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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FSB decides to discontinue the annual identification of global systemically important insurers EBA releases its quarterly banking sector risk assessment U.S. OCC publishes semiannual risk report European Council agrees position on AMLD6 UK FCA consults on guidance on how mortgage firms can support borrowers HM Treasury formally launches reform of the existing Consumer Credit Act European Commission proposes new tax transparency rules for crypto asset service providers Thailand SEC consults on revisions to the regulatory framework for ICO portals New BIS payments database reveals impact of pandemic on cash and retail payment behaviour Bank of Spain launches CBDC experiment and issues call for collaboration Reserve Bank of New Zealand releases new consultation paper on innovation in private money UK Chancellor of the Exchequer announces consultation on a digital pound Central Banks of Iraq, Jordan and Egypt announce payments collaboration with the AMF BCBS issues responses to FAQs to clarify how climate-related financial risks may be captured in the existing Basel Framework Malaysia’s Joint Committee on Climate Change further progresses on climate data related work New EIOPA paper discusses the prudential treatment of sustainability risks under Solvency II IAIS publishes summary of its stocktake on diversity, equity and inclusion in the insurance sector ADGM releases guiding principles on whistleblowing HM Treasury announces next steps on ring-fencing reforms Canadian Securities Administrators consult on Canada’s regulatory framework for short selling
Prudential & financial stability
FSB decides to discontinue the annual identification of global systemically important insurers
In a new statement the Financial Stability Board (FSB) has declared that it will discontinue the annual identification of global systemically important insurers. The decision followed consultation with the International Association of Insurance Supervisors (IAIS). Moving forward, the FSB will leverage the assessments made available through the IAIS Holistic Framework to inform its considerations of systemic risk in the insurance sector. Accordingly, the IAIS will maintain its annual data collection from individual insurers and supervisors to support its assessment of sector-wide trends with regard to specific activities and exposures, and its annual reporting to the public on the outcomes of its assessment and progress in implementation of the Holistic Framework supervisory policy measures.
The European Banking Authority has released its quarterly risk assessment for the banking sector, cautioning of the potential further impact on the deteriorating macroeconomic conditions.
The Office of the Comptroller of the Currency has published its semiannual report on the risks facing the federal banking system.
AML & CFT
European Council agrees position on AMLD6
The European Council has announced that it has reached an agreement on its position regarding the new AML Directive (AMLD6). Under the new Directive, AML/CFT rules will be extended to the entire crypto sector. The new provisions will require crypto-asset service providers among other things to conduct due diligence on their customers when carrying out transactions of EUR 1,000 or more as well as to implement enhanced due diligence measures for cross-border correspondent relationships and new measures to mitigate risks in relation to transactions with self-hosted wallets. Besides the crypto sector, the rules will also be extended to other new areas including third-party financing intermediaries, persons trading in precious metals, precious stones and cultural goods, as well as jewellers, horologists and goldsmiths. Other key changes under the new Directive include the introduction of an EU-wide maximum limit of EUR 10,000 for cash payments as well as further harmonization of beneficial ownership rules. As a next step, the Council will initiate trilogue negotiations with the European Parliament in order to agree on a final version of the text.
Market conduct & consumer protection
UK FCA consults on guidance on how mortgage firms can support borrowers
Amid continued high living costs and increasingly higher mortgage payments, the UK Financial Conduct Authority has proposed new guidance that sets out measures that mortgage firms can draw on to support borrowers in need.
The guidance identifies a broad range of measures that firms can take including certain forbearance measures such reduced monthly payments and other contract variations such as term extensions, switches to a different interest rate or temporary switches to interest-only payments, yet must transparently outline to customers the implications of any such arrangement. To avoid undue operational burden on firms, the guidance also introduces flexibility for firms to use automation or digital tools for the engagement process with impacted borrowers including the data collection process. Mortgage firms can provide their feedback to the guidance until December 21.
The UK Treasury has formally launched the reform of the existing Consumer Credit Act 1974 with the release of a comprehensive consultation document. The consultation is intended to provide a foundation to determine the approach to and strategic direction for the reform. Among other things, the document summarizes the case for reform, sets out the underlying objectives and principles and addresses at a high level the categories of provisions in the Act that are expected to undergo reform.
Fintech & ecosystem innovation
European Commission proposes new tax transparency rules for crypto asset service providers
The European Commission has published a proposed amendment to the Directive for Administration Cooperation, which governs the reporting of certain tax-related information with a view to enhancing tax transparency over crypto asset transactions and limit the risk of tax avoidance and evasion. Under the amendment, crypto asset service providers, irrespective of their size or location, would be required to report domestic and cross-border transactions of clients residing in the European Union. In addition, the new provisions would require financial institutions to report on e-money and central bank digital currencies. The proposal is intended to complement the forthcoming Market in Cryptoassets Regulation as well as is consistent with the OECD’s in October released framework on the reporting of tax information on transactions in crypto-assets. If successfully adopted by the European Council, the amendment is intended to come into effect in January 2026.
