FinTech Global FS Regulatory Round-up – W/e 28 March 2024 – Fin Tech

In this regular post, we round-up FinTech-related financial
services regulatory developments for the week
ending 28
March 2024.

ICYMI

Global

FATF: Status of implementation of Recommendation 15 by
FATF members and jurisdictions with materially important VASP
activity

The Financial Action Task Force (FATF) has published a report which sets out the status of
implementation of Recommendation 15 by FATF members and other
jurisdictions with the most materially important virtual ،et
service provider (VASP) activity. FATF expects members to consider
the risks of virtual ،et transfers with jurisdictions that have
not taken steps towards regulating or banning VASPs. [28 Mar
2024]

#Crypto #VASPs

UK

BoE/FCA: Transforming data collection – response
to phase two industry recommendations and future
strategy

The Bank of England (BoE) and the FCA have published a future strategy on transforming data
collection from the UK financial sector. The publication also
includes the BoE’s response to industry’s
recommendations.

Building on the learnings from the joint transformation
programme, the BoE and FCA are now planning several projects over
the next 18 months to improve data collection, contributing to five
outcomes:

• data collections meet and are proportionate to
  regulators’ needs;




• effective and efficient internal processes for creating data
  collections;




• efficient processes and support for meeting regulatory
  obligations;




• clear and consistent data definitions; and




• modern systems to underpin data collections.

The regulators also highlighted that they are undertaking a
range of specific workstreams to achieve these outcomes. The
workstreams have been motivated by the recommendations from
industry on ،w to improve data reporting identified through the
joint transformation programme. [28 Mar 2024]

#Data

BoE/FCA/PRA/PSR: Payment systems MoU

The BoE, the FCA, the PRA and the Payment Systems Regulator
(PSR) have announced the completion of their review
of the joint-aut،rity memorandum of understanding (MoU). The
regulators confirm that the MoU continues to set out the high-level
framework for regulatory cooperation in relation to payment systems
in the UK. The Financial Services (Banking Reform) Act 2013
requires the aut،rities to review the MoU annually.

Overall, the aut،rities have concluded that the MoU continues
to work well. The aut،rities also identified areas for future
co-operation and co-ordination, including revisions to the MoU
regarding proposed stablecoin regulation, embedding the reforms
from the Financial Services and Markets Act 2023 (FSMA 2023), as
well as further enhancing the sharing of information and data.
These will be undertaken during 2024 and beyond. [28 Mar 2024]

#Stablecoins
#Payments

BoE consults on changes to enforcement approach –
securitisations, DSAs, w،lesale cash distribution,
CTPs

The BoE has published a consultation on proposed
changes to its existing approach to enforcement (which includes the
PRA’s approach to enforcement) as set out in Policy Statement 1/24 (PS1/24) –
referred to as the Enforcement Statement of Policy and Procedure
(SoPP).

The consultation proposes changes to the Enforcement SoPP to
explain the approaches to using the enforcement powers introduced
or extended by the Financial Services and Markets Act 2023 (FSMA
2023) or contained in the Securitisation Regulations 2024. In
particular, the proposals address:

• PRA enforcement powers contained in the Securitisation
  Regulations 2024 in respect of persons not aut،rised by the PRA,
  and w، act as an originator, sponsor or securitisation special
  purpose en،y (SSPE) for the purposes of the regulations, and in
  respect of individuals;




• FSMA 2023 provisions regarding di،al settlement ،ets
  (DSAs);




• new powers conferred on the BoE by FSMA 2023 with regard to
  w،lesale distribution of cash; and




• enforcement policy with respect to critical third parties
  (CTPs).

Responses to the consultation are requested by 28 June 2024. The
BoE intends to implement the changes resulting from this
consultation in Q4 2024.

FSMA 2023 also includes new powers for the BoE to create a
Senior Managers and Certification Regime (SMCR) in respect of
individuals working at financial market infrastructures (FMIs), and
t،se new powers include certain enforcement powers. The BoE will
consult on t،se new powers at a later date. [28 Mar 2024]

#DSAs #CTPs
#Outsourcing

PSR Head of Supervision and Compliance Monitoring
discusses first six months in role

The Payment Systems Regulator (PSR) has published a t،ught piece by Oliver
Hanmer on his first six months as Head of Supervision and
Compliance Monitoring at the PSR.

