Eva Dauberton
News Editor
UK Regulators call for views on digital wallets oversight
The Payments Systems Regulator (PSR) and Financial Conduct Authority (FCA) have jointly issued a call for information (CfI) on the benefits and risks presented by digital wallets for individuals and businesses.
Some context
In FCA's feedback statement (FS24/1) on big tech’s entry and expansion in retail financial services, respondents already expressed concerns about the potential dominance of big tech platforms as access channels for retail financial services in the future, suggesting that the UK should learn from the US and Australia's examples.
Indeed, in November 2023, the US Consumer Financial Protection Bureau (CFPB) proposed federal oversight of big tech companies and other providers of digital wallets and payment apps. Similarly, in October 2023, the Australian Government requested input on expanding the definitions of ‘payment system’ and ‘participant’ in the Payment Systems (Regulation) Act 1998 to enable the Reserve Bank of Australia to regulate new and emerging payment systems, including digital wallet providers.
Key takeaways
The PSR aims to explore the implications of the increasing role of digital wallets in the payments value chain and its impact on competition between payment systems. It also aims to achieve its strategic objective of unlocking the potential of account-to-account payments. Similarly to the Australian approach, it considers that digital wallets could be characterised as ‘participants’ in a payment system designated for regulation.
Given its regulatory remit, the FCA is specifically interested in how digital wallets may influence competition in the provision of financial services and the operational resilience and systemic safety of the UK financial services sector. The FCA evaluates that some digital-wallet-related services and activities fall within its regulatory perimeter, such as e-money issuance by a staged wallet in exchange for customer funds. However, other aspects of digital wallets, such as card tokenisation, fall outside its scope.
The CfI also acknowledges the potential involvement of the Competition and Markets Authority (CMA) under its current powers and those under the new digital markets competition regime created by the Digital Markets, Competition and Consumer (DMCC) Act 2024 when the latter comes into effect.
Next steps
The deadline for feedback is 13 September 2024.
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PRA issues statement on the design of the 2025 dynamic general insurance stress test
The Prudential Regulation Authority (PRA) has released details about the dynamic general insurance stress test (DyGIST) 2025. The PRA plans to invite insurers listed in Annex A to participate in the exercise, covering approximately 80% of the PRA regulated general insurance market.
Some context
In October 2023, the PRA announced its intention to run a DyGIST in 2025. The DyGIST aims to assess the UK general insurance sector’s solvency and liquidity resilience to a specific adverse scenario, evaluate the effectiveness of insurers’ risk management and management actions, and inform the PRA’s supervisory response to a market-wide adverse scenario.
Key takeaways
The stress test will comprise three main phases:
- The ‘live’ exercise: Over three weeks in May 2025, firms will be presented with a sequential set of adverse events and will be required to respond as they would in real situations. Firms will need to provide initial financial impact assessments after each event, engage with their supervisory contacts, and adhere to expected management action plans.
- Final firm assessment and reflections: By the end of July 2025, firms will need to submit a final quantitative template with updated estimates of the impact of the events and a qualitative questionnaire to capture risk management insights.
- Analysis, publication, and integration into supervisory plans: The PRA plans to publish the findings of the exercise in 2025 Q4, with individual firm findings shaping supervisory plans for 2026.
Next steps
In the second half of 2024, the PRA will hold further workshops with participating firms, vendors, and brokers who may be supporting firms throughout the exercise.
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EBA consults on data reporting guidelines under MiCAR
The European Banking Authority (EBA) has released a consultation on draft guidelines on reporting requirements to help competent authorities and the EBA fulfil their obligations under the Markets in Cryptoassets Regulation (MiCAR). Specifically, these Guidelines aim to ensure that competent authorities receive uniform information to oversee issuers’ compliance with MiCAR requirements and to provide the EBA with the necessary information for conducting the significance assessment.
Some context
MiCAR sets out a wide range of regulatory requirements, including authorisations, conduct and prudential requirements for issuers of asset-referenced tokens (ARTs) and e-money tokens (EMTs), and mandates issuers of certain tokens to report certain data points to the competent authorities under Article 22 MiCAR.
The EBA has indicated that the data that issuers are required to report under Article 22 MiCAR is insufficient for competent authorities and the EBA to fulfil their supervisory and significance assessment tasks under MiCAR. The Guidelines are designed to address these data gaps.
Key takeaways
The draft Guidelines specify the templates that issuers of ARTs and EMTs should use to provide competent authorities and the EBA with the necessary information. These templates comprise information on number of holders, market capitalisation and composition of the reserve of assets, transactions per day, own funds, liquidity, and entities involved in the custody, operation, or distribution of the tokens.
In addition, these guidelines include common templates and instructions that issuers should use to collect data from the relevant Crypto-Asset Service Providers (CASPs).
Next steps
The deadline for feedback is 15 October 2024.
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EBA consults on amending ITS on the joint decision process for internal model authorisation
The European Banking Authority (EBA) has issued a consultation paper proposing changes to the Implementing Technical Standards (ITS) on the joint decision (JD) process for internal model authorisation under the Capital Requirements Regulation (CRR).
