addressing commercial real estate related risks are applied.
UK PRA issues results of 2022 insurance stress test
The UK Prudential Regulation Authority has issued the results of its 2022 insurance stress test covering a total of 53 life and general insurers as well as Lloyd’s syndicates. For life insurers, the stress test scenario involved an adverse economic scenario and longevity improvement shock. For general insurers and Lloyd’s syndicates, in turn, the scenario consisted of three natural catastrophe scenarios, including a hurricane set of events, California earthquakes and UK windstorms and flood, as well as multiple cyber underwriting scenarios. Results of the exercise overall indicate a robust level of resilience. The life insurance sector’s solvency capital requirement (SCR) coverage dropped from 162% to 123%. General insurers’ SCR coverage, in turn, also stayed in all cases above 120%, with reinsurance from both third-party and related party reinsurers acting as the primary loss mitigant.
Market conduct & consumer protection
Cyprus SEC study highlights vulnerabilities in retail investors’ investment decision-making processes
A new study by the Cyprus Securities and Exchange Commission (SEC) has reviewed and contrasted the investment habits of retail investors in the UK, France, Germany and Cyprus. Conducted as part of the Commission’s broader programme on investor protection and financial literacy, the study examined various aspects of the drivers underlying investment decision-making processes. Among other things, the study found that close to a quarter of all investors make investment decision based on digital promotions or celebrity endorsements on social media and nearly 40% relied on recommendations from friends and family compared to only about 30% drawing on the advice from authorized financial advisors. Furthermore, while over half of the surveyed investors considered company reviews and information on the company’s website prior to the investment decision, only one third checked the company’s licensing status on the regulator’s website.
Fintech & ecosystem innovation
DNB issues EUR 3.3 million fine against Coinbase over non-registration
De Nederlandsche Bank (DNB) has levied a fine of EUR 3.3 million against Coinbase in response to the firm’s failure to register with the Central Bank. In the Netherlands, virtual currency providers engaged in the exchange between virtual currencies and fiat currencies as well as custody wallet providers must formally register with the DNB for AML/CFT purposes. Coinbase failed to register over the time period from November 2020 until end of August 2022 all while offering its services to a significant number of Dutch customers.
UK FCA publishes guidance for cryptoassets business registration applications under the AML/CFT regime
The UK Financial Conduct Authority has issued new information to guide cryptoassets business in their application for registration under the AML/CFT regime. The information highlights key considerations and requirements across the registration lifecycle that applicants should bear in mind as well as points out aspects the Authority takes into account when forming a decision on whether to grant registration. In seeking a registration, businesses must among other things:
In addition to these expectations, applicants must also have appointed a dedicated money laundering risk officer with adequate skills, experience and independence in addition to sufficient other compliance resources, proportionate to the size and nature of the business. Prior the registration, money laundering risk officers must undergo a fit and proper assessment by the Authority.
BVI Financial Services Commission issues Virtual Assets Service Providers Act
The British Virgin Islands Financial Services Commission has published the new Virtual Assets Service Providers Act. The Act was previously issued for consultation in September 2022. The Act provides for the regulation and supervision of a broad set of virtual asset services seeking to operate in or from within the British Virgin Islands. To be registered with the Authority, providers must meet inter alia fitness and property criteria, criteria for organizational, management and financial resources as well as the ability to comply with other provisions of the Act, most notably in relation to AML/CFT. Besides the registration requirements, the Act sets out the ongoing obligations for virtual asset service provider, such as in the areas of record management, client asset management and advertisements. It also defines specific requirements that virtual asset custody service providers and virtual asset exchanges must fulfill. The Act also provides for virtual asset service providers to participate in the Commission’s sandbox, subject to a successful application to the Commission.
Grenada Authority for the Regulation of Financial Institutions postpones registration of virtual asset service businesses
The Grenada Authority for the Regulation of Financial Institutions (GARFIN) has issued a new notice, advising that it will not accept applications from virtual asset businesses until the end of Q1 2023 and noting that it is presently still in the process of developing the supervision framework for virtual asset businesses in addition to development of new regulations. The Virtual Business Act, which governs virtual asset business activity in the country and assigns GARFIN as the competent authority, previously was enacted in mid-2021. The Act was developed pursuant to a model bill by the Eastern Caribbean Central Bank that was created to provide for a coherent regulatory framework for the registration and licensing of virtual asset businesses in the eight member countries of the Eastern Caribbean Currency Union.
