Greg Kilminster
Head of Product - Content
APRA announces corporate plan for 2023/24
The Australian Prudential Regulation Authority (APRA) has unveiled its latest Corporate Plan to aid the soundness and stability of the banking, insurance and superannuation industries.
APRA’s purpose is to protect the safety and resilience of regulated entities and promote financial system stability in Australia. Hence, APRA is responsible for ensuring that financial institutions are well-managed and have the necessary controls in place to protect their customers’ money. To that end, the plan focuses on a number of key risks.
- System-wide risks: Financial institutions need to have robust stress testing frameworks in place to assess their resilience to shocks to the financial system. They also need to have effective governance and risk management frameworks in place to manage these risks.
- Operational resilience: Financial institutions need to have robust cyber security and crisis management plans in place to protect their operations from disruptions. They also need to have effective disaster recovery and business continuity plans in place to ensure that they can continue operating in the event of a disruption.
- Climate-related financial risks: Financial institutions need to understand the climate-related risks that they face and take steps to manage these risks. This may include investing in climate-friendly assets, developing climate-risk mitigation strategies, and disclosing climate-related risks to their investors.
- Superannuation transparency and retirement outcomes: Financial institutions need to be transparent about their investment performance and provide their members with the information they need to make informed decisions about their retirement savings. They also need to offer products and services that meet the needs of their members.
In order to facilitate this core focus, the Corporate Plan outlines specific proposals, amongst others, to:
- Incorporate relevant learnings from the Basel Committee’s review of recent banking stress.
- Modernise the payments regulatory framework for banks.
- Review prudential requirements for reinsurance to ensure they remain fit for purpose.
- Intensify focus on operational resilience for private health insurers, with activities targeted towards cyber resilience and third-party supplier risks for critical outsourced functions.
- Maintain focus on reducing unacceptable product performance by increasing expectations on trustees to close high fee, poorly performing products.
- Increase transparency of performance across the superannuation industry by releasing new and expanded statistical publications and conducting the annual performance test.
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SFC publishes risk guidelines for futures dealers
Hong Kong’s Securities and Futures Commission (SFC) has published additional guidelines to help supplement the existing control requirements for licensed persons dealing in futures contracts. The new guidelines set out a comprehensive risk management framework for futures brokers which covers market risk management, commodity futures trading, client credit risk management, concessionary margining and risk management over executing or clearing agents.
The guidelines come into force on 25 February 2024.
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Hong Kong regulators launch Fintech Promotion Roadmap
The Hong Kong Monetary Authority (HKMA), in conjunction with the SFC and Hong Kong Insurance Authority, has published a new Fintech Promotion Roadmap (Roadmap), outlining the key initiatives that they will undertake over the next 12 months to give further impetus to Fintech adoption in the financial services industry.
The Roadmap focuses on the Fintech business areas of Wealthtech, Insurtech and Greentech as well as the technology types of Artificial Intelligence (AI) and Distributed Ledger Technology (DLT).
To implement the Roadmap, the HKMA will launch a series of activities in the coming 12 months, including:
- Establishing a Fintech Knowledge Hub to include a new cross-sectoral directory of Fintech service providers and financial institutions to enhance accessibility of resources for various stakeholders in the Fintech ecosystem.
- Hosting more regular Fintech showcase events and roundtables to establish more in-depth communication among financial institutions and Fintech service providers.
- Organising interactive seminars and training sessions on the specific Fintech areas to encourage exchange of practical knowledge across different financial sectors.
- Publishing use-case videos and research reports to provide insights into a wider range of practical considerations across the entire Fintech adoption lifecycle.
The HKMA’s Deputy Chief Executive, Arthur Yuen, said, “This new Fintech Promotion Roadmap is a significant step in our drive to become a leading Fintech hub. It demonstrates the financial regulators’ dedication to innovate. Through close collaboration with stakeholders we are committed to building a sustainable and inclusive Fintech ecosystem in Hong Kong.”
The Roadmap also includes a number of initiatives to address the key challenges facing Fintech adoption, such as regulatory compliance, data privacy and security.
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CFTC’s Goldsmith Romero outlines strategies to address climate-related financial risks
In a speech delivered at the Global Research Alliance for Sustainable Finance and Investment conference, Commissioner Christy Goldsmith Romero of the Commodity Futures Trading Commission (CFTC) highlighted the urgent need to address climate-related financial risks and promote market resilience. The speech emphasised the increasing impact of climate change on financial markets, as evidenced by extreme weather events and the economic repercussions.
Goldsmith Romero outlined three key proposals to enhance the CFTC’s approach to climate risk:
Supervisory review of climate risk management
Goldsmith Romero proposes conducting a comprehensive review of how exchanges, clearinghouses, and market intermediaries are managing climate-related financial risks. Drawing parallels with lessons from the 2008 financial crisis, Goldsmith Romero stressed the importance of identifying potential risks in areas that might not be initially apparent. The review would aim to understand the incorporation of climate risk management into existing frameworks and assess the impact of climate events on these financial entities.
Scenario analysis with regulated entities
In the speech Goldsmith Romero also suggested collaborating with major regulated entities, particularly those considered systemically significant, to conduct scenario analyses that evaluate the impacts of climate change on derivatives markets. These analyses would involve stress testing and exploring extreme climate-related scenarios to understand potential risks and vulnerabilities. This approach would help regulators and institutions comprehend the complex and interconnected effects of climate shocks on financial stability.
Issuing principles for climate risk management
The speech also proposed that the CFTC should issue principles that outline how the largest regulated entities should integrate climate-related financial risks into their existing risk management frameworks. These principles would align with existing guidelines provided by banking regulators and emphasise the importance of incorporating climate risk into governance, policies, risk measurement, and reporting. By establishing clear expectations, regulators aim to foster comprehensive risk management strategies that can adapt to the evolving challenges of climate change.
In conclusion, Goldsmith Romero stressed that climate-related financial risks are a critical challenge that requires urgent attention. By employing the tools and lessons learned from previous financial crises, regulators can enhance market resilience and ensure that the financial system is better prepared to navigate the growing risks posed by climate change.
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SEC charges company for unregistered NFT offering
The SEC has charged Impact Theory, a media company, with conducting an unregistered offering of crypto asset securities in the form of non-fungible tokens (NFTs). The company raised around $30 million from investors through this offering.
Between October and December 2021, Impact Theory sold NFTs called Founder’s Keys, promoting them as investments linked to the company’s success. The SEC found these NFTs to be investment contracts and thus securities. The company’s actions violated securities laws that require registration or exemptions for such offerings.
In settlement, Impact Theory agreed to a cease-and-desist order and will pay more than $6.1 million in disgorgement, interest, and penalties. The company will also establish a Fair Fund to reimburse affected investors and will eliminate any royalties from future secondary market Founder’s Key transactions. All the Founder’s Keys NFTs will also be destroyed.
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