Greg Kilminster
Head of Product - Content
MAS-led consortium develops AI-powered system to support sustainable finance in real estate sector
The Monetary Authority of Singapore (MAS) announced the launch of a Minimum Viable Product (MVP) that can assist banks in tapping into Artificial Intelligence (AI) when issuing Sustainability-Linked Loans (SLLs) in the real estate sector.
The MVP is the result of phase one of Project NovA!,a MAS-Led Consortium launched in 2021. This project is part of Singapore’s National AI Programme in Finance to support the financial services industry with AI-based sustainability insights for effective decision-making. The MVP will help banks address the following challenges:
- Facilitate setting performance targets for SLLs in the real estate sector through peer and industry benchmarking.
- Monitor against selected KPIs/SPTs to curb greenwashing.
- Enhance processing of sustainable finance transactions through Autonomous Documentation Insights Engine (ADIE).
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IFC, MAS and World Economic Forum announce partnership to promote digital inclusion in developing markets
The International Finance Corporation (IFC), the Monetary Authority of Singapore (MAS), and the World Economic Forum (the Forum) have formed a partnership to promote digital inclusion in developing and emerging economies. The three organisations signed a Memorandum of Understanding (MoU) on 14 November 2023 to collaborate on initiatives to advance digital inclusion through financial services. The partnership will focus on:
- finding ways to better mobilise financing to make digital services more affordable and accessible for underserved individuals and communities and micro, small and medium-sized enterprises (MSMEs), with the support of financial institutions and FinTech companies; and
- developing and promoting guidelines covering digital financial inclusion products, eligible assets, and measurement and reporting mechanisms.
According to Sebastian Buckup, Member of the Executive Committee of the World Economic Forum, “This timely partnership with IFC and MAS is vital to turning recommendations into actionable steps to channel financing towards digital public infrastructure, digital skills, and digital services for the underserved.”
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Central Bank of Ireland warns consumers about Buy Now Pay Later products
The Central Bank of Ireland (CBI) has commissioned consumer research on buy now pay later products which shows that a significant number of consumers lack awareness about the risks of using these products and the fact that Buy Now, Pay Later is a form of credit. 22% of consumers do not have a complete understanding of how Buy Now, Pay Later works, and 36% think that Buy Now, Pay Later is a payment method rather than a form of credit. The research also revealed that consumers tend to focus more on the monthly payment amount than the total amount borrowed when they purchase.
The CBI has issued guidance in its consumer hub to promote consumer awareness and understanding of the product. Besides, the Central Bank has directly engaged with Ireland’s largest Buy Now Pay Later firms to ensure that the terms and conditions of their products are transparent and easy to understand for customers and continues to monitor these areas to ensure compliance with the regulatory framework.
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MAS collaborates with financial industry to propel global asset tokenisation
The Monetary Authority of Singapore (MAS) has announced a collaborative effort with the financial industry to advance global asset tokenisation through Project Guardian. This new initiative aims to build foundational capabilities, facilitating the scalability of tokenised markets and promoting the institutional adoption of digital assets.
Under Project Guardian, a consortium of 17 financial institutions (FIs) is conducting five industry pilots to explore innovative asset tokenisation use cases. Notable initiatives include:
Digital Asset Trades: Citi, T Rowe Price Associates, Inc, and Fidelity International are testing mechanisms for efficient pricing and execution of bilateral digital asset trades.
Cross-Border FX Payments: BNY Mellon and OCBC are trialling a secure cross-border FX payment solution for interoperable transactions.
Treasury Management: Ant Group is testing a treasury management solution to enhance global liquidity management and funding.
Tokenised Money Market Fund: Franklin Templeton is exploring the issuance of a tokenised money market fund through a Variable Capital Company (VCC) structure.
Digital Portfolio Management: JP Morgan and Apollo are collaborating on using digital assets for seamless investment and management of portfolios, including automated rebalancing.
Responding to industry interest, MAS is introducing a new funds workstream within Project Guardian, focusing on the native issuance of Variable Capital Company (VCC) funds on digital asset networks. Additionally, MAS is launching Digital Infrastructure Initiatives, including Global Layer One (GL1), to facilitate seamless cross-border transactions for tokenised assets.
MAS is also developing an Interlinked Network Model (INM), allowing financial institutions to transact with each other across independent networks. The International Monetary Fund (IMF) staff has joined Project Guardian’s policymaker group to provide an international perspective on cross-border platform policies.
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Fed updates guidance for banks carrying out due diligence on fintechs
The Federal Reserve has updated its guidance for community banks who need to perform due diligence on prospective relationships with fintech companies.
The guidance focuses on six key areas banks should consider, including:
- Business experience and qualifications.
- Financial condition.
- Legal and regulatory compliance.
- Risk management and controls.
- Information security.
- Operational resilience.
