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Global Regulator & Central Bank News Roundup (Vol. 43/2022)

November 28 - December 4 2022
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
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At a glance - Highlights by topic

(Expand topics via arrow and/or click on topic to skip directly to sections)

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Prudential & financial stability
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UK PRA proposes revised criteria for determining firms in scope for its new strong and simple prudential framework
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Cyber & operational resilience
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New IOSCO and CPMI findings highlight five areas of concern with respect to FMIs’ cyber resilience
EU Council adopts Digital Operational Resilience Act
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AML & CFT
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FATF sheds light on money laundering from synthetic opioids trafficking
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Market & consumer protection
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IOSCO sets out practices for investor education and protection in periods of crisis
EU Parliament and Council provisionally agree on new consumer debt related rules
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Fintech & ecosystem innovation
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ESMA shares perspectives on FTX collapse and stresses importance of passing MiCA
Central Bank of Türkiye announces launch of open banking services
Bank of Mauritius consults on proposal for banks’ prudential treatment of virtual assets
Government of Andorra publishes regulations governing digital asset intermediaries
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Suptech & Regtech
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ADGM FSRA launches AI initiative on open regulation
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Payments & currency
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The Digital Dollar Project and Depository Trust & Clearing Corporation share insights from joint CBDC experimentation
ECCB consults on draft payments vision and strategy
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ESG
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APRA publishes findings from its inaugural climate vulnerability assessment
New FINMA guidance on climate risk disclosures calls out several shortcomings in banks and insurers’ current disclosures
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Other transversal themes
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Central Bank of Bahrain has established a dedicated Opportunities Equity Committee to drive gender balance in the financial sector


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Prudential & financial stability


UK PRA proposes revised criteria for determining firms in scope for its new strong and simple prudential framework
Against the backdrop of its latest consultation paper on the implementation of Basel 3.1 standards, the UK Prudential Regulation Authority (PRA) has published its revised proposal for the specific eligibility criteria that firms must meet in order to fall under its new strong and simple framework. The proposed new framework is intended to simplify prudential requirements for certain banks and building societies that are neither systemically important nor internationally active while preserving their resilience. Consistent with the original proposal the framework considers four criteria: (1) a size criterion, (2) limited trading activity criterion, (3) exclusion of firms providing certain clearing, settlement, and custody services criterion, and (4) domestic activity criterion. Key revisions under the latest proposal that incorporates industry feedback include raising the maximum size threshold from GBP 15 to 20 billion, further amendments to what is recognized as domestic exposures as well as modifications to the domestic activity threshold calculation. As part of the latter, firms’ ratio of credit exposures to UK obligors to credit exposures to obligors in all countries as a three-year average must be at least 85% and not fall below a minimum floor of 75%.
In the context of the broader Basel 3.1. implementation framework, the PRA also proposed that firms under the new regime would be able to opt out of the Basel 3.1 standards and instead be subject to a transition capital regime until the new permanent risk-based capital framework under the simpler regime has been defined and implemented.
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Cyber & operational resilience


New IOSCO and CPMI findings highlight five areas of concern with respect to FMIs’ cyber resilience
The IOSCO and the Committee on Payments and Market Infrastructures (CPMI) have released the findings of their assessment of the cyber resilience of 37 financial market infrastructures (FMIs) from across 29 jurisdictions. While overall attesting a high adoption of the provisions outlined in the FMI-specific guidance on cyber resilience, the assessment revealed shortcomings in five areas. These involve shortcomings in relation to the ability of meeting the prescribed 2h recovery time objective including most notably several smaller FMIs not having yet developed their cyber response and recovery plans at all. Other identified concerns stem from the lack of cyber resilience testing after major system changes, the lack of comprehensive scenario-based testing as well as inadequate involvement of the necessary stakeholders in the testing exercises. Responding to the concerns, the IOSCO and CPMI called on the “FMIs and their supervisors to address these issues with the highest priority”.
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EU Council adopts the Digital Operational Resilience Act
The European Council has announced the formal adoption of the new Digital Operational Resilience Act (DORA). DORA establishes a harmonized regulatory framework for companies and organizations operating in the financial sector as well as introduces new requirements for certain critical third parties such as cloud and data analytics service providers, which provide information communication technologies for these companies and organizations. Following the adoption, EU countries will proceed to transpose DORA into national requirements while the three European Supervisory authorities will develop the relevant technical standards across sectors.
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AML & CFT