The current ITS outlines the procedures for the consolidating supervisor and the relevant competent authorities to collaborate during their assessments and contributions to the JD. This includes evaluating the completeness of the application, coordinating the JD process between home and host authorities, and determining resource allocation. The current ITS have not been updated since they came into effect in 2016.
The proposed amendments reflect changes to the EU legal framework, particularly the reduced scope of internal model application following the revisions in CRR III, as well as the updated EBA RTS/ITS on the functioning of supervisory colleges. These draft amendments are part of the initial phase of the EBA roadmap for implementing the EU Banking Package.
The deadline for feedback is 16 October 2024.
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ESMA report highlights key findings on cross-border activities in the EU and EEA
The European Securities and Markets Authority (ESMA) has issued its annual report on the cross-border activities of passported firms across the EU and EEA Member States for the 2023 reference year.
Key findings from the report include:
- Compared to 2022, the cross-border market for investment services in the EU/EEA showed a formal growth of 1.6% in terms of firm numbers, a 5% increase in the number of retail clients served, and a 31% increase in the number of complaints.
- A relatively high concentration of firms with cross-border investment activity in a few EU countries was observed, with three countries being home to about half the number of EU/EEA firms (192 of all 386 firms): Cyprus (20%), Luxembourg (15%), Germany (14%). While accounting for 37% of the total firm number, four jurisdictions (CY, LT, DE, IE) are home to firms that provide cross-border investment services to 76% of EU/EEA retail clients.
- 21 Member States are home to firms providing cross-border investment services to retail clients in a rather large number of host Member States (10 or more). Firms based in Cyprus, Germany, Austria, the Netherlands, Ireland, and Lithuania reported that their firms provide services to retail clients in all other Member States.
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EBA provides insight into EU institutions’ management buffers
The European Banking Authority (EBA) has published a report on management buffer practices in the European Union.
Some context
The EBA’s response to the European Commission’s call for advice on the review of the macroprudential framework included recommendations to simplify procedures and increase harmonisation for macroprudential tools in the EU.
The EBA’s response also explained that a more comprehensive evaluation should be performed before considering further substantial changes to the current framework.
Against this backdrop, the EBA performed a broad analysis of the stacking order of requirements for own funds and eligible liabilities applicable to banks, with a focus on microprudential elements.
Key takeaways
The report provides a comprehensive overview of regulatory stacks relevant to understanding a bank’s capital headroom above the requirements. While the EBA did not propose changes to the recently implemented framework, the analysis aimed to better understand the interactions among regulatory stacks and the establishment of management buffers by banks in relation to these stacks. Specifically, the report:
- Describes the role of regulatory stacks, both going and gone concern, with a focus on microprudential elements.
- Summarises the differences between the EU, UK, and US frameworks.
- Highlights institutions’ practices on management buffers.
Next steps
Moving forward, the analysis will inform other EBA regulatory products, such as the one stemming from the mandate on the interplay between the output floor and Pillar 2 (Art 104a(7) CRD6). It will lay the groundwork for the update of the supervisory review and evaluation process (SREP) Guidelines following the implementation of the EU Banking Package (CRR3 and CRD6).
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EIOPA releases factsheet on AI regulation in insurance sector
In response to the recent adoption of the AI Act by the European Parliament and the European Council, the European Insurance and Occupational Pensions Authority (EIOPA) has issued a factsheet detailing the regulatory framework applicable to AI systems in the insurance industry.
The factsheet provides a high-level overview of the legal framework including the classification of AI systems, the new features introduced by the Act and a comparison with existing insurance legislation.
The factsheet is for information purposes only.
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FINRA July fines summary
The US Financial Industry Regulatory Authority (FINRA) has published its latest disciplinary summary for July 2024 covering a range of enforcement actions. Amongst the firms that have been fined for violations are SoFi Securities LLC, M1 Finance LLC, Mizuho Securities USA LLC and Oppenheimer & Co. Inc. The briefing also details the numerous individuals fined or barred by the regulator.
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ASIC investigation leads to $28 Million refund for low-income bank customers
The Australian Securities and Investments Commission (ASIC) has announced that several banks will be refunding over $28 million to bank customers with low incomes, including First Nations customers.
This comes after a review conducted by ASIC, which revealed that four Australian banks, namely ANZ, Bendigo and Adelaide Bank, CBA, and Westpac, have been consistently charging high fees to those who can least afford it. The review, outlined in ASIC’s Report 785: ‘Better banking for Indigenous Consumers’ (REP 785), found that these banks have kept around two million Australians with low incomes, many of whom rely on Centrelink payments to get by, in high-fee accounts.
The banks have now agreed to refund these customers a total of over $28 million in fees over the next 12 to 18 months. Notably, $24.6 million of this amount will be refunded to customers who receive ABSTUDY payments and reside in areas with significant First Nations populations.
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