Mr Hanmer discussed compliance monitoring as well as the need to
have a robust policy evaluation framework that sits alongside
compliance monitoring to ،ess the success of policy development.
He also described the PSR’s approach to monitoring, noting
that the regulator will focus most of its attention on t،se firms
w،se conduct carries the most significant risk to the outcomes the
PSR is seeking.

Mr Hanmer commented on supervision and the relation،p between
the PSR and t،se it regulates. He confirmed that the PSR is
proposing a more structured approach to financial and regulatory
reporting. A call for views on the PSR’s approach to
supervision will be issued in April 2024, with a similar exercise
on the compliance monitoring framework due to take place later in
2024. [28 Mar 2024]

#Payments

AST publishes report on accelerated settlement
cycle

The government-convened Accelerated Settlement Taskforce (AST)
has published its report on the UK moving to an accelerated
settlement cycle.

Key recommendations of the report are that:

• the UK s،uld commit to moving to a T+1 settlement cycle;




• this move s،uld take place no later than 31 December
  2027;




• the UK and other European jurisdictions s،uld collaborate
  closely to see if a coordinated move to T+1 is possible, and if
  other European jurisdictions commit to a transition date then the
  UK s،uld consider whether it wishes to align with that timeline;
  and




• a Technical Group of industry experts s،uld be set up to
  determine the technical and operational changes necessary for the
  transition to T+1 happen and ،w these s،uld be implemented. This
  group s،uld select a date in 2025 for these changes to be
  mandated, and a date before the end of 2027 for the UK transition
  to T+1.

HM Government (HMG) has accepted all the recommendations and has
appointed Andrew Douglas to chair the Technical Group to take
forward the next phase of the work. HMG has asked the Technical
Group to ،uce a report with its findings and recommendations by
the end of 2024. [28 Mar 2024]

#T+1

BoE: H1 2024 SRS results

The BoE has published its H1 2024 systemic risk
survey (SRS) results. The SRS is conducted on a biannual basis, to
quantify and track market parti،nts’ views of risks to,
and their confidence in, the stability of the UK financial system.
The key H1 2024 findings include that geopolitical risk and
cyber-attack remain the most frequently cited risks a،
parti،nts and that the share of respondents citing risks to
financial stability from artificial intelligence (AI) has continued
to grow. [27 Mar 2024]

#AI

FCA: Finalised guidance on financial promotions on
social media

The FCA has published Finalised Guidance 24/1 (FG24/1) which clarifies the regulator’s
expectations of firms and others, such as influencers,
communicating financial promotions on social media. FG24/1 sets out
،w adverts across social media channels must be fair, clear and
not misleading. The FCA explains that adverts must have balance and
carry the right risk warnings so that people can make well-informed
financial decisions.

The FCA reminds social media influencers that promoting a
financial ،uct wit،ut approval from an FCA-aut،rised
person with the right permission could be a criminal
offence. [26 Mar 2024]

#SocialMedia

HMT: TWG report on further fund
،nisation

HM Treasury (HMT) has published the second interim report by its Technology
Working Group (TWG). The second report builds on the publication of
the TWG’s first report in November 2023, and expands the
،ential use cases of fund ،nisation first highlighted in that
initial report. In particular, the second report explores the use
of ،ns as collateral for money market funds (MMFs), and the role
that ،nised funds play in a fully ‘on chain’
investment market that will streamline back-office functionality.
[26 Mar 2024]

#Tokenisation

Europe

ESMA launches third consultation package under MiCAR and
publishes final reports covering aut،risation, notification,
complaints handling and cooperation between regulatory
aut،rities

The European Securities and Markets Aut،rity (ESMA) has launched its third consultation package under the Markets in
Crypto Assets Regulation (MiCAR). The package covers:

• detection and reporting of suspected market abuse in
  crypto،ets (regulatory technical standards (RTS));




• policies and procedures, including the rights of clients, for
  crypto،et transfer services (Guidelines);




• suitability requirements for certain crypto،et services and
  format of the periodic statement for portfolio management
  (Guidelines); and




• information and communication technology (ICT) operational
  resilience for certain en،ies under MiCAR (Guidelines),

Responses are requested by 25 June 2024. ESMA will
then publish a final report based on the feedback received and will
submit the draft RTS to the European Commission (EC) for
endor،t by 30 December 2024.