FATF sheds light on money laundering from synthetic opioids trafficking
The FATF has released a new edition in its series of thematic money laundering reports with a focus on the laundering of proceeds from synthetic opioids trafficking. Amid significant rises in overdoses and deaths associated with synthetic opioids such as fentanyl and tramadol across the United States, Africa and Asia, the report seeks to raise awareness and provide insights into opioid trade patterns, associated supply chains and money laundering schemes deployed. Among other things, the report finds that organized crime groups involved in synthetic opioids trafficking currently largely rely on bulk cash smuggling, cash couriers, trade-based money laundering, virtual assets and shell companies to launder proceeds. Against this backdrop, FATF offers recommendations for the private and public sector in the detection and disruption of these criminal chains as well as provides risk indicators that can aid in the identification of potential trafficking.
Commenting on the publication of the report, which was co-developed by the United States, the U.S. Under Secretary Brian Nelson stressed: “The illicit trade in fentanyl and other synthetic opioids has caused a record number of overdose deaths in the United States and devastated communities around the world. Combatting this scourge is a top priority of the Biden-Harris administration, and Treasury plays an important role in the whole-of-government response.”
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Market conduct & consumer protection


IOSCO sets out practices for investor education and protection in periods of crisis
IOSCO has released a further report under the umbrella of the work of its Retail Market Conduct Task Force. Titled “Investor Behaviour and Investor Education in Times of Turmoil: Recommended Framework for Regulators based on Lessons Learned from the COVID-19 Pandemic”, the report summarizes regulators’ insights and approaches to investor protection and education during the COVID-19 pandemic amid changing investor behaviors and other challenges brought about by the circumstances. Drawing on the lessons learned, the report sets out seven general practices that regulators should consider when designing financial and investor education during periods of crisis. Recommended practices include inter alia having in place dedicated tools and metrics to identify emerging patterns in investor behavior, identifying particularly vulnerable investor segments, adopting a bespoke approach tailored to the characteristics of the various target audiences and exploring, where appropriate, new approaches to reach investors to deliver education. The recommendations also call for regulators to institute processes for testing the effectiveness of educational and investor protection initiatives with a view to ensuring that these are achieving the intended impact.
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EU Parliament and Council provisionally agree on new consumer debt related rules
Members of the EU Parliament in negotiation with the European Council have reached a preliminary conclusion on the key tenets for a new directive on consumer credit that seeks to protect consumers from credit card over-indebtedness. The agreement addresses several critical areas including credit worthiness assessments, marketing and credit conditions. Accordingly, creditors in the EU will in the future be required to deepen the assessment of a consumer’s creditworthiness and verify the consumer’s capacity to meet the credit obligations. Additionally, creditors will be subject to tighter advertising rules, designed to ensure that risks to the credit agreement are more transparently communicated and that consumers are not unduly encouraged to take out credit. Other key measures agreed include the implementation of credit caps and the mandatory implementation of the right of consumers to withdraw from a credit agreement without any reason within 14 days as well as to repay credit early. To avoid undue costs and charges to consumers, more stringent rules will also apply to overdraft facilities and creditors requirements to put in place forbearance measures. The new rules will cover credit agreements up to an amount of EUR 100,000.
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Fintech & ecosystem innovation


