Global Regulator & Central Bank News Roundup (Vol. 6/2023)
February 13 - February 19 2023
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
Launching on February 28th: Regxelerator’s new end-to-end automated and AI-powered regulatory news platform (beta version).
EBA Publishes Guidelines to Increase Transparency and Predictability of Bail-In Tool Implementation
The European Banking Authority (EBA) has published final guidelines to resolution authorities to increase transparency and predictability regarding the bail-in tool implementation. The Guidelines ask authorities to publish a high-level document setting out the key aspects of their approach, such as the use of interim instruments and a timeline of the bail-in process. The document should also include a clear description of potential interim instruments, further details for the timeline and if available, indicative templates for the main features of the legal instruments to be used to formally implement bail-in. The guidelines complement other work on resolvability including an ongoing consultation on resolvability testing.
Following its consultation into the regulation of Buy Now, Pay Later schemes in late 2021, the HM Treasury has published for consultation the draft legislation. Core to the Government’s latest policy position is the proposal to limit the scope of regulation to BNPL agreements that are offered by third-party lenders. This means, the proposed regulation will focus on borrower-lender-supplier agreements for fixed-sum credit to individuals or relevant recipients of credit, which are (1) interest-free, repayable in 12 or fewer instalments within 12 months or less and where (2) the credit is provided by a person that is not the provider of goods or services which the credit agreement finances. In turn, merchant-provided credit market, which were in the original consultation considered for regulation, are now proposed to be excluded from the scope.
The Dutch Authority for the Financial Markets (AFM) has summarized the insights from a study into the design and choice architecture of online investment platforms in a new report. Purpose of the study to deepen insight into insight how the online choice environment guides investor behavior.
Taiwan FSC launches Cyber Security Action Plan 2.0
The Taiwan Financial Supervisory Commission (FSC) has released the Financial Cyber Security Action Plan 2.0 to improve cyber security of financial services firms. The Plan includes 40 measures, of which 12 are newly added cyber security measures, 5 are revisions to expand the scope of application measures, and 23 are existing measures that will continue to be implemented. Among other things, these include requiring more institutions to appoint a Chief Information Security Officer (CISO), adopting/amending self-regulatory rules in response to digital transformation, enhancing data vaulting and operational continuity drills, adopting international cyber security standards, encouraging assessments of the effectiveness of cyber security monitoring and defenses, encouraging the establishment of zero trust networks, improved network connection validation and authorization control, and encouraging hiring of cyber security personnel with diverse specialties. The FSC will implement the Plan in phases over a period of three years including through by leveraging public-private partnerships.
ESRB publishes report on advancing macroprudential tools for cyber resilience
Building on its earlier efforts to enhance macroprudential oversight of cyber, the European Systemic Risk Board (ESRB) has released a new report to advance macroprudential tools for cyber resilience. The report encourages authorities across to strengthen their focus on three areas. These include the development of cyber resilience scenario testing, systemic impact tolerance objectives and financial crisis management tools. In addition to the report. Scenario testing is intended to assist authorities in testing the response and recovery capacity of the financial system in certain scenarios involving a cyber incident as well as reviewing their impact on financial and operational stability while impact tolerance objectives are aimed at identifying and measuring the impacts of cyber incidents on the financial system and assessing when they are likely to breach tolerance levels and cause significant disruption.
FSB discusses potential financial stability risks of DeFi
The Financial Stability Board has released a new report discussing financial stability considerations that could result from growing DeFi activity. The report identifies (1) operational fragilities, (2) liquidity and maturity mismatches, (3) leverage, as well as (4) interconnectedness, concentration and complexity as the four main vulnerabilities that characterize the DeFi ecosystem. These vulnerabilities have the potential to give rise to broader financial stability concerns depending on their spillover to the traditional financial system and the real ecosystem. To that end, the report highlights banks’ exposure to DeFi, e.g. via DeFi lending to or from banks or other facilitation of DeFi activities, as a particular area for attention. While current exposure by banks is minimal, it could grow further in due course, among other things driven by banks’ increasing tokenisation of traditional assets and deposits, the FSB concludes.