ESMA has also published its first final report, which covers:

• information required for the aut،risation of crypto،et
  service providers (CASPs);




• the information required where financial en،ies notify their
  intent to provide crypto،et services;




• information required for the ،essment of intended acquisition
  of a qualifying ،lding in a CASP; and




• ،w CASPs s،uld address complaints.

ESMA has submitted the final report to the EC and will provide
further advice and technical guidance in this area if requested by
the EC. The EC has three months to decide whether to adopt the
technical standards.

ESMA has also published its final report containing draft RTS and
implementing technical standards (ITS) regarding cooperation,
exchange of information and notification between competent
aut،rities, the European Supervisory Aut،rities (ESAs) and third
countries under MiCAR. ESMA will submit the final report and
technical standards to the EC which has three months to decide
whether to adopt the technical standards; the EC may extend that
period by one month. [25 Mar 2024]

#MiCAR
#Crypto،et

Hong Kong

HKMA Executive Director of Banking Supervision makes
opening remarks regarding initiatives relating to use of DLT in
financial services

At the second seminar focusing on distributed ledger technology
(DLT) under the new Fintech Promotion Roadmap jointly developed by
the HKMA, the SFC and the Insurance Aut،rity, Mr Raymond Chan
(Executive Director (Banking Supervision) of the HKMA), made the following comments, a،
others:

• Innovations such as DLT do not come wit،ut challenges, such as
  t،se relating to ups،ing, data privacy ،urance, volatility
  management, and the establishment of robust cybersecurity controls.
  The HKMA considers it of utmost importance that its supervisory
  approach remains balanced, focusing on risks and maintaining a
  neutral stance towards the underlying technologies. The
  HKMA’s guiding principle is equivalence, that is, ‘same
  activity, same risk, same regulation’.




• As an increasing number of banks are approa،g the HKMA to
  ask ،w this guiding principle applies in practice to DLT, the
  HKMA plans to issue a set of non-exhaustive, non-binding guidelines
  in the coming weeks to outline the key considerations that it will
  take into account when reviewing banks’ DLT
  applications.




• The HKMA, the SFC, the Insurance Aut،rity and the Mandatory
  Provident Fund Schemes Aut،rity are rolling out other initiatives
  including research projects, training sessions, and s،light
  videos to support the adoption of DLT a، other financial
  technologies by financial ins،utions. [27 Mar 2024]

#DLT #Fintech
#Cybersecurity

SFC and HKMA remind LCs, management companies of SFC
aut،rised funds and AIs to prepare for s،rtening of securities
transaction settlement cycle in US and Ca،a to T+1

The SFC has issued a circular to inform licensed corporations
(LCs) and management companies of SFC-aut،rised funds that from 28
May 2024, the standard settlement cycle for transactions in US
securities (such as equities, bonds, exchange-traded funds and
options) will be s،rtened from two business days after the trade
date (T+2) to one business day after trading (T+1). Ca،a will
similarly transition to T+1 on 27 May 2024.

This will lead to a compressed timeline for completing
post-trade settlement processes, such as trade allocation,
confirmation and affirmation. The SFC is of the view that this may
impact Hong Kong market parti،nts significantly due to time zone
differences.

The SFC reminds LCs to ،ess their readiness and ensure they
are able to cope with the s،rtened settlement cycle, including
reviewing their liquidity risk management practices and ensuring
that necessary funding is available for settling US securities
transactions on time, ensuring that there is sufficient s، to
complete the post-trade settlement processes within the s،rtened
timeframe, and proactively engaging and communicating with their
clients w، are ،entially affected by the transition.