ESMA shares perspectives on FTX collapse and stresses importance of passing MiCA
In a special meeting convened by the European Parliament’s Economic and Monetary Affairs Committee, the European Securities and Markets Authority (ESMA) has shared its preliminary perspectives on the FTX collapse. Based on the public information surrounding the FTX downfall, ESMA’s spokesperson Steffen Kern, Head of Risk Analysis and Chief Economist, stressed the absence of critical safeguards in the areas of client asset segregation and corporate governance as critical impact factors. Addressing the spillover concerns he highlighted that while further contagion within the crypto sector on the back of the FTX collapse is possible, “at present ESMA does not see significant risks of major spill-overs into the wider financial sector, given that crypto assets represent less than one percent of total market capitalisation across traditional asset classes, and the fact that interlinkages across the crypto and traditional financial markets have remained comparatively limited”. Kern further expressed his view that “MiCA is tackling the right issues to introduce vital protections for investors and important rules for market participants through a common EU regime” and called for urgent implementation.
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Central Bank of Türkiye announces launch of open banking services
The Central Bank of Türkiye has officially launched its open banking services. The new Open Banking Gateway infrastructure, which acts as an application programming interface and which was developed by the Interbank Card Center, allows third parties to provide Open Banking transactions in the field of payment services. The supporting technical and operational framework underpinning the new infrastructure and the implementation strategy were developed by the Central Bank in collaboration with the Interbank Card Center in line with international best practices and with the support from a dedicated working group. Meanwhile, the Law No. 6493 on Payment and Securities Settlement Systems, Payment Services and Electronic Money Institutions provides for the legal framework for the open banking services. As at launch, six banks have completed the tests and technical certifications to provide services through the new Gateway.
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Bank of Mauritius consults on proposal for banks’ prudential treatment of virtual assets
The Bank of Mauritius has published for consultation a new guideline setting out the prudential framework for banks when dealing with virtual asset related activities. The guideline is anchored in the Virtual Asset and Initial Token Offering Services Act 2021 which governs virtual asset activities in the country and which provides for banks to engage in certain virtual asset activities subject to the approval of the Bank of Mauritius.
To that end, the guideline specifies the core principles that must be followed by banks in relation to such activities. At the core of the framework is the proposal for the prudential classification of virtual assets and the resulting minimum requirements capital requirements for credit and market risk as well as minimum requirements liquidity risk. Within this construct, the proposal, which follows the proposed framework by the Basel Committee on Banking Supervision (BCBS), foresees the classification of virtual assets into three groups: Group 1a Virtual Assets comprising of tokenized traditional assets, Group 1b Virtual Assets covering virtual assets with an effective stabilization mechanism, and Group 2 Virtual Assets covering all other virtual assets that do not meet the definition of the other two groups. Consistent with the BCBS approach, Group 2 Virtual Assets would attract the highest prudential requirements. Other key provisions that the guideline addresses include inter alia the responsibilities of the board and senior management of a bank, the process for applying to the Bank of Mauritius for approval, the general requirements for managing the associated financial and non-financial risks as well as reporting and disclosure requirements.
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Other highlights
The Government of Andorra has published final regulations governing the requirements and sanctions regime for so-called digital overseers, which will assume an intermediary role between digital asset firms and the Andorran Financial Authority in the submission of applications for authorisations for the operation of a digital asset business in Andorra. The regulations, which will enter into force in January 2023, will require these overseers to be subject to licensing and supervision by the Authority.
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Suptech & Regtech


ADGM FSRA launches AI initiative on open regulation
The Abu Dhabi Global Markets Financial Services Regulatory Authority (ADGM FSRA) has announced the launch of its latest initiative to spur innovation at the intersection of Regtech and AI. Dubbed “Open Regulation (OpenReg) initiative”, the new project focuses on contributing to the development of new solutions to automate regulatory compliance by providing a training hub that connects Regtech firms and the data science community and offers access to the FSRA’s AI models, data and research. Intent is to ensure that as firms build AI-based regulatory compliance solutions, these sufficiently take into account the regulatory context of specific rules and provisions. The new hub and its resources seek to help achieve this objective.
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Payments & currency


