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 APRA revises policy priorities for ADIs to bolster financial stability amid international banking stress events EBA revises IRB model implementation roadmap, releases supervisory handbook for IRB rating system validation to curb compliance costs Swiss National Bank concludes liquidity assistance agreement with UBS and Credit Suisse following full repayment EBA to conduct specialized data collection on interest rate risk amid rising inflation EBA report notes progress in the functioning of AML/CFT colleges DFSA joins forces with UAE's Financial Intelligence Unit in MoU to intensify battle against financial crime DFSA conducts industry-wide cyber simulation to test crisis management of DIFC Firms; new cyber risk management rules announced EBA spotlights mystery shopping as key regulatory tool in recent report FCA initiates campaign to combat loan fee fraud amid rising summer financial stress in the UK Qatar central bank initiates policy guidelines for insurance comparison websites MAS pledges SGD 150 million over three years for FSTI 3.0 initiative to promote innovation and advanced technology in FinTech sector Sam Bankman-Fried faces bail revocation, is sent to Brooklyn Metropolitan Detention Center ahead of trial Federal Reserve Board releases further updates in relation to its approach for overseeing novel activities in banks Dubai’s VARA and Department of Economy and Tourism partner to improve consumer protection and virtual assets operations in Dubai Bittrex and Ex-CEO settle U.S. SEC accusations of operating unregistered securities entities Brazil Central Bank announcing rebranding of CBDC Project TNFD suggests global nature-linked public data facility for increased data availability and quality Royal Bank of New Zealand publishes 'Too Little, Too Late' climate stress test for banks Hong Kong Green and Sustainable Finance Cross-Agency Steering Group outlines new initiatives to strengthen Hong Kong’s position as global sustainable finance hub Vietnam SSC partners with IFC to release greenhouse gas emission reporting manual Canadian Securities Administrators launch review of exchange-traded fund regulations to align with industry growth and international standards
Prudential & financial stability
APRA revises policy priorities for ADIs to bolster financial stability amid international banking stress events
The Australian Prudential Regulation Authority (APRA) has communicated an updated outline of policy priorities for authorised deposit-taking institutions (ADIs) for the rest of 2023. This follows banking stress events abroad earlier this year. APRA has shifted its policy initiatives to urgently strengthen standards for bank financial stability, while slowing down less urgent policy reforms. To that end, APRA will for the remainder of year focus on four areas:
Liquidity: APRA plans to introduce changes to Prudential Standard APS 210 Liquidity, specifically concerning the liquid asset treatment for ADIs using the minimum liquidity holdings approach. As a result, a comprehensive review of APS 210 will be deferred to 2024. Interest Rate Risk: APRA will give more consideration to feedback and international banking stress events before concluding the Prudential Standard APS 117 Capital Adequacy. The updated standard is expected by the end of 2023, with the enforcement date being adjusted to provide ample time for ADIs to adapt. Additionally, the review's scope will now encompass smaller ADIs. Additional Tier 1 (AT1): In light of recent banking crises in the U.S. and Switzerland, the Council of Financial Regulators emphasized the correct functioning of crisis management tools, including AT1. APRA will thus release a Discussion Paper to investigate and gather opinions on enhancing the effectiveness of AT1 capital in Australia, with potential discussions to occur in 2024. Capital Framework Updates: Responding to the concerns presented by the industry during the capital reform execution earlier in the year, APRA will look into minor modifications to the bank capital framework related to those points.
EBA revises IRB model implementation roadmap, releases supervisory handbook for IRB rating system validation to curb compliance costs
The European Banking Authority (EBA) has updated its roadmap for implementing the internal ratings based (IRB) model requirements, with the aim of limiting compliance costs for institutions. Specifically, given the impending introduction of the Basel III standards within the European framework, the EBA has proposed delaying the implementation of the IRB repair requirements related to loss given default (LGD) and credit conversion factor (CCF) models. These models pertain to portfolios not eligible under the updated advanced internal ratings based (AIRB) approach in line with the final Basel III framework. This postponement aligns with the future activation of the Capital Requirements Regulation (CRR 3). In the interim, institutions have the discretion to revert to a simpler IRB approach or opt for the perpetual partial employment of the standardised method for such portfolios. Furthermore, the EBA has also published its final supervisory handbook for validating IRB rating systems to better define the role of the validation function in corporate governance. The handbook provides guidance on the validation function and provides an overview of the validation framework and the elements where the validation function is expected to form an opinion, without prescribing any specific methodology. It covers both the tasks related to the model performance assessment as well those dealing with the modelling environment, such as data quality and model implementation assessment.