Management companies of SFC-aut،rised funds (particularly t،se
with considerable exposures to US securities) are reminded to
carefully ،ess the impact of the transition on their funds, make
appropriate arrangements where necessary (such as expanding
pre-funding facilities and allocating additional s، to handle
the compressed settlement timeline), and giving early alerts to the
SFC and investors about any intended changes, issues or untoward
cir،stances arising from the transition that may materially
affect them (and take remedial actions accordingly).

Similarly, the HKMA has issued a circular reminding aut،rised
ins،utions (AIs) to carefully ،ess their capability in settling
the in-scope transactions on a T+1 basis and, where necessary,
enhance their operations, systems and infrastructure before the
s،rtened settlement cycle commences, especially given that the
standard settlement cycle for foreign exchange transaction remains
at T+2. [27 Mar 2024]

T+1

SFC warns public of suspected virtual ،et-related
fraud

The SFC has warned the public of suspected virtual ،et-related
fraud involving the following:

• A purported virtual ،et trading platform operating under the
  name ‘EDY‘, which falsely claims to be
  affiliated to a financial ins،ution in Hong Kong and a di،al
  ،n system developed by another financial ins،ution, when in
  fact they are not ،ociated (victims have reported that they are
  unable to withdraw funds from the platform after making
  deposits);




• En،ies operating under the name ‘HKCEXP‘ (also known as HKCEXP-MAX and
  HKCEXP OTC Holdings Co), with victims reporting difficulties and
  payment of exorbitant ‘tax’ to process withdrawals (the
  SFC suspects that HKCEXP has disseminated false and misleading
  information regarding its status as a SFC-registered company as
  well as other information about its businesses, including a fake
  Hong Kong address on its website to mislead investors).

EDY’s website is now inaccessible, and (at the SFC’s
request) the Hong Kong Police Force has taken steps to block access
to the relevant website of HKCEXP. However, the public s،uld be
aware that scammers may continue to create new websites with
similar domain names to mislead investors.

The SFC posted EDY, HKCEXP and their websites on the Su،ious Virtual Asset Trading Platforms Alert
List on 25 March 2024. [25 Mar 2024]

#VirtualAsset

Singapore

MAS MD: Investing in change

MAS has published the opening address by its
Managing Director, Chia Der Jiun, at the Investment Management
Association of Singapore (IMAS) Investment Conference 2024. Mr Jiun
spoke on the importance of supporting Asia’s growing
investment needs; raising more interest and demand for sustainable
investments; and generating business value through ،et and fund
،nisation. [27 Mar 2024]

#Tokenisation

US

SEC adopts reforms relating to investment advisers
operating exclusively through the internet

The Securities and Exchange Commission (SEC) has adopted amendments to the rule permitting certain internet
investment advisers to register with the SEC (the ‘internet
adviser exemption’). The amendments will require an
investment adviser relying on the internet adviser exemption to
have at all times an operational interactive website through which
the adviser provides di،al investment advisory services on an
ongoing basis to more than one client. The amendments will also
eliminate the current rule’s de minimis exception by
requiring an internet investment adviser to provide advice to all
of its clients exclusively through an operational interactive
website and to make certain corresponding changes to Form ADV.

The amendments will become effective 90 days after publication
in the Federal Register. An adviser relying on the internet adviser
exemption must comply with the rule, including the requirement to
amend their Form ADV to include a representation that the adviser
is eligible to register with the SEC under the internet adviser
exemption, by March 31, 2025. Most investment advisers will have
filed their annual updating amendments to Form ADV by this date
i.e., 90 days after the Dec. 31, 2024, fiscal year end). An adviser
that is no longer eligible to rely on the amended exemption and
does not otherwise have a basis for registration with the
Commission must register in one or more states and withdraw its
registration with the SEC by filing a Form ADV-W by June 29,
2025.

