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 FDIC and Federal Reserve Board Seek Public Input on Guidelines to Improve Resolution Planning for Large Banks and Foreign Banking Organizations U.S. Federal Regulatory Agencies Search for Public Opinion on Rule Proposal Mandating Major Banks to Hold Long-Term Debt FinCEN Holds Strategic Forum to Discuss Approach for Countering North Korean Cyber Illicit Activities Banque de France and IEDOM Continue Fight Against Illiteracy with 10th Edition of National Days of Action against Illiteracy ASIC Urges 30 Large Lenders to Bolster Support for Customers in Financial Distress Amid Rising Living Costs New BIS Report Analyzes Risks and Trends of Big Tech's Entry into Insurance Sector, Urges Regulatory Vigilance and Adaptation Bank of England Announces Start of Digital Pound Design Phase and New Technology Subgroups As Part of Latest CBDC Technology Forum Update NGFS Issues Research Reports Highlighting Increasing Trends in Climate-Related Litigation and Its Potential Impact on Financial Institutions Net-Zero Asset Owner Alliance Seeks Public Feedback on Improved Target Setting Protocol Incorporating New Approaches and Methodologies South Korea FSS Partners with Major Financial Corporations to Foster ESG Expertise Egypt FRA Sets Out Registration Criteria for Carbon Certification Bodies FSB Seeks Public Input on Impact of G20 Financial Regulatory Reforms on Securitisation Securities Commission Malaysia Introduces Foreign Exempt Scheme Framework to Liberalize Fund Management Industry ESMA's 2023 TRV Report Reveals Continued Elevated Market Risks Amid Economic Adjustment in the EU
Prudential & financial stability
FDIC and Federal Reserve Board Seek Public Input on Guidelines to Improve Resolution Planning for Large Banks and Foreign Banking Organizations
The U.S. Federal Deposit Insurance Corporation (FDIC) and Federal Reserve Board have invited public comment on proposed new guidelines which would assist certain large bank holding companies in enhancing their Dodd-Frank Act Title I resolution plans or "living wills", which detail a bank's strategy for quick and orderly resolution in case of significant financial distress or failure. Designed to apply to bank holding companies and foreign banking organizations with more than USD 250 billion in total assets that are however not considered to be the largest and most complex companies, which are already subject to guidance on resolution planning, the guidance is intended to address the unique risks of this set of companies. To that end, the guidance covers key areas of potential vulnerability to resolvability including inter alia capital, liquidity, governance mechanisms, operational capabilities as well as legal entity rationalization and separability. It also proposes that foreign banking organizations develop their U.S. resolution strategies to be complementary to their global resolution plans.
U.S. Federal Regulatory Agencies Search for Public Opinion on Rule Proposal Mandating Major Banks to Hold Long-Term Debt
The Office of the Comptroller of the Currency (OCC), in partnership with the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation, have issued for public comment a new proposal under which large banks with total assets of USD 100+ billion would be required to maintain a layer of long-term debt which can be leveraged in the event of a bank’s failure to absorb losses and increase the options to resolve failed banks and as such would help foster depositor confidence and reduce costs to the Deposit Insurance Fund in cases of large bank failures. Specifically, the proposal foresees that banks in scope would be obliged to maintain a minimum amount of eligible long-term debt equal to the greater of 6 percent of risk weighted assets, 3.5 percent of average total consolidated assets, and for banks subject to the supplementary leverage ratio, 2.5 percent of total leverage exposure under the supplementary leverage ratio. Furthermore, under the proposal, large banks would also be prohibited from participating in certain activities that may complicate their resolution. If adopted, the proposal would be phased in over a three-year period.
AML & CFT
FinCEN Holds Strategic Forum to Discuss Approach for Countering North Korean Cyber Illicit Activities
The U.S. Financial Crimes Enforcement Network (FinCEN) has held a FinCEN Exchange focused on addressing the exploitation of the digital ecosystem by the Democratic People’s Republic of Korea (DPRK) for illicit activities, including funding its unlawful weapons programs. The session underscored the risks arising from DPRK's misuse of the digital space, which poses a serious threat to the U.S. financial system. The forum showcased presentations from FinCEN and Federal law enforcement agencies, furnished discussions on sharing information, and offered insights from financial institutions and virtual currency industry representatives about combating DPRK's cyber-enabled illicit finance. The event underscored the importance of collaboration among FinCEN, law enforcement agencies, and financial institutions in detecting and investigating foul play and money laundering activities. Notably, FinCEN urged all financial organizations, particularly FinTechs and digital assets industry participants, to register under the USA PATRIOT Act Section 314(b) for voluntary information sharing as this can help reveal networks of illicit activities that no single institution can otherwise identify alone. During the fiscal year 2022, over 7,600 financial institutions registered under the 314(b), making wider network analysis feasible.