The Digital Dollar Project and Depository Trust & Clearing Corporation share insights from joint CBDC experimentation
The Depository Trust & Clearing Corporation (DTCC) in collaboration with the Digital Dollar Project have released a joint whitepaper summarizing the results of their joint pilot to explore post-trade security settlement with a U.S. wholesale CBDC. The pilot, which involved participation from private sector firms including Bank of America, Citi, Nomura, Northern Trust, State Street, Virtu Financial Services and Wells Fargo, leveraged distributed ledger technology to test settlement of tokenized securities on the DTCC’s digital settlement network prototype against tokenized dollars on a simulated CBDC network. Among other things, the pilot evidenced that the use of a CBDC network supports the realization of operational efficiencies that help streamline the settlement process while also offering other potential benefits such as in relation to transparency and reporting.
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Other highlights
The Eastern Caribbean Central Bank has released for consultation a new draft payments vision and strategy for the Eastern Caribbean Currency Union (ECCU). The paper covers five pillars: (1) legal and regulatory framework, (2) whole financial market infrastructures and interbank markets, (3) retail payment systems and services, (4) cross-border payment and remittances and (5) ECCU payments system oversight and cooperation.
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ESG


APRA publishes findings from its inaugural climate vulnerability assessment
The Australian Prudential Regulation Authority (APRA) has released the findings from its inaugural climate vulnerability assessment to assess the potential financial impacts stemming from physical and transition climate change-related risks. The two-year exercise covered Australia’s five largest banks and was undertaken on behalf of the Council of Financial Regulators. The assessment was based on a scenario analysis approach, leveraging two NGFS scenarios, namely the delayed transition scenario which assumes delayed policy action on climate change and the current policies scenario which assumes a future with continued increases in global emissions beyond 2050. The exploratory exercise highlighted that while Australian banks will likely be impacted by climate change through discernable losses to their lending losses, these are not expected to translate into severe stresses. Furthermore, impacts are likely to be concentrated in specific regions and industries, with the largest loss increases forecasted for Queensland and the Northern Territory as well as the mining, manufacturing, transport, and wholesale trade sectors, which have a higher exposure to transition risk. Building on this inaugural exercise, APRA will as a next step evaluate how to apply the assessment to other industries under its remit.
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New FINMA guidance on climate risk disclosures calls out several shortcomings in banks and insurers’ current disclosures
Following on from its first review of banks and insurance firms’ compliance with disclosure obligations on climate-related financial risks, FINMA has published new guidance to further specify its expectations and highlight currently observed shortcomings. The new guidance notes that while firms have basic elements of climate-related financial risk disclosures in all required areas, disclosures frequently lack depth and specificity and/or are difficult to locate. Areas requiring particular attention according to FINMA include the specific description of the impact of climate-related financial risks on firms’ business strategy and risk profile and the structures and processes in place to identify, assess and manage these risks. FINMA also called on firms to improve their quantitative information. While firms benefit from a certain degree of discretion in this area, FINMA stressed the requirement for firms to establish a more transparent and meaningful connection between the data and metrics published and how these apply to climate-related financial risks as well as which areas of the business they cover. The next disclosure review is scheduled for 2023.
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Other transversal themes


The Central Bank of Bahrain has established a dedicated Opportunities Equity Committee which seeks to contribute to the national efforts of advancing women’s needs and achieving greater gender balance as well as increasing women’s contribution to and representation in the national economy in the financial sector and beyond.
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Leadership changes

Dominique Laboureix has been named new Chair of the European Single Resolution Board as of January 2023, succeeding Elke König.
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Deputy Governor Sylvie Goulard departs the Bank of France as of December 5 to rejoin the Ministry for Europe and Foreign Affairs.
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Austan D. Goolsbee has been appointed as the 10th president of the Federal Reserve Bank of Chicago.
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© 2022 REGXELERATOR

At a glance - Highlights by topic
Prudential & financial stability
Cyber & operational resilience
AML & CFT
Market conduct & consumer protection
Fintech & ecosystem innovation
Suptech & Regtech
Payments & currency
ESG
Other transversal themes
Leadership changes
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