NY State Department of Financial Services issues new guidance on virtual currency custody
The New York State Department of Financial Services has released new guidance in relation to virtual currency custody and disclosure practices with a view to enhancing the protection of customers in the event of an insolvency or similar proceedings. The guidance specifically targets virtual currency entities that act as custodians (“VCE Custodians”) and sets out expectations in four main aspects:
FRB issues policy statement on state banks’ limitations to engage in novel banking activities including crypto
The Federal Reserve Board (FRB) has issued a new policy statement to further clarify its position on banks’ engagement in novel activities including those involving crypto-assets. The statement sets out that all state banks supervised by the FRB, independent of whether they benefit from deposit insurance or not, are subject to the same limitations on novel banking activities. Equally, both insured and uninsured state banks under the FRB’s supervision are subject to the same limitations on activities as those imposed on national banks which fall under the supervision of the Office of the Comptroller (OCC) of the Currency unless those activities are legally permissible by federal statute or other applicable regulations. Besides meeting requirements for legal permissibility, state banks must also demonstrate that they engage in these activities in a sound and safe manner, supported by a robust control environment, the statement further added. On the back of these principles, the FRB further clarified that it would principally prohibit state member banks from holding most crypto-assets, including bitcoin and ether, as principal. On the other hand, state banks seeking to issue dollar denominated tokens, i.e. stablecoins, would need to meet all the conditions set out by the OCC for national banks in this regard. The FRB however caveated that “issuing tokens on open, public, and/or decentralized networks, or similar systems is highly likely to be inconsistent with safe and sound banking practices”. The policy statement follows the joint statement by U.S. federal agencies in early January to address the exposure of banking organizations to the cryptoassets sector.
Payments & currency
BIS publishes latest update on global CBDC activity
The Bank for International Settlements has shared its updated figures on the global activity associated with CBDC projects. Latest data confirms the continued global rise in project activity and interest in the topic as evidenced by the net stance of speeches addressing CBDCs. Work pertaining to retail CBDC continues to account for over two thirds of all activities. Across both retail and wholesale CBDCs a progressive increase in the number of pilot projects remains visible.
SAMA announces domestic wholesale CBDC project
In a new statement, the Saudi Arabian Monetary Authority (SAMA) has announced that it has initiated work to test domestic wholesale CBDC use cases. The step comes in an effort to evaluate the potential benefits and risks of a CBDC and inform the decision-making on a possible issuance thereof, with specific focus on gaining a deeper understanding of the CBDC’s possible economic impact and market readiness as well as testing specific CBDC functionalities and design options. The project is carried out in collaboration with local banks and fintech firms as well as consulting and technology providers. In addition to the technological component, SAMA is also looking to assess in greater detail policy, legal and regulatory considerations associated with a CBDC.
ECB’s Fabio Panetta reiterates key digital euro design choices
In remarks delivered to the Committee on Economic and Monetary Affairs of the European Parliament, the European Central Bank’s (ECB) Executive Board Member Fabio Panetta has summarized the key directions for the digital euro. Building on the main conclusions to date as outlined in the digital euro’s second investigation phase report, Panetta noted that the digital euro is intended to be a public good that is, like cash, easily and universally accessible and usable throughout the euro area, with its basic services being free of charge. He added that this must be further complemented by attractive functionalities and a highly convenient user experience. The latter is intended to be achieved through two options, he explained: (1) Integration of the digital euro into supervised intermediaries’ own platforms, enabling users direct access through existing banking apps and interfaces; (2) the possible development of a new digital euro app that would enable the use of the digital euro anywhere across the euro area. As part of his remarks, Panetta also stressed that while the digital euro might serve for conditional payments that would enable the end-user to authorise an automatic payment where pre-defined conditions of their own choosing are met, the digital euro would never constitute programmable money whereby the ECB would impose limitations on its use.
ESG
Bank of Lithuania establishes climate change centre
In support of its efforts in the areas of climate change and sustainability, the Bank of Lithuania is launching a new climate change centre. The Centre will be responsible for both leading the work to address climate change risk in the financial sector as well as advancing sustainability in relation to other aspects of the Bank’s operations and organization. The Centre will work in close collaboration with other functions within the Central Bank as well as external stakeholders including from industry, government as well as international organizations. Further information on the Centre’s priorities as well as the Bank’s new Green strategy for 2023-2025 are due to be released over the coming month.
FINMA issues new guidance on the management of climate risk for supervised entities
The Swiss Financial Market Supervisory Authority (FINMA) has issued a new guidance document to address developments in the management of climate risks and raise awareness on the matter among its supervised entities. The short document summarizes key developments on climate risk management by international standard setting bodies including the Basel Committee on Banking Supervision and the International Association for Insurance Supervisors, reiterates FINMA’s expectations towards supervised entities in the management of climate risk as well as outlines the associated supervision approach. Specifically, FINMA noted that it “expects supervised financial institutions to proactively engage with the current guidance and recommendations issued by international bodies [and] to seriously consider best practices in the market that would be relevant for them – depending on their risk profile and business model”. As for its supervision approach, FINMA stressed that it will draw on international standards to incorporate climate risk into its supervision framework and is looking to gradually intensify its supervision in this area. Current tools include supervisory discussions, surveys, on-site supervisory reviews as well as climate scenario analysis. As part of its next steps, FINMA will further clarify its expectations towards supervised entities including through additional guidance.
