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
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 . EBA and ECB launch 2023 EU-wide stress test EBA specifies expectations for the application of strong customer authentications in the context of digital wallets U.S. CFPB proposes rule amendments to limit excessive card late fees Australian Government issues proposed token mapping framework HKMA summarizes consultation feedback and next steps for stablecoin regulation UK Government consults on the proposed regulatory framework for cryptoassets BVI FSC publishes supplementary virtual assets service provider regulation and guides Central Bank of the Philippines invites stakeholders to participate in the open finance pilot Thailand SEC amends rules on quota allocation for FX transactions of digital asset businesses Bermuda Monetary Authority clarifies accounting treatment of digital assets CPMI analysis evidences further growth of digital payments and continued demand for cash New DNB study highlights challenges associated with digital payments Bank Indonesia publishes first consultation paper on the Digital Rupiah design G20 concludes first Sustainable Finance Working Group meeting under new presidency Brazil Securities Commission publishes sustainable finance policy IOSCO revises Principles for the Regulation and Supervision of Commodity Derivatives Markets EIOPA releases supervisory statement to tighten oversight of third-country governance arrangements European Supervisory Authorities look to enhance information exchange on fit and proper assessments U.S. SEC proposes changes to its internal ethics requirements
Prudential & financial stability
EBA and ECB launch 2023 EU-wide stress test
The European Banking Authority (EBA) and the European Central Bank (ECB) have announced the launch and details of the 2023 EU-wide stress test. The test will be based on an adverse scenario over a 3-year horizon from 2023-2025 that involves a hypothetical severe worsening of geopolitical developments and an increase in commodity prices as well as a resurgence of COVID-19 contagion, which in turn drives up inflation and interest rates and results in strong adverse effects on private consumption and a worldwide economic contraction. Relative to previous exercises, the new scenario assumes more severe shocks for several macro-financial variables including a decline in real GDP at the EU level by 6% cumulatively over the three-year horizon, an increase in the unemployment rate by 6.1 percentage points and inflation between 1.5 and 3 percentage points above baseline. The EBA will coordinate the test for the euro area’s 57 largest banks. In addition, the ECB will stress test further 42 medium-sized banks not included in the EBA’s sample, following the same parameters as the EBA’s test yet with application of the principle of proportionality. Results of the exercise are expected to be published by mid-2023.
Market conduct & consumer protection
EBA specifies expectations for the application of strong customer authentications in the context of digital wallets
The European Banking Authority has published three new Q&As to further clarify the requirements for the application of strong customer authentication (SCA) when a payment card is enrolled to a digital wallet and subsequently used for payment transactions. Among other things, the added Q&A specify that the unlocking of a mobile phone with biometrics or with a PIN/password cannot be deemed a valid SCA element for the purpose of adding a payment card to a digital wallet if the screen locking mechanism of the mobile device is not a process under the control of the issuer. The Q&A also clarify that if an existing card is replaced with a new one, this must trigger again the application of the SCA.
U.S. CFPB proposes rule amendments to limit excessive card late fees
The U.S. Consumer Financial Protection Bureau (CFPB) is proposing regulatory amendments with a view to imposing new constraints on the amount of late fees that credit card issuers can charge their customers. At the core of the amendment is the proposal to lower the so-called immunity provision dollar amount for late fees that apply in the event of a missed payment from currently USD 41 to USD 8, thereby reflecting the CFPB finding that late fee income currently exceeds the associated collection costs by a factor of five. Issuers would only be able to charge higher fees if they can evidence that this is necessary to cover collection costs. Additionally, the proposal also seeks to remove the automatic annual inflation adjustment as well as cap late fees at 25% of the required minimum payment. Currently, card issuers have the right to charge late fees of up to 100% of the minimum payment owed by the cardholder. The CFPB estimates that the proposed rule changes could translate into fee reductions by as much as USD 9 billion per year.
Fintech & ecosystem innovation
Australian Government issues proposed token mapping framework
As part of its efforts to build out the regulatory framework for cryptoassets, the Australian Treasury has published for consultation the proposed framework for token mapping. The token mapping exercise is intended to provide a shared understanding of the cryptoassets ecosystem and assist in evaluating how regulation applies. To that end, the paper sets out core concepts and definitions in relation to the crypto ecosystem, proposes a high-level taxonomy and describes the application of the existing financial services regulatory framework vis-à-vis the ecosystem. Specifically, the proposed framework is built around the concepts of tokens, token systems and functions, whereby tokens are defined as “physical or digital units of information that have a role in a token system”, a token system is “a collection of steps involved in performing a function” and a function refers to the “the product or benefit provided by a token system”. Applying this framework to cryptoassets, the paper proposes a high-level taxonomy of four product types, grouped under two token systems: (1) intermediated token systems, which involve intermediaries issuing crypto assets and providing crypto asset services, and (2) public token systems, which encompass network tokens and public smart contracts. Intermediated token systems are viewed as representing the dominant share of the crypto ecosystem including various forms of financial products. Building on the consultation, the Government will – as previously announced – release by mid-2023 a further paper to consult on the licensing and custody framework for crypto asset service providers. Responses to the token mapping paper can be submitted until early March.