Dubai Virtual Asset Regulatory Authority releases Virtual Assets and Related Activities Regulations 2023
The Dubai’s Virtual Asset Regulatory Authority (VARA) has published its comprehensive Virtual Assets and Related Activities Regulations 2023. The new Regulations provide the regulatory foundation for virtual asset activities in the Emirate of Dubai (with exception of the Dubai International Financial Centre) and their oversight by VARA, specifying among other things the licensing framework, the specific requirements in relation to AML/CFT, marketing, advertising and promotion as well as market offences as well as VARA’s supervision and enforcement powers. The core Regulations are complemented by activity-specific rulebooks, covering advisory, broker-dealer, custody and exchanges, lending and borrowing and investment management services as well as virtual asset issuance. Furthermore, the framework includes thematic rulebooks with focus on compliance and risk management, technology and information and market conduct as well as a company rulebook outlining general expectations for the operation and management of virtual asset firms. The latter also includes expectations for ESG disclosure, comprising of voluntary, compliance and mandatory ESG disclosure requirements. In addition, virtual asset service providers with mining and data-intensive activities are expected to prominently disclose on their website the use of renewable and/or waste energy as well as initiatives regarding decarbonization.
Oman CMA moves forward with development of regulatory framework for virtual assets and virtual asset service providers
The Oman Capital Markets Authority (CMA) is advancing the development of the country’s regulatory framework for virtual assets and virtual asset service providers it announced in a new statement. The step follows the revision of its securities law last year, which created the foundation for the regulation of the virtual asset sector, and seeks to support growth of the digital asset and fintech industry in the country in line with the Sultanate’s Vision 2040. In its statement, the Authority noted its intention to develop a broad-based regulatory framework that covers all virtual asset activities including crypto exchanges and initial coin offerings.
Mauritius FSC consults on guidance notes for decentralized autonomous organizations
The Mauritius Financial Services Commission (FSC) has issued for consultation guidance notes on decentralized autonomous organizations (DAOs) to provide guidance on the legal structures available to DAOs in Mauritius and establish minimum standards for DAOs with a legal personality. Under the proposed guidance, DAOs can opt to operate as either (1) a limited partnership, (2) a foundation, or (3) a limited liability partnership and must in all cases appoint a representative agent in Mauritius, which must be a Management Company licensed by the FSC or another person authorized by the FSC. Additional requirements for a license and/or authorization apply depending on the nature of the DAO’s activity. Specifically, the guidance notes provide that digital tokens issued by the DAO for raising funds would be treated as security tokens while DAOs offering virtual token for sale would be treated as issuer of initial token offerings under the existing Acts. Besides these expectations, the guidance specifies minimum requirements with respect to the DAO’s governance, management and membership and operations. The latter requires the DAO to establish policies and procedures governing inter alia voting procedures, protocols to respond to system security breaches and the rights and obligations of each group of members.
Elevandi, in collaboration with the Monetary Authority of Singapore and Oliver Wyman as well as McKinsey, has released two new insights reports with key reflections from the 2022 Singapore Fintech Festival (SFF2022). The joint report with Oliver Wyman with a focus on digital assets and web3 provides perspectives on the ecosystem’s evolution including core trends and impact factors as well as elaborates on use cases discussed at the SFF2022 including from an institutional adoption point of view. The report in collaboration with McKinsey offers insights on the potential contribution of fintech firms towards ESG and the climate transition.
Bank of Japan provides update on CBDC experiments, announces of new pilot program
The Bank of Japan is further expanding its CBDC experiments, it announced in a new statement. Following the scheduled completion of its initial proof of concept later in March, which served to confirm the technical feasibility of the basic functions of a CBDC, it will proceed to launch a pilot program. Under the program it will develop a system for experiments, in which a central system, intermediary network systems, intermediary systems, and endpoint devices are configured in an integrated manner with a view to testing the end-to-end process flow and explore the measures and potential challenges for connecting the experimental system with external ones. To support the work, a CBDC Forum will be established to discuss and explore relevant topics with private sector representatives.
ECB nominates members for the newly established Digital Euro Rulebook Development Group
The European Central Bank (ECB) has announced the nomination of the members of the newly inaugurated Rulebook Development Group for a Digital Euro. The Group will be mandated to support the drafting of a scheme rulebook, informed by market and industry input, building on the Digital Euro design decisions taken to date by the Governing Council. 22 representatives from the public and private sector, among them representatives from eight national central banks, are joining the Group. The European Commission will assume an observer role and the Digital Euro project team has the option to attend Group meetings as well. The Group will meet in monthly intervals starting this February.