ECB presents new statistical climate-related indicators
In an effort to further advance the availability and quality of climate-related data, the European Central Bank (ECB) has developed a set of dedicated climate-related indicators. The indicators fall into three categories: (1) Experimental indicators on sustainable finance, designed to provide time-series information on the issuance and holding of debt instruments with sustainability characteristics by residents in the euro area, enabling insights into funding and demand for sustainable projects and associated investments. (2) Analytical indicators on carbon emissions financed by financial institutions, offering insights on the total emissions financed by the financial sector and the exposure of the financial sector to emission-intensive counterparties. (3) Analytical indicators on the physical risks of loan and security portfolios to reflect the impact of climate-related natural hazards. Of the three groups, the indicators on sustainable finance are currently of the highest standard while the other two sets of indicators remain subject to a number of constraints.
HM Treasury closes off Energy Markets Financing Scheme without any applicants
The HM Treasury has closed the application window of its Energy Markets Financing Scheme after not having received any applications. The Scheme, which was launched jointly with the Bank of England in October 2022, came in response to the spike and volatility in energy prices and the resulting liquidity challenges that energy firms faced and offered 100% guarantee to commercial banks to cover additional lending extended to firms, thereby allowing energy firms to continue to operate in a cost-effective way. HM Treasury in its announcement noted that since launch of the Scheme, prices in the wholesale gas markets decreased substantially, alleviating the pressure on energy firms.
Other highlights
As the first Central Bank across the Middle East and North Africa, the Central Bank of Iraq in collaboration with the International Finance Corporation (IFC) has launched a dedicated ESG scorecard report for the Iraqi banking sector. The report is intended to help measure the sector’s performance and adherence vis-à-vis ESG standards as well as support risk analysis.
The European Securities and Markets Authority (ESMA) has released an initial data report on the new EU natural gas market correction mechanisms. The report presents an overview of the structure and participants of the EU natural gas derivative market complete with indicators to provide insights on the impact of the mechanism. The EU Council agreed in late December to the adoption of the temporary mechanism in order to help to limit excessive gas prices. ESMA, in its statement, noted that it so far has not identified any material impact resulting from the mechanism.
Other transversal themes
The IOSCO has issued the second edition of its annual report on global investment fund statistics. The report draws on supervisory data as at the of end-2021, covering data from 45 jurisdictions including 2,700+ hedge funds, 73,000+ open-ended funds and 24,000+ closed-ended funds. For each fund type, the report presents details on net asset values, leverage, collateral and liquidity as well as information on investment strategies and exposure. In addition, the report provides a concise overview of relevant regulatory developments across the EU, U.S. and Canada.
International cooperation
The European Central Bank has agreed on a multilateral MoU with the national competent authorities of six EU Member States Czech Republic, Denmark, Hungary, Poland, Romania and Sweden, which are not part of the European banking supervision, to support the exchange of information and coordination on supervisory activities in relation to cross-border supervised firms as well as supervisory methodologies, approaches and priorities.
The European Securities and Markets Authority and the UK Financial Conduct Authority have entered into a new MoU for the cooperation and exchange of information with respect to benchmark administrators based in the UK that seek recognition or are recognized in the EU.
Key upcoming events
Date
Event title and organizer
Event type
Format
Costs
Restrictions
Link
2
2/1
Ensuring CBDC cybersecurity, scalability and resilience in the new digital economy
(OMFIF)
Roundtable
Virtual
None
Participation subject to OMFIF approval
3
2/2
EIOPA's and ESMA's reports on the cost and past performance of retail investment products, insurance-based investments products and personal pension products
(European Insurance and Occupational Pensions Authority, European Securities and Markets Authority)
Webinar
Virtual
None
None
4
2/2
Derivatives and Futures Law Committee Winter Meeting
(American Bar Association)
Conference
Physical
From USD 695
None
5
2/6
Digital Operational Resilience Act (DORA) – Technical discussion
(European Supervisory Authorities)
Workshop
Virtual
None
None
7
2/7
Sustainable Finance: Promoting Good Practices - Supervisors Roundtable
(IOSCO)
Roundtable
Virtual
None
Not defined
8
2/8
Taxonomy meets the market
(European Insurance and Occupational Pensions Authority)
Workshop
Virtual
None
Not defined
10
2/9
Diversity, equity and inclusion in the insurance industry
(International Association for Insurance Supervisors)
Webinar
Virtual
None
None
11
2/9
Payments in the Metaverse and the future of transfer of value
(OMFIF)
Roundtable
Virtual
None
Participation subject to OMFIF approval
There are no rows in this table
© 2023 REGXELERATOR
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