HKMA summarizes consultation feedback and next steps for stablecoin regulation
The Hong Kong Monetary Authority (HKMA) has published in a dedicated new report the key conclusions from the stakeholder feedback it has received in response to its discussion paper on cryptoassets and stablecoins, which it issued in January 2022. On the back of the support and feedback received, the HKMA reaffirmed its intention to put in place a risk-based regulatory framework for stablecoins with an initial focus on stablecoins that reference one or more fiat currencies. Under the framework, key activities relating to stablecoins and in-scope entities will be subject to mandatory licensing. In-scope activities are expected to cover governance-related activities (i.e. establishment and maintenance of the rules governing an in-scope stablecoin arrangement), issuance of stablecoins, stabilization and reserve management arrangements as well as the provision of wallets. In-scope entities are intended to encompass at a minimum entities that conduct regulated activities in Hong Kong, entities that market a regulated activity to the public of Hong Kong and entities that conduct a regulated activity which involves a stablecoin that purports to reference the value of the Hong Kong dollar. As part of next steps, the HKMA will proceed with a more detailed consultation on the proposed legislative framework. The framework will further specify the structures and activities that will be regulated as well as the key regulatory requirements and HKMA’s powers. Regulatory requirements are intended to be broad-based and cover inter alia requirements regarding ownership, governance and management, financial resources, risk management, AML/CFT, consumer protection as well as auditing and disclosures. The HKMA noted that it plans to have the final regulatory regime in place by 2023/24.
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.
UK Government consults on the proposed regulatory framework for cryptoassets
The UK Government has published for consultation the much-awaited proposed regulatory framework for cryptoassets. The proposed regime seeks to balance the policy objectives of encouraging growth, innovation and competition while safeguarding financial stability and market integrity and supporting adequate consumer protection. To that end, the Government looks to expand the regulatory framework for cryptoassets through a two-phased approach, with Phase 1 - which is already underway - covering the regulation of fiat-backed stablecoins used for payments and the regulation of promotions of cryptoassets while Phase 2 will address the regulation of the broader cryptoassets ecosystem with a focus on activities that pose a higher degree risks to consumers and markets and present opportunities to advance the UK’s growth agenda. Under the proposal, these activities include: cryptoassets issuance activities; exchange activities (excl. post-trade activities); certain investment and risk management activities; lending, borrowing and leverage activities; and custody activities beyond those covered in Phase 1 for stablecoins. From a geographical perspective, it is proposed to cover cryptoasset activities provided in or to the United Kingdom. Additional activities, such as crypto mining and validation, post-trade activities, cryptoasset investment advice and portfolio management activities as well as DeFi, may be covered in subsequent phases, subject to the further market evolution and international standards development. In order to bring these activities within the regulatory perimeter, the Government is suggesting to expand the list of “specified investments” under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 to include cryptoassets.
In parallel to the consultation, the Government has also issued a further on the regulation of cryptoassets promotions to propose the introduction of a new exemption to Section 21 of the FSMA. Section 21, which governs certain financial promotion restrictions, would prohibit unauthorized cryptoasset firms from communicating their own promotions unless these are approved by an authorized person. Under the proposed exemption, cryptoasset businesses that are registered with the Financial Conduct Authority under the AML/CTF regulations and that are not otherwise authorised persons would be allowed to communicate their own financial promotions in relation to qualifying cryptoassets. The exemptions comes in response to market feedback that suggests that few authorised persons would currently be willing to approve the promotions of unauthorised crypto firms.
British Virgin Islands FSC publishes supplementary virtual assets service provider regulation and guides
Further to the release of its final Virtual Assets Service Providers Act 2022, which has come formally into effect on February 1st 2023, the British Virgin Islands Financial Services Commission (FSC) has published several supplementary documents. These include the amended Financial Services Fee Regulations 2023, which have been expanded to specify the regulatory fees related to virtual assets service providers, as well as a dedicated AML/CFT guidance document. Furthermore, the Commission has also prepared guidance to outline the process and key requirements for the application for registration as a virtual asset service providers under the new Act. Among other things, the guidance specifies the details of the business and operating model including the supporting policies and procedures that must be shared as part of the application.