Swiss National Bank concludes liquidity assistance agreement with UBS and Credit Suisse following full repayment
The Swiss National Bank (SNB), in consultation with the Federal Department of Finance, has concluded its credit facility agreement with UBS and Credit Suisse for the liquidity assistance loan with federal default guarantee. The termination was prompted by a request from UBS and coincided with Credit Suisse’s full repayment of the liquidity assistance as of August 10, 2023. The measures were put in place during the acquisition of Credit Suisse by UBS in response to a confidence crisis, and have facilitated the perpetuation of necessary liquidity post-acquisition. The SNB acknowledges the successful repayment of the liquidity assistance.
The European Banking Authority (EBA) has announced a decision to conduct an ad-hoc data collection of Interest Rate Risk in the Banking Book (IRRBB) data from institutions already involved in the Quantitative Impact Study (QIS). The data collection aims to equip regulatory authorities with data and tools to monitor risks arising from interest rate changes and the implementation of the IRRBB scrutiny plan.
AML & CFT
EBA report notes progress in the functioning of AML/CFT colleges
The European Banking Authority (EBA) has released its third report regarding the functioning of anti-money laundering and countering the financing of terrorism (AML/CFT) colleges. The Report indicates that while significant progress has been made by competent authorities to enhance the functioning of AML/CFT colleges, many have not yet achieved full maturity. As of 31 December 2022, 229 colleges were fully operational while approximately 50 had yet to convene their initial meeting. In particular, the 2022 monitoring by EBA staff showed that college members have made important improvements in streamlining their operations, with a shift towards a more structured approach, resulting in the exchange of more detailed and actionable data than in preceding years. Furthermore, there has been increased participation of prudential supervisors and financial intelligence units (FIUs) in the colleges, which has supported supervisors in receiving timely and relevant data and thus enhancing the supervision of institutions with cross-border operations. Several colleges have also started to collaboratively identify and address shared challenges. Despite this progress, the EBA report highlights several remaining areas for improvement. Among other things, some colleges still face challenges in information-sharing, and the integration of third country authorities into college meetings remains an ongoing challenge. The Report points to good practices that could assist competent authorities in addressing these issues and further enhancing the efficiency of AML/CFT colleges.
On August 8, 2023, the Dubai Financial Services Authority (DFSA) has signed a MoU with the UAE's Financial Intelligence Unit (FIU) to bolster their joint action against financial crime. The MoU, which aims to strengthen coordination, cooperation, and information sharing on Anti-Money Laundering and Combating the Financing of Terrorism, was signed by DFSA CEO, Ian Johnston, and FIU Chief, Ali Faisal Baalawi. Both parties expressed their commitment to collaborate and share resources to combat financial crime.
DFSA conducts industry-wide cyber simulation to test crisis management of DIFC Firms; new cyber risk management rules announced
The Dubai Financial Services Authority (DFSA) has released a report detailing its first industry-level cyber simulation exercise, which tested the cyber crisis management capabilities of 17 authorised firms in the DIFC. The exercise was held in partnership with consulting firm, Control Risks, and forms part of the DFSA’s efforts to increase cyber security awareness and aid in the continued development of cyber resilience within DIFC firms. Furthermore, new cyber risk management rules have been published by the DFSA, which will come into effect on January 1, 2024. All authorised persons in the DIFC are expected to comply with these requirements. In addition, the DFSA is encouraging firms to register for its Cyber Threat Intelligence Platform to receive timely cyber threat information.
Conduct & consumer protection
EBA spotlights mystery shopping as key regulatory tool in recent report
The European Banking Authority (EBA) has published a report detailing its mystery shopping investigation into personal loans and payment accounts. The investigation carried out showcased the value of mystery shopping as a tool to supplement traditional supervisory instruments. Carried out in 2023 and involving five national competent authorities and 37 financial institutions that were mystery shopped on 340 occasions – both in-person and online – the findings highlighted several cases of inappropriate conduct, such as lack of pre-contractual information and presumptive inclusion of bank fees. The published report marks the EBA's completion of its mandate to coordinate mystery shopping activities, a task assigned to it in 2020 under Article 9(1) of the EBA Founding Regulation.
FCA initiates campaign to combat loan fee fraud amid rising summer financial stress in the UK
The Financial Conduct Authority (FCA) has launched a campaign to help consumers avoid loan fee fraud during the summer months, which is a period of increased financial pressure. The FCA's research shows that 55% of adults in the UK are more worried about their finances this summer than last year and a quarter have turned to credit or loans to fund additional summer spending, making them potential targets for fraudsters. The FCA recommends a three-step checklist for consumers to protect themselves from scams, and urges them to check the FCA Register to ensure the firm they are borrowing from is authorised. In 2022, the FCA reported a 26% increase in complaints related to loan fee fraud compared to 2021.