Thailand SEC consults on revisions to the regulatory framework for ICO portals
Following earlier announcements in the year, the Thailand Securities and Exchange Commission (SEC) has issued for consultation the proposed revisions to its regulatory framework for ICO portals, which involve new provisions in relation to conflicts of interest and outsourcing. The new provisions are intended to eliminate any potential conflicts of interests by among other things restricting shareholdings of an ICO portal in the issuer and vice versa as well as by prohibiting any forms of relationships that could impair the independence of the ICO platform. This includes the prohibition of ICO portal directors or executives, or the head of the department responsible for screening the ICO project, to also assume the role of a director in the issuer. As for outsourcing, the new provisions grant ICO portals the option to outsource certain tasks subject to certain conditions. These include the requirement to have in place an outsourcing policy, the requirement to notify the SEC in the event of outsourcing and to refrain from outsourcing core tasks such as screening ICO projects.
Payments & currency
New BIS payments database reveals impact of pandemic on cash and retail payment behaviour
The Bank for International Settlements (BIS) has released a new study addressing how the pandemic has impacted payment behaviour. Findings show that payment behaviour underwent several substantial changes during the most intense periods of the pandemic including a significant rise in the volume of cash in circulation, remote and contactless payments as well as downloads of payment apps. While pronounced, several of these changes including levels of cash in circulation and card-not-present payments, were however only of temporary nature and ebbed again once pandemic conditions eased. Similarly, observed changes varied notably across countries depending on a country’s pre-pandemic digital payment adoption rates. Insights were derived from a newly constructed “Future of Payments” database. Drawing on public and proprietary sources, the database combines a core dataset for 18 countries from end of December 2019 to end of December 2020, an extended dataset for up to 95 countries for the period from September 2019 to June 2022, as well as relevant COVID-19 related statistics.
Bank of Spain launches CBDC experiment and issues call for collaboration
The Bank of Spain has announced the launch of a new experimentation program focused on wholesale CBDC. The program will focus on three areas: (1) simulating operations of fund movements with a wholesale CBDC, (2) experimenting with the integration of a wholesale CBDC with the liquidation of financial assets, and (3) analyzing possible advantages and disadvantages of the introduction of a wholesale CBDC with respect to traditional processes, procedures and infrastructures. To support the development and execution of the program, the Bank has issued a call for collaboration with an external organization. Interested organizations can submit their proposals until the end of January 2023.
Further to its previous consultation into the future of money, the Reserve Bank of New Zealand has released a new consultation paper with a deep dive into innovation in private money. The paper comprehensively outlines the opportunities and risks associated with new forms of private money such cryptoassets and stablecoins and proposes, as an interim measure, the introduction of a dedicated monitoring framework to help quantify the scope and further evaluate the risks via a set of targeted metrics. Insights from the monitoring exercise are also intended to inform the need for potential longer-term changes to the regulatory framework.
In an official written statement made to UK Parliament, the Chancellor of the Exchequer, Jeremy Hunt, announced that he will bring forward a consultation in the coming weeks to explore the case for a digital pound.
The Central Banks of Iraq, Jordan and Egypt are collaborating with the Arab Monetary Fund (AMF) the for a joint initiative to launch cross-border payment services for pensioners in the Arab region using the AMF-owned cross-border payment system Buna. The cooperation will support Iraqi pensioners residing in either Jordan or Egypt and will enable a faster and more efficient disbursement of their pension payments.
BCBS issues responses to FAQs to clarify how climate-related financial risks may be captured in the existing Basel Framework
The Basel Committee on Banking Supervision (BCBS) has published a dedicated set of responses to FAQs on the treatment of climate-related financial risks. The responses are intended to offer clarification how climate-related financial risks may be captured in existing Pillar 1 standards under the Basel Framework and thereby support a more globally consistent interpretation and treatment. The bulk of the FAQs focuses on specific aspects of the treatment of climate-related financial risks in the calculation of risk-weighted assets for credit risk. Besides this, the document addresses select aspects in relation to operational risk, market risk and liquidity risk including how losses stemming from climate-related financial risks are identifiable for the purpose of classifying operational risk losses, the consideration of climate-related financial risks in the context of market risk stress testing and in the calculation of the liquidity coverage ratio.
Malaysia’s Joint Committee on Climate Change further progresses on climate data related work
The Malaysia’s Joint Committee on Climate Change under the leadership of the Bank Negara Malaysia and the Securities Commission has held its latest meeting. As a key milestone, the Committee approved the publication of the data catalogue, which was developed to serve as a reference on the availability and accessibility of climate and environmental data based on a priority list of financial sector use cases while also helping to identify critical data gaps. With currently just under 50% of data items for the priority use cases are available and data suffering from various constraints, such as a lack of granularity, comparability and consistency as well as difficult accessibility, data related efforts will remain a strategic priority throughout 2023. Other core priorities the Committee agreed upon for the forthcoming year include expanding the use cases for the application of the climate change and principle-based taxonomy, aligning the TCFD application guide for Malaysian financial institutions with the International Sustainability Standards Board’s disclosure requirements once finalized, creating an ESG disclosure guide tailored to Malaysian SMEs and developing a climate change curriculum for financial institutions.
