Greg Kilminster
Head of Product - Content
Amex fined AU$8 million for breaching product governance rules
The Australian Federal Court has ruled that American Express Australia Limited (Amex) must pay AU$8 million in penalties for violating the design and distribution obligations (DDO).
The DDO regime mandates that issuers and distributors of financial products establish and maintain effective product governance arrangements throughout the life cycle of the products. Additionally, DDO requires issuers and distributors to actively assess events and circumstances that may indicate that a target market determination (TMD) is no longer suitable.
The Court determined that Amex breached the DDO between 25 May 2022, and 5 July 2022, as they should have been aware that high rates of cancelled applications indicated that the TMDs for the cards were no longer appropriate. Furthermore, Amex continued to issue the credit cards without reviewing the TMDs.
The Australian Securities and Investments Commission (ASIC)'s Deputy Chair Sarah Court commented: “This is an important decision, because it highlights the requirement for issuers and distributors of financial products to customers to have in place adequate systems to monitor events and circumstances that suggest a target market determination is no longer appropriate.”
Click here to read the full RegInsight on CUBE’s RegPlatform
Bitwise founders face $500,000 fine
The US Internal Revenue Service (IRS) has announced that the founders and leaders of Bitwise Industries, a failed start-up company based in Fresno, have pleaded guilty to charges of conspiring to commit wire fraud and wire fraud.
Through false and fraudulent representations, Irma Olguin Jr. and Jake Soberal Olguin secured $115 million in investments and loans for Bitwise, which the company was not entitled to receive. These funds were then used for various purposes, including paying employee salaries, setting up office spaces, and repaying debts owed to previous investors and lenders.
The sentencing for Olguin Jr. and Soberal is scheduled for 6 November 2024. They could face a total maximum penalty of 40 years in prison and a $500,000 fine. They have agreed to pay full restitution. The court will ultimately determine the actual sentences, considering various factors outlined in the Federal Sentencing Guidelines.
Click here to read the full RegInsight on CUBE’s RegPlatform
FCA identifies issues in firms' treatment of PEPs
The Financial Conduct Authority (FCA) has released the findings of its review on the treatment of Politically Exposed Persons (PEPs). As a result of the findings, the FCA has called on firms to make improvements and has issued a consultation on proposed changes to related final guidance (FG)17/6.
Sarah Pritchard, the FCA’s executive director of markets and international, commented: “Public service naturally comes with greater scrutiny. But it must be proportionate and shouldn’t disadvantage people running for office or taking senior public roles, or their families. That requires a balancing act”.
Some context
The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the Regulation) requires financial firms to conduct additional checks on politically exposed persons (PEPs) for Anti-Money Laundering (AML) purposes. