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
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EIOPA releases new papers in relation to the European Commission’s Insurance Recovery and Resolution Directive proposal Austrian FMA expands supervisory toolkit with new blackout stress test Thailand SEC consults on capital requirements for digital asset operators and issues warning on crypto mining investments U.S. CFPB complaints analysis highlights fraud and scams as most prevalent consumer concerns De Nederlandsche Bank publishes new report on cryptoasset New BIS Innovation Hub Project Tourbillon focuses on cyber resilience, scalability and privacy in a prototype CBDC MAS and NY Fed launch Project Cedar Phase II x Ubin+ to enhance cross-border payments using wholesale CBDC Central Bank of the Bahamas shares four lessons learned from the implementation of the Sand Dollar Central Bank of Eswatini engages Giesecke+Devrient as technical consultant in further CBDC exploration Christine Lagarde calls out privacy and legal tender status as critical in Digital Euro development IOSCO issues call for action to promote good practices that help counter the risk of greenwashing and consults on the development and functioning of Compliance Carbon Markets and Voluntary Carbon Markets The UAE Sustainable Finance Working Group provides progress update ADGM consults on a proposed Sustainable Finance Regulatory Framework DFSA’s Taskforce on Sustainable Finance release publication on Climate and Environmental Risk Management Egyptian government launches first African voluntary carbon market APRA shares results from banking risk culture survey CSA looks into options for improving access to real-time market data for equity securities
Prudential & financial stability
EIOPA releases new papers in relation to the European Commission’s Insurance Recovery and Resolution Directive proposal
The European Insurance and Occupational Pension Authority (EIOPA) has released two new papers in connection with the European Commission’s Insurance Recovery and Resolution Directive. The first paper comprises of an extensive set of FAQ in relation to the Directive, addressing a broad array of topics including the rationale for the Directive in broad terms as well as more specific technical aspects and their implementation under the Directive. A second paper provides a comparative analysis between the recovery and resolution frameworks in banking and insurance including an articulation of the main similarities and differences.
Austrian FMA expands supervisory toolkit with new blackout stress test
The Austrian Financial Markets Authority (FMA) has completed its first so-called blackout stress test. In the wake of the current tense geopolitical environment and the resulting vulnerabilities of the energy supply system, the new supervisory tool, dubbed “Blackout Maturity Level Assessment” was introduced to assess the vulnerability and preparedness of financial service providers vis-à-vis the risks and consequences of a blackout. The tool is designed to assess the maturity in three phases, i.e. (1) the preparation for a potential blackout, (2) the management and reaction if a blackout materializes and (3) the process of restarting and resuming operations following the blackout. In a first exercise, the tool was tested with pension funds. As a next step it will be applied to insurance firms.
Fintech & ecosystem innovation
Thailand SEC consults on capital requirements for digital asset operators and issues warning on crypto mining investments
The Thailand Securities and Exchange Commission (SEC) has issued for consultation proposed enhancements to the capital requirements for certain digital asset operators including trading centers, brokerages and traders. Under the proposal, the SEC looks to strengthen requirements through in various areas including through significant increases in the threshold for initial capital requirements and the introduction of a risk-based model for ongoing capital requirements. Concurrently with the new rules, the SEC also issued a to the public regarding cryptocurrency mining operations, urging individuals who are interested to get involved in cryptocurrency mining to be mindful of the associated risks and costs, e.g. as a result of the volatile market conditions, the depreciation of equipment and the potentially material electricity costs.
U.S. CFPB complaints analysis highlights fraud and scams as most prevalent consumer concerns
The U.S. Consumer Financial Protection Bureau has published a complaint bulletin with focus on crypto-asset related complaints. Drawing on over 8,300 complaints received over the period from October 2018 to September 2022, the analysis highlights that nearly 40% of the volume of complaints is associated with fraud and scam-related issues including theft and hacks, with a steady increase observed over the analysis period and the number of complaints accounting for about half of all complaints received in just 2022. Key reported issues include unauthorized access as well as a variety of scams such as romance scams, so-called pig butchering, and scammers posing as influencers or customer service. Other dominant issues, albeit accounting for just over 10% each, include complaints related to other transaction problems such as when buying and selling crypto-assets or when attempting to withdraw assets or U.S. dollars from crypto platforms and money not being available when promised.
De Nederlandsche Bank has published a new report on cryptoassets. Titled “Crypto-assets: evolution and policy response”, the study summarizes the evolution of cryptoassets ecosystem, presents an analysis of the associated opportunities and risks as well as discusses the regulatory response including international regulatory standards, the current regulation in the Netherlands by the DNB and the AMF as well as the anticipated regulation under the EU Markets in Crypto-Asset Regulation (MiCAR).
Payments & currency
New BIS Innovation Hub Project Tourbillon focuses on cyber resilience, scalability and privacy in a prototype CBDC
The Bank for International Settlements (BIS) Innovation Hub's Swiss Centre has launched Project Tourbillon. At the core of the new Project is the development of a CBDC prototype that looks to reconcile and optimize the trade-offs between the three core CBDC design features of cyber resilience, scalability and privacy. As part of these efforts, the Project will among other things experiment with quantum-resistant cryptography as well as make use of a new, non-DLT based form of CBDC architecture that supports linear scaling of system resources. The Project will be carried out in collaboration with the researchers David Chaum and Thomas Moser and is expected to be completed by mid-2023.
MAS and NY Fed launch Project Cedar Phase II x Ubin+ to enhance cross-border payments using wholesale CBDC
The Monetary Authority of Singapore (MAS) and the Federal Reserve Bank of New York have joined forces and launched the Project Cedar Phase II x Ubin+ to experiment on the use of wholesale CBDCs for cross-border payments. The announcement comes just on the heels of the of the kick-off of Project Ubin+ and Project Cedar Phase II earlier this month. The cooperation will focus on testing the use of a wholesale CBDC as a settlement asset to achieve atomic settlement in the context of cross-border currency transactions with multiple heterogenous currency ledgers. The experiment is planned to be completed during 2023, at which point further details on the experiment design and findings will be released.
Central Bank of the Bahamas shares four lessons learned from the implementation of the Sand Dollar
As part of a speech delivered at the Digital Euro Conference, the Central Bank of the Bahamas Governor John Rolle has elaborated on the experience in the implementation of the Sand Dollar to date. Discussing the challenges in the adoption of the local CBDC, with the Sand Dollar currently representing less than 1 percent of physical currency, the Governor identified four drivers as having been particularly critical in the path to adoption. These include (1) an active drive to expand the merchant network including through educational campaigns that raise awareness on the benefits of CBDCs and cashless transactions, (2) ensuring interoperability and a linkage with the traditional banking system for merchants (achieved through the Automated Clearing House), (3) enlisting participation from the traditional banking sector and credit unions, and (4) user education that instills confidence in the new technology. The Governor added that the limited adoption to date “understates public interests because e-money issued by non-banks is also present and we anticipate that such balances will convert fully to Sand Dollars, as the cross-platform movement of funds increases.”
Central Bank of Eswatini engages Giesecke+Devrient as technical consultant in further CBDC exploration
The Central Bank of Eswatini has entered into an agreement with Giesecke+Devrient for assistance in its continued research into the possible implementation of a CBDC in the country. The planned work, which is intended to help the Bank create a fact base for making an informed decision about the potential issuance of a Digital Lilangeni, will involve the development of a CBDC design concept, addressing aspects such as governance, accessibility, interoperability, security and programmability. A specific timeline for the completion of the next steps was not stated in the announcement.
Christine Lagarde calls out privacy and legal tender status as critical in Digital Euro development
In a video message delivered as part of the Digital Euro Conference, Christine Lagarde has shared her views on the design aspects of the Digital Euro. Speaking of the need of “embedding the Digital Euro in a sound legal framework”, she stresses the need for proper privacy and legal tender status. In her view, the design of the Digital Euro must provide a level of privacy that is at least equivalent to that of current electronic payment solutions yet should avoid full anonymity other than in a few exempted cases, such as low value – low risk payments, where greater anonymity may be an option. She further expressed her recommendation for the Digital Euro to have legal tender status, arguing that “would be unprecedented to issue central bank money for retail payments without legal tender status - just because it circulates electronically”.
IOSCO issues call for action to promote good practices that help counter the risk of greenwashing and consults on the development and functioning of Compliance Carbon Markets and Voluntary Carbon Markets
On the sidelines of COP27, the IOSCO has published several statements and papers.
This includes a new document in which it calls upon all voluntary standard setting bodies and industry associations with operations in financial markets to promote good practices among their members to counter the risk of greenwashing in the areas of asset management, ESG ratings and ESG data providers.
Dubbed “IOSCO Good Practices”, the call sets out 12 good practices directed at asset managers and ESG rating and data providers, respectively. As regards asset managers, IOSCO calls for the development and promotion of guidance in five areas, including with respect to practices, policies and procedures relating to material sustainability-related risks and opportunities and the associated disclosures, common sustainable finance-related terms and definitions and the due diligence and/or the gathering and review of information on the ESG ratings and data products that asset managers use in their internal processes.
The seven good practices for ESG rating and data providers focus inter alia on the adoption and implementation of written policies and procedures to help ensure the issuance of high quality ESG ratings and data products, the establishment of mechanisms to avoid conflicts of interest and adequate levels of public disclosure and transparency including in relation to the methodologies and processes that underpin ESG data and ratings. The good practices are consistent with earlier recommendations by the IOSCO as laid out in its reports on “Sustainability-related Practices, Policies, Procedures, and Disclosures in Asset Management industry” and “Environmental, Social and Governance Ratings and Data Products Providers”.
In addition, IOSCO has issued two more papers focused on carbon markets. This includes a paper on , which summarizes the characteristics of these markets, addresses in detail the potential vulnerabilities including in relation to carbon credit integrity and Issues relating to carbon credit market structure and participant behavior and concludes with a set of regulatory considerations to help inform regulators in the development of potential frameworks. The considerations address eleven specific areas including market access, market integrity, price discovery, governance and risk management. A second, separate paper focuses on and, among other things, discusses the potential applicable regulatory principles for these markets both from an IOSCO perspective and based on existing jurisdictional-level regulatory frameworks.
The UAE Sustainable Finance Working Group provides progress update
Against the backdrop of the COP27, the UAE Sustainable Finance Working Group has issued a further update on the progress of its work to date. Consistent with the roadmap laid out in the 2021 public update, the working group has prioritized efforts in three areas: (1) sustainability disclosures, (2) sustainability-focused corporate governance and (3) UAE sustainable finance taxonomy. Under workstream 1, efforts involved a stocktake of existing ESG-related disclosure obligations. The workstream is also considering alignment with the international standards currently under development by the International Sustainability Standards Board once these have been adopted. Workstream 2 focused on the development of a principles-based document to provide direction to financial services firms for incorporating climate-related considerations and practices into their governance and risk management structures while efforts under workstream 3 involved the articulation of design principles for the planned taxonomy.
Efforts in the three areas will continue through 2023 and involve further socialization with external stakeholders. The Working Group was established in 2019 to contribute to the development of sustainable finance in the UAE and foster regulatory cooperation between UAE authorities on regulatory practices and frameworks. It is comprised of representatives from 11 public and private sector organizations including the UAE Ministries of Finance, Economy and Climate Change and Environment, the four federal and free zone regulators including the Central Bank of the UAE, the Office of the UAE’s Special Envoy for Climate Change and three exchanges.
ADGM consults on a proposed Sustainable Finance Regulatory Framework
The Abu Dhabi Global Markets Financial Services Regulatory Authority and the Registration Authority have jointly issued for public comment a consultation paper for a sustainable Finance Regulatory Framework. The proposed framework consists of several components including a designation frameworks for green funds, climate transition funds that invest in assets which are not currently green but have the potential to become so over time, discretionary managed portfolios as well as green bonds and sukuks, and sustainability-linked bonds and sukuks. It also includes a framework for ESG disclosures under which certain companies governed by the Companies Regulation that meet a defined size threshold would be required to undertake ESG disclosures under a “comply or explain” model.
The Taskforce on Sustainable Finance led by the Dubai Financial Services Authority has released a publication on Climate and Environmental Risk Management which features individual contributions from its seven industry members, addressing the topic through a sectorial lens for the banking and asset management sector as well as thematically with focus on ESG data and ratings.
The Egyptian government has launched the first African voluntary market for the issuance and trading of carbon certificates. The Financial Supervisory Authority of Egypt will collaborate with the Egyptian Stock Exchange develop the required regulatory frameworks, business models and organizational structures to support effective implementation of the new platform.
Other transversal themes
APRA shares results from banking risk culture survey
Following completion of its initial pilot in 2021, the Australian Prudential Regulation Authority has shared the results from its first holistic risk culture survey of the banking sector. The survey, which was completed during Q4 2021, involved the collection of input on 10 risk culture dimensions from the employees of 18 authorized deposit-taking institutions and represents a self-assessment of the risk culture in these organizations. Results provide several relevant insights including inter alia differences in views between CEOs and Executives versus the rest of the organization regarding the effectiveness of risk management in the organization and psychological safety of raising risk related matters and mistakes with the former in most instances adopting a more optimistic view. Feedback also underscored the need for providing greater clarity in the delineation of risk management responsibilities and accountabilities across the three lines of defense and from a business unit and functional perspective.
CSA looks into options for improving access to real-time market data for equity securities
The Canadian Securities Administrators (CSA) has released a new consultation paper with a view to improving access to real-time market data for equity securities. The step comes in response to perennial concerns and challenges related to data access by market participants and investors due among other things to the fragmentation of data across multiple trading venues and the costs involved. The consultation paper presents the results of a stocktake of observed issues alongside proposed initial and longer-term options to address the identified concerns.
Adrian Orr reappointed as Governor of the Reserve Bank of New Zealand
Jerome H Powell’s term as the Chair of the Global Economy Meeting and the Economic Consultative Committee extended until January 2026
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