As part of its financial sector and Fintech strategy, the Qatar Central Bank (QCB) has issued directives for insurance policy price comparison websites with the objective of licensing and regulating such website providers.
Fintech & ecosystem innovation
MAS pledges SGD 150 million over three years for FSTI 3.0 initiative to promote innovation and advanced technology in FinTech sector
The Monetary Authority of Singapore (MAS) has announced a commitment of up to S$150 million over the next three years to fund the Financial Sector Technology and Innovation Scheme (FSTI 3.0). The scheme aims to expedite and enable innovation, focusing on projects featuring advanced technologies or a regional impact. It includes enhanced support for corporate venture capital entities, the promotion of innovative FinTech solutions via competitive open calls, and initiatives for the adoption of Environmental, Social and Governance FinTech solutions. Furthermore, the MAS plans to foster advanced capability development in areas like Artificial Intelligence and Data Analytics and Regulation Technology, while promoting talent development within the Singaporean FinTech industry.
Sam Bankman-Fried faces bail revocation, is sent to Brooklyn Metropolitan Detention Center ahead of trial
U.S. District Judge Lewis A. Kaplan ordered FTX founder Sam Bankman-Fried to be detained prior to his criminal trial, following federal prosecutors' claims of witness tampering and breach of bail terms. Bankman-Fried, who was previously confined to his parents' home in California since his extradition from the Bahamas on fraud charges related to his cryptocurrency exchange, will be held in a Brooklyn federal detention center until his trial on October 2nd. The decision to revoke his bail came after he disclosed private diary entries of his ex-partner and trading firm CEO, Caroline Ellison, to the New York Times in July. Prosecutors viewed this action as an attempt at witness intimidation. Although media entities argued that his detention violated free speech rights, and his defense pointed to his First Amendment rights, the judge's ruling stood. Bankman-Fried's lawyers have since filed an appeal.
Federal Reserve Board releases further updates in relation to its approach for overseeing novel activities in banks
In a new press release, the Federal Reserve Board has shared a further update on its intended approach for the supervision of novel activities by banking entities under its remit. Dubbed Novel Activities Supervision Program, the new program’s aim is to bolster the Federal Reserve's technical know-how regarding new financial activities and the risks they present as well as strike a balance between encouraging innovations that enhance financial service accessibility while also ensuring the stability of the banking system. Focus will be on a number of key activities as follows:
Technologically intricate partnerships where non-banks deliver banking services, often employing tools like application programming interfaces (APIs). Activities tied to crypto-assets such as custody, crypto-backed lending, facilitating trading, and issuing or distributing stablecoins. Initiatives employing DLT that could considerably influence the financial sector. Concentrated provision of standard banking operations like deposits and lending to crypto-related entities and fintechs.
The Program intends to work in conjunction with current Federal Reserve supervisory teams, not relocating entities to a new supervisory division but operating within existing ones. It will be risk-centric, with supervision intensity varying based on each entity's level of involvement in novel activities. Multidisciplinary leaders from the Federal Reserve System will provide counsel to the Program. To remain updated on emerging tech trends and products, the Program plans broad engagements with external specialists from academia, banking, and tech sectors. The Federal Reserve will formally notify banking organizations that come under the Program's scrutiny.
The Department of Economy and Tourism (DET) and the Virtual Assets Regulatory Authority (VARA) in Dubai have signed an MOU to establish an integrated city model for consumer protection and responsible virtual asset operations. The collaboration intends to deliver synchronized market assurance across Dubai, focusing on customer care, business inspection, licensing, education, and knowledge sharing among other things.
Crypto Asset Trading Platform Bittrex Inc. and its former CEO, William Shihara, have agreed to settle charges with the U.S. Securities and Exchange Commission (SEC) for operating an unregistered national securities exchange, broker, and clearing agency. Additionally, Bittrex’s foreign affiliate, Bittrex Global GmbH, consented to settle charges for failing to register as a national securities exchange. The SEC's complaint alleged that Bittrex provided services to U.S. investors in relation to crypto assets, which were offered and sold as securities. Under the settlement, Bittrex and Bittrex Global will pay a total of $24 million in penalties, disgorgement, and pre-judgment interest, though they neither admit nor deny the allegations. The settlement is pending court approval.
