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In this regular update, we round-up FinTech-related financial services regulatory developments for the week ending 14 October 2022.
ICYMI
Recent updates from Herbert Smith Freehills include:
Global
The Bank for International Settlements (BIS) and Bank Indonesia have announced the winners of the G20 TechSprint 2022 challenge. The challenge required teams to develop innovative technological solutions to advance usage of central bank digital currencies (CBDCs). The winning teams were:
The International Association of Insurance Supervisors (IAIS) has published, for consultation, an Issues Paper that identifies issues impacting operational resilience in the insurance sector and provides examples of how supervisors are approaching these developments. In particular, the paper addresses three specific operational resilience sub-topics that are considered significant and of increasing operational risk, these are: cyber resilience; third-party outsourcing; and business continuity management.
Feedback is requested by 6 January 2023. [13 Oct 2022]
The International Organization of Securities Commissions (IOSCO) has published its Final Report on Retail Distribution and Digitalisation which analyses developments in online marketing and distribution of financial products to retail investors in IOSCO member jurisdictions, and presents toolkits of policy and enforcement measures to help addressing the issues and risks associated with online marketing and distribution. The policy toolkit measures include (amongst others) firm-level rules for online onboarding, marketing and distribution. The enforcement toolkit measures relate to proactive technology based detection and investigatory techniques and powers to take prompt action to curb online misconduct as well as dealing with international cooperation and liaison, and collaboration with providers of electronic intermediary services. [12 Oct 2022]
The FSB has published a consultative report on the review of its 2020 high-level recommendations on the regulation, supervision and oversight of global stablecoin (GSC) arrangements. The report describes the findings from this review, covering:
The FSB aims to finalise the updated high-level recommendations by July 2023.
The FSB has also published a consultative report on the regulation, supervision and oversight of Crypto-asset activities and markets. The report outlines:
Alongside this, the FSB is consulting on its proposed framework on the international regulation of crypto-asset activities. The framework aims to ensure greater consistency and cooperation among authorities’ approaches to the regulation and supervision of crypto-asset activities and markets. Feedback to the consultation is requested by 15 December 2022. [11 Oct 2022]
UK
The Bank of England (BoE) has published a communication to firms which provides an update on the progress of the joint transformation programme to transform data collection from the UK financial sector. The update concerns the start of phase two and the new use cases, as well as the plans for taking forward the recommendations for the phase one use cases.
The next update on the joint transformation programme will be in November 2022. [13 Oct 2022]
The FCA, Bank of England (BoE) and the PRA have published Discussion Paper 5/22 (DP5/22) on artificial intelligence (AI) and machine learning (ML). DP5/22 seeks feedback on:
Feedback is requested by 10 February 2022.
The FCA and BoE have also published a Research Note which sets out the findings and analysis of the 2022 survey on ML in UK financial services. The note includes: a quantitative overview of the use of ML; the ML implementation strategies of firms; approaches to the governance of ML; the share of ML applications developed in house or by third party providers; respondents’ views on the benefits of ML; respondents’ views on the risks of ML; perspectives on constraints to development and deployment of ML; a snapshot of the use of different methods, data, safeguards performance metrics, validation techniques and perceived levels of complexity of ML; and a selection of ML case studies. [11 Oct 2022]
EU
The European Securities and Markets Authority (ESMA) has published the latest edition of its Spotlight on Markets Newsletter. The Newsletter focuses on ESMA’s Strategy for 2023-2028, and details its long-term priorities and how it will use its competences and toolbox to respond to future challenges and developments.