New EIOPA paper discusses the prudential treatment of sustainability risks under Solvency II
The European Insurance and Occupational Pensions Authority (EIOPA) has released for comment a new discussion paper that addresses the prudential treatment of sustainability risks under Solvency II. The paper is intended to serve as a first step in the determination of whether a dedicated prudential treatment of assets and activities associated with environmental or social objectives under Solvency II would be warranted. To that end, the underlying paper outlines the intended scope, methodologies and data sources for the assessment exercise with a focus on three areas: (1) the impact of asset and transition risk exposures on insurers’ investment portfolios, (2) the impact of climate-related adaptation measures on underwriting risk and related loss exposures from a prudential perspective, and (3) the impact of social risks on prudential risks and the resulting prudential treatment in the requirements on governance, risk management as well as reporting and disclosure.
Other transversal themes
IAIS publishes summary of its stocktake on diversity, equity and inclusion in the insurance sector
The International Association of Insurance Supervisors (IAIS) has shared the key findings of its stocktake on diversity, equity and inclusion (DE&I) in the insurance sector in a new report. The stocktake offers insights into how IAIS members have been considering DE&I from a supervisory perspective as well as presents observations on the state of DE&I in the insurance industry both through the lens of the supervisor and the industry. In terms of supervision, findings highlight that just over half of the surveyed supervisors currently attribute a medium or high priority to taking supervisory action to promote DE&I within insurers, typically with a focus on corporate governance and board diversity while the remaining half treats it as low priority, in some cases justifying this with the argument that the jurisdiction has already made sufficient progress with respect to DE&I. The absence of agreed standards and best practices, competing supervisory priorities and the lack of supervisory mandate to act were identified as the most prevalent challenges experienced by supervisors in promoting DE&I. Additionally, nearly one third of supervisors reported being uncertain over what action to take while 18% felt constrained by a lack of relevant knowledge or expertise.
As part of the report release, the IAIS also reiterated its commitment on DE&I with the announcement of two new projects in 2023 with focus on insurers’ institutional governance and consumers, respectively. The projects will involve the development of two separate application papers addressing (1) how supervisors can recognise and respond to corporate governance, risk management and corporate culture implications that can arise when an insurer lacks diversity and has poor inclusion and (2) how supervisors, insurers and intermediaries can use a DE&I perspective to better fulfil the requirement in ICP 19 to treat customers fairly.
ADGM releases guiding principles on whistleblowing
Abu Dhabi Global Markets (ADGM) has released dedicated guiding principles on whistleblowing. The voluntary, non-binding principles are intended to serve as guidance for all ADGM entities when designing, implementing and maintaining the policies, procedures and organisational infrastructure that make up their own whistleblowing framework and cover six specific areas. Key recommendations under the principles include for entities to afford whistleblowers protection of identity as well as protection from any form of retaliation, provided that reports are made in “good faith” and under the belief that that the information offered at the time of disclosure is true. Whistleblowing policies and procedures that entities establish should transparently identify the internal and external reporting channels available without prescribing a preferred channel as well as lay out how whistleblowing reports are received, assessed and investigated. Furthermore, the structural whistleblowing framework must be supported by an appropriate culture and have buy-in from the board of directors.
HM Treasury announces next steps on ring-fencing reforms
The HM Treasury has released a new statement outlining planned next steps in the reform of the current ring-fencing regime. As a near-term measure, the Treasury announced the intention to launch a consultation in mid-2023 to consult on a series of measures that were recommended in the report by the independent review panel published in March 2022. Theses include among other things the exclusion of banking groups without major investment banking operations from the regime, the removal of blanket geographical restrictions on ring-fenced banks operating subsidiaries or servicing clients outside the European Economic Area, a review and update the list of activities which ring-fenced banks are restricted from carrying out as well as certain other technical amendments to improve the functioning of the regime. The consultation will also address the Treasury’s proposal to increase in the retail deposit threshold, which determines the banks in scope for the regime, from currently GBP 25 billion to 35 billion. Beyond this, the Treasury will through an additional call for evidence in early 2023 seek views on the possible further alignment of the ring fencing and resolution regimes.
Canadian Securities Administrators kick off consultation on Canada’s regulatory framework for short selling
The Canadian Securities Administrators (CSA), jointly with the Investment Industry Regulatory Organization of Canada (IIROC), has launched a consultation into the adequacy of the current regulatory framework for short selling. Against the backdrop of an overview of the current regulatory framework and international developments, the consultation seeks feedback on potential regulatory changes and further alignment with U.S. and EU requirements in several specific areas that were previously raised as concerns by stakeholders. These encompass requirements related to pre-borrowing, reporting of failed trades, transparency and reporting of short selling positions as well as close-out or buy-in requirements. The feedback period is open until March 2023.
Rodrigo Buenaventura has been appointed as Chair of the IOSCO Sustainable Finance Task Force.
The central banks of Brunei Darussalam and Thailand have signed a MoU to strengthen their bilateral ties and cooperation as well as monetary and financial development.
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