The Central Bank of the Philippines is calling on interested supervised financial institutions and third-party providers to participate in the standards consultations for the national open finance pilot with a view to contributing to the development of the open finance technical and operational standards and arrangements. The open finance framework was formally launched back in January 2022.
The Thai Securities and Exchange Commission has announced the extension of its existing rules on the quota allocation for FX transactions to digital asset fund managers. Under the changes, digital asset fund managers now have the option to apply for a quota to execute FX transactions with financial institutions in Thailand regarding purchases of digital assets overseas and payments for related expenses, consistent with how it has been in place for other digital asset businesses operators since 2021.
In a new industry notice, the Bermuda Monetary Authority has clarified its regulatory stance for the accounting treatment for digital assets stored or maintained by digital asset businesses on behalf of their customers, stating that the relevant assets and liabilities must be presented on the digital asset business’ statutory balance sheet and be subject to audit.
Payments & currency
CPMI analysis evidences further growth of digital payments and continued demand for cash
In a new brief, the Committee on Payments and Market Infrastructures discusses the latest payments trends on the basis of data up until 2021 collected from 27 member states. Figures confirm that the strong growth in digital payments over the past decade continued throughout 2021. Cashless payments reached new highs in 2021 in terms of value and volume across both emerging and advanced markets, with growth being significantly driven by credit transfers and contactless card payments. Fast payments, as measured by the average volume per inhabitant, underwent a particularly sharp increase in 2021. Despite the continued increase in digital payments, cash remains a relevant means of payment, the study observes. Some of the trends that materialized during the early stages of the pandemic have again slightly reversed with declines in volumes and values of cash withdrawals having on balance slowed down in 2021. Currency in circulation, while having slightly fallen in 2021, also remained above pre-pandemic levels.
New DNB study highlights challenges associated with digital payments
De Nederlandsche Bank has published the results of a new study on the digitalization of the payment system. The study found that nearly 2.6 million, or one in six, Dutch people over the age of 18 experience challenges in relation to digital payments, with elderly, low-educated people and people with physical or mild intellectual disabilities being most affected. Among other things, insights indicate that in addition to internet banking, non-routine actions such as opening a bank account, installing a mobile banking app or applying for a new debt card are considered most challenging by the affected segments, with many having to enroll the help of others to perform these actions and approximately 400,000 being entirely reliant on others for their banking affairs. While banks have launched various measures to address these issues, feedback highlights that many remain unaware of available solutions while others show reservations to use thesee. Findings from the study form a critical input into the Action Plan for Accessible Payments of the National Forum on the Payment System, which serves as a tool to continuously improve banks’ accessibility initiatives.
Following the release of its White Paper on the architecture of the Digital Rupiah, the Bank Indonesia has published the first consultation paper on the proposed design for the first of three stages of development, which involves the development of the wholesale Digital Rupiah cash ledger including the introduction of the technology and basic functionalities relating to the issuance, redemption and transfer of funds. The consultation paper addresses both functionalities and technical aspects of the CBDC as well as general consideration.
G20 concludes first Sustainable Finance Working Group meeting under new presidency
The G20 has held its first Sustainable Finance Working Group meeting under India’s presidency. The meeting addressed the three priorities of resources for climate finance, financing for the Sustainable Development Goals (SGDs) as well as capacity building in support of sustainable finance. In relation to the financing of SGDs, the Working Group highlighted its plans to design an analytical framework for financing select SGDs as well as to create a compendium of case studies for SGD financing best practices. As regards capacity building, the Working Group agreed to develop a G20 Sustainable Finance Technical Assistance Action Plan. The Plan will provide an assessment of sustainable finance skill gaps along with an overview of existing capacity-building activities and serve as a basis for delivering recommendations for on how to scale up capacity-building services and explore ways to form a global network for sustainable finance capacity building. Conclusions of the meeting will feed into the next G20 Finance Ministers and Central Bank Governors meeting at the end of February.