The updated version includes reference to final guidance issued in June 2023 by Supervision and Regulation (SR) Letter 23-4, “Interagency Guidance on Third-Party Relationships: Risk Management.”
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Speech: evolving supervision in the Irish funds sector
In a speech at the Irish Funds Asset Manager Forum, Patricia Dunne, Director of Securities and Markets Supervision at the Central Bank of Ireland, outlined key aspects of the evolving supervisory approach to the funds sector. The speech covered recent changes, supervisory priorities, and focused on three key areas: sustainable finance, delegation, and European Long-Term Investment Funds (ELTIFs).
New supervisory model
Dunne noted the need for an effective, adaptable, and targeted regulatory environment as the funds sector continues to grow. Notable changes in the supervisory approach include an increased emphasis on product risks, greater thematic and sector analysis, and a focus on potential systemic risks from funds. The evolution is a response to experiences during market shocks, such as the COVID-19 pandemic and geopolitical events.
Product risk change
Dunne noted that increased emphasis on product risks would involve a focus on management companies and their underlying funds.
Firms engaging with the Central Bank will notice more discussions on product and product risk.
Thematic and sector analysis
A greater focus on thematic or sector analysis will help in identifying and assessing sectoral risks.
Ongoing initiatives include an ESMA-coordinated CSA on Sustainability and Disclosure Risk.
Sustainable finance/ESG
The speech touched on sustainable finance, acknowledging the challenges posed by the implementation of Sustainable Finance Disclosures Regulation (SFDR) and Taxonomy Regulation, noting that it is: “it is critical to create a common language and classification system which defines what is considered green and sustainable. There is clearly more work that needs to be done in this area, including ensuring investors have a clear understanding of the choices they are making when investing in green products”.
Dunne stressed the importance of harmonising sustainability factors and enhancing the framework to prevent misleading disclosures. Three areas of supervisory focus she touched on were risk management frameworks, securities lending, and the incorporation of machine learning for ESG analysis.
Delegation
Delegation in the funds sector was highlighted as having both benefits and risks. Dunne stressed the ultimate responsibility of fund management companies in the delegation process. Recent guidance, such as the Cross-Industry Guidance on Outsourcing, and upcoming reviews by the European Securities and Markets Authority (ESMA) indicate a continued focus on substance and delegation.
ELTIFs
The European Long-Term Investment Funds (ELTIFs) regime was briefly mentioned, with the European Commission consulting on revisions to address perceived roadblocks. The Central Bank is proposing changes to the Irish framework for ELTIFs to simplify the authorisation process, seeking industry input through a consultation process.
Dunne concluded the speech by highlighting the crucial role of ongoing engagement with the funds industry. The evolving supervisory approach aims to ensure transparency, fair treatment of investors, and financial stability.
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ASIC targets superannuation misconduct in latest update
The Australian Securities & Investments Commission (ASIC) has published its latest enforcement and regulatory update for the period July to September 2023.
During the quarter, ASIC initiated civil penalty proceedings against Westpac Banking Corporation (Westpac) and the trustee of AustralianSuper, the country’s largest superannuation fund. ASIC filed the second and third civil penalty proceedings, addressing alleged greenwashing activities, and an inaugural interim stop order under the design and distribution obligations concerning a life insurance product. The Federal Court imposed penalties of $15 million and $2.1 million on Australia and New Zealand Banking Group Limited (ANZ) and National Australia Bank Ltd (NAB), respectively, as a result of ASIC’s legal actions. In the case of ANZ, ASIC alleged misleading information to customers regarding the funds available in specific credit card accounts. NAB’s penalty was related to unconscionable conduct in charging fees to customers when the bank was not entitled to do so. Further progress outlined in the report includes the following.
In the accompanying press release to the report, ASIC Chair Joe Longo stressed the regulator’s intent to focus on the superannuation sector, saying: “The July to September quarter saw ASIC achieve strong results in court and file significant matters that go toward our ongoing work to protect consumers.
“Our focus on the best interests of members in the superannuation sector is part of our continuing work to make the financial system fair for all Australians.”
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APRA consults to strengthen banks’ resilience to stress
The Australian Prudential Regulation Authority (APRA) has begun consulting on targeted changes to liquidity and capital requirements aimed at strengthening the banking sector’s resilience to future stress. In a letter sent to all authorised deposit-taking institutions (ADIs), APRA proposes a number of changes to:
- valuation practices;
- processes for accessing emergency liquidity assistance; and
- the composition of liquidity portfolios.
The proposed changes would primarily impact ADIs on the Minimum Liquidity Holdings (MLH) regime. The proposed targeted revisions would ensure that:
- ADIs on the MLH regime value liquid assets at their market value;
- All ADIs have robust processes for accessing exceptional liquidity assistance from the Reserve Bank of Australia (RBA), where needed; and
- Contagion risk is reduced by strengthening the composition of MLH liquid assets.
Comments on the proposals are requested by 16 February
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