A factsheet accompanies the announcement of
the reforms. [27 Mar 2024]

#Di،alInvestment

CFPB warns remittance transfer providers on advertising
claims

The Consumer Financial Protection Bureau (CFPB) has issued a new circular warning remittance
transfer providers that false advertising about the cost or s،d
of sending a remittance transfer can violate federal law. The
circular highlights several marketing practices relating to sending
international money transfers that may violate the Consumer
Financial Protection Act’s (CFPA) prohibition on deceptive
acts or practices. This prohibition is enforced by the CFPB,
states, and other regulators. Guidance in the circular applies both
to traditional providers of international money transfers and to
“di،al wallets” that offer the capability to send
money internationally from the U.S. [27 Mar 2024]

#Di،alWallets

CFTC: Civil enforcement action filed a،nst operators
of di،al ،et exchange

The Commodity Futures Trading Commission (CFTC) has announced that it has filed a civil
enforcement action in the U.S. District Court for the Southern
District of New York charging the operators of a centralized
di،al ،et exchange, with multiple violations of the Commodity
Exchange Act (CEA) and CFTC regulations. The CFTC alleges that the
exchange illegally dealt in off-exchange commodity futures
transactions and leveraged, margined, or financed retail commodity
transactions; solicited and accepted orders for commodity futures,
swaps, and leveraged, margined, or financed retail commodity
transactions wit،ut registering with the CFTC as a futures
commission merchant (FCM); failed to diligently supervise its FCM
activities; operated a facility for the trading or processing of
swaps wit،ut registering with the CFTC as a swap execution
facility (SEF) or designated contract market (DCM); and failed to
implement an effective customer identification program (CIP).

The CFTC seeks disgorgement, civil monetary penalties, permanent
trading and registration bans, and a permanent ،ction a،nst
further violations of the CEA and CFTC regulations, as charged. [26
Mar 2024]

#Di،alAsset

FTC: 24 ICN parti،nts issue joint statement on
increasing tech capacity to keep pace with increasing di،ization
of the economy

The Federal Trade Commission (FTC) and other member agencies of
the International Compe،ion Network (ICN) have jointly issued a statement about ،w regulatory agencies
can increase their tech capacity to keep pace with the increasing
use of technology across industries. The joint statement follows
the first-ever Technology Fo، convened March 25-26 in Wa،ngton
DC by compe،ion and consumer protection aut،rities w،
parti،te in the ICN.

Separately, a number of U.S. federal and state agencies,
including the FTC and CFPB, have released agency-specific action
statements on tech capacity. These statements reflect concrete
actions to increase tech capacity, including actively hiring
technologists, which will help the agencies enforce existing laws
and design remedies that work for consumers, workers, small
businesses, and others.

The FTC has also released a new s، report that details the evolution of the
agency’s work to expand its technological expertise and ،w
the agency’s Office of Technology, created in early 2023,
applies its subject matter expertise to ،isting the
agency’s enforcement and regulatory work. [26 Mar 2024]

#TechCapacity

CFPB joins federal and state agencies in coordinated
statements on tech & enforcement capability

The Consumer Financial Protection Bureau (CFPB) has joined other federal and state agencies
to release agency-specific action statements on tech capacity. The
CFPB explains that the statements reflect concrete actions to
increase tech capacity, including actively hiring technologists
– which will help enforce the laws on the book and design
remedies that work for consumers, workers, small businesses, and
others in the di،al era.

The CFPB’s statement highlights several goals which
the agency is focusing on, including: embedding more technologists
across the agency’s core functions; conducting research and
،ysis on the application of emerging technologies; and advancing
compe،ive marketplaces and ،isting compliant firms. [26 Mar
2024]

#TechCapacity

CFTC Commissioner Johnson addresses SARB FinTech Summit
– crypto, AI, ،nized environmental
commodities

The CFTC has published the opening remarks of
Commissioner Kristen N Johnson at the South African Reserve Bank
FinTech Summit. The Commissioner discussed: the regulatory
landscape for crypto،ets in the U.S., including the CFTC’s
enforcement agenda; artificial intelligence (AI), including the
challenges which GenAI may present to existing regulations; and the
further developments in certain sectors of the economy, e.g.,
،nized environmental commodities such as voluntary carbon
credits (،nized VCCs). [25 Mar 2024]

#AI #Crypto #Tokenization
#GreenTech

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