ESMA has also released an article on crypto-assets and their risks for financial stability in which it considers crypto risks that may be observed in traditional markets (e.g. speculation or leverage) and novel risks that are inherent to product design, technological development, or the complex infrastructures built around crypto-assets. [14 Oct 2022]
Regulation (EU) 2022/1925 of 14 September 2022 on contestable and fair markets in the digital sector and amending Directives (EU) 2019/1937 and (EU) 2020/1828 (Digital Markets Act) was published in the Official Journal of the European Union (OJ) today. It aims to promote a fair and competitive digital sector in the EU. The Regulation will apply to, and impose obligations on, a category of significant providers of core platform services (gatekeepers) that meet quantitative thresholds and are considered to be too important to be left unregulated. Such services may include online search engines, social networking services, operating systems, web browsers, virtual assistants, cloud computing services and associated online advertising services. The Regulation will generally come into application from 2 May 2023 (Article 3(6) and (7) and Articles 40, 46, 47, 48, 49 and 50 apply from 1 November 2022 and Article 42 and Article 43 apply from 25 June 2023). [12 Oct 2022]
Australia
ASIC has released its 2021-22 Annual Report which outlines the regulator’s key regulatory and enforcement outcomes for year. Chair Joe Longo commented that the report covers ‘a year of significant law reforms following on from the Financial Services Royal Commission’. These include:
ASIC’s Corporate Plan flags its near-and-medium-term priorities to focus on areas of increasing risk of consumer harm, including greenwashing claims and crypto investment scams. It also sets out a sharpened focus on the superannuation industry and ASIC’s international work supporting consistency in standards of climate change and sustainability reporting by corporations. [14 Oct 2022]
On 11 October 2022, ASIC Commissioner Sean Hughes delivered a speech canvassing the regulator’s short to medium term priorities and giving an update on its whistleblower work.
Mr Hughes began by emphasising the significance of governance, risk and compliance functions in light of shifting community standards on corporate social responsibility. He then outlined ASIC’s current work in each of the following core strategic projects set out in the regulator’s Corporate Plan 2022-2026: the design and distribution obligations regime; the reportable situations regime; cyber-security; crypto assets; the financial accountability regime; sustainable finance; and scams.
Finally, Mr Hughes noted that ASIC’s 2021 open letter penned to companies urging them to improve whistleblower policies has prompted internal reviews, and that the regulator is currently conducting a review of whistleblower programs across the financial services, resources and retail sectors. [11 Oct 2022]
Singapore
At the Sibos 2022 Conference, Mr Ravi Menon, Managing Director, MAS, discussed how FinTech can potentially play a positive transformative role in addressing the challenges associated with i) cross-border payment and settlement, and ii) having a high quality, trusted ESG data ecosystem. [10 Oct 2022]
Malaysia
The Securities Commission Malaysia (SCM) is hosting a three-day investor education fair to boost financial literacy and help the public protect themselves from investment scammers. SCM Chairman Dato’ Seri Dr. Awang Adek Hussin highlighted the SCM’s support for digital service providers in response to changing investor behaviour and demand for more investment options, significant increases in reported scams and retail investor losses, the SCM’s collaborative efforts with various stakeholders to combat scams, and its prioritisation of investor education. The SCM will shortly announce a range of policy initiatives (including some digital-centric) to develop the capital market. [14 Oct 2022]
Philippines
Bangko Sentral ng Pilipinas (BSP) hosted its Annual Reception for the Banking Community at which Governor Felipe M. Medalla thanked the banking sector for their collective effort and collaboration, noting that the banking system is well-managed, and recognized the digitalisation efforts of the banking system through InstaPay and PESONet, which now allow convenient electronic fund transfers between banks, improving service delivery for their clients. [12 Oct 2022]
India
The Inter-Regulatory Technical Group on FinTech (constituted under the aegis of the Financial Stability and Development Council – Sub Committee for inter-regulatory co-ordination among the financial sector regulators on FinTech-related issues) has prepared a Standard Operating Procedure (SOP) for Inter-operable Regulatory Sandbox (IoRS) for hybrid products/services, in order to facilitate testing of innovative products/services falling within the regulatory ambit of more than one financial sector regulator (i.e. RBI, SEBI, IRDAI, IFSCA and PFRDA). [12 Oct 2022]
US
The Federal Reserve System (Fed) has published a speech by the Vice Chair for Supervision, Michael S. Barr, speaking at D.C. Fintech Week in Washington. Mr Barr spoke about supporting innovation with appropriate regulation; striking the right balance for crypto-asset activity; regulating stablecoins; recognizing the risks of tokenizing bank liabilities; advancing customer autonomy; and providing public sector support for payment innovation. [12 Oct 2022]
The Office of the Comptroller of the Currency has published the remarks of Acting Comptroller of the Currency, Michael J. Hsu, speaking at Harvard Law School and the Program on International Financial Systems’ Roundtable on Institutional Investors and Crypto Assets. Mr Hsu discussed cryptocurrency and the regulatory perimeter. In particular, he highlighted the need to clarify supervisory expectations related to crypto activities and the role of regulators to ensure safety and soundness while promoting responsible innovation. [11 Oct 2022]
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