Payments & currency
Brazil Central Bank announcing rebranding of CBDC Project
The Central Bank of Brazil is advancing its CBDC project with a rebranding from Real Digital to Drex. The new name is intended to symbolize modern digital connectivity, with "d" and "r" alluding to Real Digital, "e" standing for electronic, and "x" denoting modernity and a connection with distributed ledger technology (DLT) employed by Drex. The visual concept, typographic designs, and graphic elements are consistent with BC's modernization strategy, called BC# Agenda. The "d" in the brand name includes two arrows symbolizing digital transactions and the evolution of Real in the digital realm, emphasizing agility. The transition of colors from blue to light green conveys transaction completion. The development process for the Drex brand began in 2022, with the aim to simplify communication. BC plans for Drex to become a prominent platform, much like the instant payment system, Pix. Any costs associated with Drex transactions will depend on the financial service that is provided by the offering institution, following regulations and considering the competitive environment. Therefore, Drex could be free or significantly cheaper than similar services.
TNFD suggests global nature-linked public data facility for increased data availability and quality
The Taskforce on Nature-related Financial Disclosures (TNFD) and partners have concluded that a global nature-related public data facility could significantly boost the availability, quality, and maintenance of nature-related data. This conclusion resulted from a high-level scoping study that identifies a growing demand for such data. The study highlighted the essential role of accurate and comparable nature-related data in addressing rapidly accelerating nature loss, enhancing organisational resilience, supporting sustainable development, and promoting investments in nature-positive outcomes. The study recommends connecting existing public data platforms and private sector data sources through a global nature-related public data facility available to a broad group of stakeholders. Several organisations are commencing the next stage of exploratory work to begin fine-tuning the governance, funding, and operational model for this proposed facility.
Reserve Bank of New Zealand publishes 'Too Little, Too Late' climate stress test for banks
The Royal Bank of New Zealand has shared the details of its planned climate stress test for banks. The stress test, which will cover the five largest banks, will be executed under the scenario headline 'Too Little, Too Late'. The scenario, which was developed in collaboration with the participating banks ANZ, ASB, BNZ, KiwiBank, and Westpac, along with climate experts, consists of a severe but plausible scenario that specifies the climate change path, associated policies and the impact on the New Zealand economy. The five banks are expected to determine their exposure by modelling the effects of the scenario on their sectors and balance sheets out to 2050. Results of the test will subsequently be published in 2024.
Hong Kong Green and Sustainable Finance Cross-Agency Steering Group outlines new initiatives to strengthen Hong Kong’s position as global sustainable finance hub
The Green and Sustainable Finance Cross-Agency Steering Group (Steering Group) has announced its latest set of key initiatives to consolidate Hong Kong's position as a leading sustainable finance hub. Key priorities include achieving world-class regulation and alignment with global standards, enhancing Hong Kong's competitiveness via capacity building, data enrichment, and tech innovation, and creating dynamic markets to mobilise larger scale capital for the net-zero transition. The group will also provide workshops to support non-listed companies and SMEs with sustainability planning and reporting, along with a data portal for greater accessibility to climate-related data.
Vietnam SSC partners with IFC to release greenhouse gas emission reporting manual
The Vietnam State Securities Commission (SSC) in collaboration with the International Finance Corporation (IFC) has launched a Manual on Reporting Greenhouse Gas Emissions at an event in Hanoi, as part of greater efforts towards sustainable development and addressing climate change in Vietnam. The manual aims to guide businesses in how to inventory and report greenhouse gas emissions effectively, aligning with the requirements of the Vietnamese government’s recent decrees and action plans on green growth and emission reduction. SSC's Vice Chairman, Pham Hong Son, emphasized the importance of green finance and sustainable finance for Vietnam's transition towards a low-carbon economy, and noted the significance of the capital market in mobilizing green capital. IFC's Sustainability Consultancy Program's head, Nguyen Thien Huong, assured that the guide incorporates international practices and reliable information for organizations planning to inventory and report greenhouse gases.
Other transversal themes
Canadian Securities Administrators launch review of exchange-traded fund regulations to align with industry growth and international standards
The Canadian Securities Administrators (CSA) have initiated a review of exchange-traded funds (ETFs)—a popular investment vehicle comprising about 15% of Canada's total publicly offered investment fund assets. The review will scrutinize the appropriateness of the current regulations related to ETFs, focusing on their unique features such as secondary market trading, ETF unit creation and redemption by authorized dealers, and the arbitrage mechanism. As per Stan Magidson, Chair of the CSA, the review's goal is to discern if any additional requirements are necessary to keep up with industry growth and innovation. The CSA will also consider whether the Implementation of the IOSCO Principles for Exchange-Traded Funds published by the International Organization of Securities Commissions is suitable for the Canadian market. The findings will guide decisions on any need for consultations or regulatory changes for ETFs.
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