Conduct & consumer protection
ASIC Urges 30 Large Lenders to Bolster Support for Customers in Financial Distress Amid Rising Living Costs
The Australian Securities and Investments Commission (ASIC) has issued an open letter to 30 large lenders, urging them to continue supporting customers dealing with financial hardship. The regulator reports seeing a rise in customers suffering from financial distress and insists that lenders have the necessary arrangements to assist these consumers. ASIC has highlighted proactive communication, taking into account individual circumstances to formulate sustainable solutions, and maintaining regular communication during and after the assistance period as vital. This letter is part of ASIC's increased focus on financial hardship over the next year and comes in response to increased interest rates and cost-of-living pressures. The regulator has also commenced a review of 10 large home lenders and plans to publish its findings in early to mid-2024.
Banque de France and IEDOM Continue Fight Against Illiteracy with 10th Edition of National Days of Action against Illiteracy
The Bank of France is partnering with the National Agency for the Fight Against Illiteracy (ANLCI) for the 10th edition of the National Days of Action against Illiteracy (JNAI), to be held from 8 to 15 September. As part of this year’s event, the Bank of France will offer 100 financial education workshops, which will be held across metropolitan and overseas territories and which are designed to benefit audiences of all ages that are struggling with basic financial knowledge as well as social workers who play a critical support role for those affected by illiteracy. Illiteracy in France currently still concerns 7% of the population aged 18 to 65.
Fintech & ecosystem innovation
New BIS Report Analyzes Risks and Trends of Big Tech's Entry into Insurance Sector, Urges Regulatory Vigilance and Adaptation
A new report by the Bank for International Settlement’s Financial Stability Institute titled "From clicks to claims: emerging trends and risks of big techs' foray into insurance", provides an analysis of the entry of big tech companies into the insurance sector. Big tech companies have ventured into the insurance business due to the rapid expansion of the digital economy and growing acceptance of technological innovations in the insurance value chain. The entry of big tech firms into the insurance market, however, brings potential rewards as well as supervisory challenges. This report explores big tech's involvement in insurance in 14 different jurisdictions, distinguishing three main roles that big tech firms may have in an insurance context: risk carriers, intermediaries, and/or service providers. Presently, big tech's regulated insurance activities as risk carriers or insurance intermediaries are restricted, but they have a significant presence in the insurance sector as technology service providers, for example in cloud computing. While current insurance regulations do cover the activities of big tech companies, there are no regulations specific to them. Against this backdrop, the authors suggest that the evolution of a regulatory framework, based on suitable international standards and encompassing the range of activities and risks introduced by big tech, may be required. The framework should extend beyond the scope of sector-specific regulations to maintain financial stability.
Payments & currency
Bank of England Announces Start of Digital Pound Design Phase and New Technology Subgroups As Part of Latest CBDC Technology Forum Update
The Bank of England has released the minutes of its latest CBDC Technology Forum held on 26 July 2023. During the meeting the Bank highlighted it was now embarking on the design phase of the digital pound roadmap, which included conducting experiments, creating proofs of concept, and developing a blueprint for the digital pound, and which is set to last up to three years before a decision will be made on whether to progress to the build phase. To support more targeted advancement of discussion, the Bank further announced that it will move forward with the creation of four subgroups. The sub-groups will be established for a period of 6-12 months, will address the following specific topics: (1) technology options to ensure privacy in a digital pound, and design of the alias service; (2) models of interaction between PIPs; (3) core ledger technology; and (4) requirements for providing a platform for innovation. Outcomes from the subgroups’ discussions will be shared at the Technology Forum meetings.
NGFS Issues Research Reports Highlighting Increasing Trends in Climate-Related Litigation and Its Potential Impact on Financial Institutions
The Network for Greening the Financial System (NGFS) has released two new research reports discussing trends and impacts of climate-related litigations on financial institutions. The first report, titled “Climate-related litigation: recent trends and developments”, provides an update on climate-related litigation following the NGFS’ inaugural report from 2021. The report distinguishes between climate-related litigation against states and public entities, climate-related litigation against non-financial institutions, and climate-related litigation against financial institutions and highlights aggregate trends in case volume as well as draws attention to specific cases. It notes that overall climate-related litigation continues to be on the rise with over 500 cases filed since 2021. The second report discusses the relevance of climate-related litigation risks from microprudential supervision point of view. To that end, it provides an overview of how climate-related litigation risks can transmit into prudential risks for a financial institution and the impact it can have on a financial institution’s financial risks and discusses possible options and emerging good practices for supervision practices in this regard. Access the summaries of and here.
Net-Zero Asset Owner Alliance Seeks Public Feedback on Improved Target Setting Protocol Incorporating New Approaches and Methodologies
The Net-Zero Asset Owner Alliance, a group of 86 institutional investors that is committed to transitioning their investment portfolios to net-zero greenhouse gas emissions by 2050, has initiated a public consultation on its fourth edition of the Target Setting Protocol, which sets out how to determine their science-based intermediate targets. In its latest update, the Alliance seeks feedback on proposed target setting methodologies for private debt funds, real estate debt funds and residential mortgages. Feedback is also sought on assessing sovereign debt holdings' performance through qualitative indicators. The consultation will conclude on 29 September, and a webinar to discuss the latest protocol draft has been scheduled for 5 September at 17:00 CEST.