BIS CPMI presents analytical framework for enhancing operating hours for cross-border payments
The Bank for International Settlements’ (BIS) Committee on Payments and Market Infrastructure is further advancing its efforts on extending and aligning operating hours for cross-border payments through the publication of a new analytical framework. The framework builds on the Committee’s report from last May, which put forward three proposed end states, namely: (1) an increase in operating hours on current operating days, (2) an extension of operations to additional days on which many real-time gross settlements (RTGS) systems do not currently operate, and (3) an extension of operating hours to 24/7. The newly set out framework proposes a three-step systemic assessment when planning the extension of RTGS operating hours that consists of (1) determining the desired type of extension and associated benefits including through consultation with industry stakeholders, (2) identifying technical and operational issues and (3) designing an implementation plan. The report discusses each step in greater detail and provides key questions for central banks to consider along the way.
The Digital Dollar Project has announced plans to carry out a series of roundtables in collaboration with leading academic institutions including the UC Berkeley's Center for Responsible, Decentralized Intelligence, MIT Connection Science and Engineering, and the Georgetown University Law Center's Institute of International Economic Law with a focus privacy-related aspects of CBDC. The workshops will serve to exchange views on technical and legal applications as well as regulatory implications of privacy related to a potential digital dollar. Results will be made available in a new report.
The Bank of England has published its final long-term roadmap for the enhancement of the real-time gross settlement service beyond 2024. Following consultation feedback, work in relation to strengthening the system’s resilience and the introduction of new innovative features, such as extended operating hours and expansion of APIs, will be prioritized under the refined roadmap.
Stakeholders are invited to provide feedback on NGFS scenarios until end of February
Earlier in February, the Network for Greening the Financial System (NGFS) has launched an online survey to gather feedback on its climate scenarios. Purpose of the survey is to better understand the experience in the use of the scenarios to date and inform their further refinement and update. Survey responses can be provided until February 27 by both users and other interested stakeholders. Key insights from the feedback are scheduled to be published later in spring.
MAS launches further consultation on Singapore’s green and transition taxonomy
The Green Finance Industry Taskforce (GFIT) has launched its final public consultation on a green and transition taxonomy for Singapore-based financial institutions. This consultation seeks views on the detailed thresholds and criteria for the classification of green and transition activities in five sectors: agriculture and forestry/land use, industrial, waste and water, information and communications technology, and carbon capture and sequestration. It also proposes a “measures-based approach” for the industrial sector and a traffic light classification system to differentiate an activity’s contribution to climate change mitigation. GFIT will publish the final taxonomy based on feedback from all three public consultations by 1H 2023.
The European Banking Authority (EBA) has launched a new survey on green loans and mortgages. The voluntary survey seeks to collect quantitative and qualitative information from credit institutions on their green loans and mortgages as well as the market practices related to these. The request follows from a call for advice by the European Commission end of November that requested EBA input on the definition and possible supporting tools for green loans and mortgages to retail and SME borrowers including an overview of current market practices and measures to encourage and facilitate the uptake of green loans. The survey is open for participation until early April.
The AMF is proposing the introduction of minimum environmental requirements in European law for financial products to be classified as Article 8 or Article 9 under the Sustainable Finance Disclosure Regulation.
IOSCO publishes conclusions on the level of implementation of its Principles for Regulators
The IOSCO has summarized the key findings from its assessment of its Principles 1-5 relating to the Regulator. Under the five Principles, which form part of IOSCO’s core 38 Objectives and Principles of Securities Regulation, regulators are expected to (1) clearly and objectively state their responsibilities, (2) be operationally independent and accountable in the exercise of its functions and powers, (3) have adequate powers, resources and capacity to perform its mandate, (4) adopt clear and consistent regulatory processes, as well as (5) observe the highest professional standards including in relation to confidentiality. The standards monitoring exercise, which covered 55 jurisdictions, overall confirmed a high degree of implementation and highlighted various good practices. Identified gaps were predominantly concentrated in emerging and frontier markets and frequently linked to a lack of operational independence, proper resourcing and funding, adequate legal protection and in some cases also a lack of guidance for the disclosure of conflicts of interest.
The Hong Kong Securities and Futures Commission and the China Securities Regulatory Commission have entered into a MoU on regulatory cooperation, governing the arrangements and procedures for share issuance and listing, cross-boundary enforcement, supervision of intermediaries.