Brazil Securities Commission publishes sustainable finance policy
In an effort to further solidify and guide its efforts on sustainable finance, the Brazil Securities Commission has published a dedicated sustainable finance policy. The new policy sets out six specific strategic sustainable finance objectives vis-à-vis the capital markets, including inter alia the ambition to strengthen the transparency of ESG information in the market, proactively address greenwashing, promote technical cooperation and exchange of experiences in sustainable finance as well as
encourage financial education and innovation as tools for engagement and dissemination of sustainable finance. Against this backdrop, the policy provides that a specific action to support the delivery of these objectives must be put prepared on an at least biannual basis, subject to approval and oversight by relevant Committees. The policy also formally affirms the Commission’s intention to reflect the theme of sustainability within its own operations.
Other transversal themes
IOSCO revises Principles for the Regulation and Supervision of Commodity Derivatives Markets
The IOSCO has published a revised version of its 2011 Principles for the Regulation and Supervision of Commodity Derivatives Markets. The revision is intended to ensure that the Principles remain fit for purpose as markets continue to evolve and provide a resilient framework for the regulation and oversight of the commodity derivatives markets. Specific developments that have prompted the review and revision include both the recognition of the impact of novel and unexpected external disruptions such as the experience of recent market turmoil and volatility that resulted from COVID-19 pandemic and geopolitical tensions as well as other more structural changes such as the emergence of additional types of trading venues, greater reliance on electronic data and technological developments, and an increasing interest by retail investors in commodity derivatives. The updated set of Principles encompasses 24 Principles with several new additions including inter alia principles on technological developments in commodity derivatives market and principles to address unexpected disruptions in the market and to promote investor education.
EIOPA releases supervisory statement to tighten oversight of third-country governance arrangements
The European Insurance and Occupational Pensions Authority (EIOPA) issued a new supervisory statement to national competent authorities with a view to strengthening the supervision and monitoring of insurance undertakings’ and intermediaries’ activities when using governance arrangements in third countries. The statement comes in response to concerns over circumstances when EU-based undertakings or intermediaries use third country branches to disproportionately perform essential functions or activities, resulting in a lack of corporate substance and the resemble of an empty shell within the EU. To that end, the statement reiterates that undertakings and intermediaries using third country branches are expected to retain an appropriate level of corporate substance within the European Economic Area (EEA), proportionate to the nature, scale and complexity of their business, avoid an undue dependence on their third-country arrangements for activities in the EEA as well as appropriately oversee regulated functions and. Likewise, third country branches are expected to serve primarily the markets in which they are established and are to avoid operating with the sole objective of supporting EU-based undertakings and intermediaries.
European Supervisory Authorities look to enhance information exchange on fit and proper assessments
The European Supervisory Authorities (ESAs) have issued proposed guidelines on the system for the exchange of information in relation to fitness and propriety assessments of holders of qualifying holdings, directors and key function holders of financial institutions and financial market participants. Purpose of the guidelines is to increase the efficiency of the information exchange between sectoral supervisors by harmonizing practices and clarifying how competent authorities should use the information system developed by the three ESAs. To that end, the guidelines address how competent authorities can leverage the ESAs’ information system to log and identify existing fit and proper assessments as well as how to cooperate bilaterally to exchange information on the assessment in question.
U.S. SEC proposes changes to its internal ethics requirements
The U.S. Securities and Exchange Commission (SEC) is proposing several changes to its staff trading rules in an effort to further tighten its internal ethics requirements and minimize the perception of conflicts of interest. Under the proposed changes, SEC staff would be prohibited from investing in financial industry sector funds, complementing the existing prohibition to invest in stocks of entities directly regulated by the SEC. Additionally, the amendments would provide the SEC with the authority to collect data on employees’ covered securities transactions and holdings directly from financial institutions through an automated electronic system, thereby creating an independent system for compliance monitoring and testing while also reducing the compliance burden for the SEC. Finally, the updated rules would exempt diversified mutual funds from the supplemental requirements, given that these are generally considered low risk from a conflicts of interest perspective.
Aidene Walsh has been appointed as the new Chair of the UK Payment Systems Regulator for a three-year term, effective immediately.
Alwyn Jordan has been appointed as Acting Governor of the Central Bank of Barbados, succeeding Governor Cleviston Haynes.
The Central Bank of the UAE and the Reserve Bank of India have engaged in discussions to strengthen their cooperation through a new MoU in the areas of fintech and experimentation on CBDCs for cross-border transactions to be signed at the end of February. The two parties are also looking to link their instant payment platforms to further facilitate cross-border payments.
The Brunei Darussalam Central Bank and Monetary Authority of Singapore have entered into a new MoU to deepen cooperation in banking and insurance supervision including in relation to information exchange and cross-border on-site inspections.
The Arkansas Insurance Department has signed up to the international supervisory cooperation and information exchange agreement by the International Association of Insurance Supervisors.
Key upcoming events
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