South Korea FSS Partners with Major Financial Corporations to Foster ESG Expertise
The South Korea Financial Supervisory Service (FSS) has entered into an agreement with the heads of five financial holding companies (KB, Shinhan, Hana, Woori, and NH) to develop a curriculum centered on Environmental, Social and Governance (ESG) in the financial sector. Objective of the collaboration is to generate experts who excel in ESG finance, corporate disclosure and climate risk management. The parties involved anticipate the creation of specific programs within the year and plan to include employees from various financial firms and smaller companies in the curriculum..
Egypt FRA Sets Out Registration Criteria for Carbon Certification Bodies
The Egypt Financial Regulatory Authority (FRA) has issued an official resolution stating detailed criteria for the registration of local and foreign verification and certification bodies that issue voluntary carbon certificates. The decision, led by Dr. Mohamed Farid - Chairman of the FRA, aims to support the Egyptian government’s efforts to achieve carbon neutrality in line with Egypt's Vision 2030 for sustainable development. The FRA intends to establish a definite list of registered bodies authorized to verify or approve carbon reduction projects for listing on Egyptian stock exchanges. The criteria for Egyptian entities' registration includes being a legal person, meeting professional competence requirements, and obtaining international accreditation certificates. Foreign entities, on the other hand, must be recognized under the United Nations Framework Convention or be registered with one or more international voluntary carbon registries and demonstrate prior experience in the field. The resolution also includes provisions for violations and penalties such as temporary suspension of registration or removal from the list. The FRA's new decision aligns with international regulations and advancements to provide a framework for the measurement, registration, and documentation of carbon-reducing environmental projects on the national and international levels.
Other transversal themes
FSB Seeks Public Input on Impact of G20 Financial Regulatory Reforms on Securitisation
The Financial Stability Board (FSB) has issued a call for feedback regarding the effects of G20 financial regulatory reforms on securitisation. Implemented post the 2008 global financial crisis, these reforms addressed issues in the securitisation markets such as information asymmetries and incentives. Changes included increased capital requirements for banks relating to securitisation exposures, enhanced standardisation and disclosure, and the resolution of incentive problems through retention requirements and improvements in the rating process. The FSB is now ready to assess the impact of these reforms on financial stability, market function and structure of the securitization markets, and the broader financing of the real economy. Feedback should specifically address how well securitisation reforms have met their objectives, which particular reforms have had the greatest impact, and the wider impact of these reforms on the securitisation markets and the real economy. The submissions deadline is September 22, 2023 and will be used by the FSB in the preparation of a note with preliminary findings due for public consultation in early 2024.
Securities Commission Malaysia Introduces Foreign Exempt Scheme Framework to Liberalize Fund Management Industry
The Securities Commission Malaysia (SC) has launched the Foreign Exempt Scheme (FES) framework as part of efforts to liberalise the fund management industry. Designed to offer high net worth entities and institutional investors better access to foreign investment funds, the initiative is part of SC's commitment to enhance the capital market's depth and breadth. The SC is also allowing wholesale fund managers more flexibility in investing in alternative investment products beyond the conventional assets. SC Chairman, Dato’ Seri Dr. Awang Adek Hussin, stated that these measures aim to provide investors with a wider range of investment options, promoting portfolio diversification. The revised rules will be effective from 29 August 2023 and include guidelines on the offering, marketing, and distribution of foreign funds, and guidelines on unlisted capital market products under the Lodge and Launch Framework. The remodeled guidelines also support the secondary listing of non-plain vanilla foreign exchange-traded funds (ETF), prompting more investment opportunities in the Malaysian market.
ESMA's 2023 TRV Report Reveals Continued Elevated Market Risks Amid Economic Adjustment in the EU
The European Securities and Markets Authority (ESMA) has published its second Trends, Risks and Vulnerabilities (TRV) report of 2023. The report assesses that regardless of the financial markets adapting to new economic conditions of inflation and interest rates, the perceived risks in ESMA's jurisdiction remain elevated. Even with the rebound in markets against declining energy prices and expectations of slower monetary tightening, ESMA identified a fragile environment, with increasing downside risks and pronounced market and investor anxiety. Chair of ESMA, Verena Ross, expressed that while financial market sentiment demonstrated improvement, the overall economic prospect remains weak with continuous uncertainties. She flagged the high possibility of market corrections and the associated short-term risks for consumers owing to volatility and the effects of inflation on real investment returns. Among the key findings, the report notes a hike in equity markets in the first half of 2023 despite the volatility caused by the market stresses related to several US Banks, yet credit risk indicators remain mixed. Likewise, while the EU fund sector underwent a partial recovery since 2022, fund risks are set to remain high driven by credit, valuation, liquidity and interest rate risk. The uncertainty also continues to be reflected in investor sentiment with retail investment performance also remaining subdued due to persistent price pressures in the underlying asset markets.
The Labuan Financial Services Authority and the Bermuda Monetary Authority have signed a MoU to facilitate increased regulatory, enforcement, and supervisory collaboration between these two entities. The agreement is intended to strengthen cooperation in the areas of insurance and digital asset businesses.
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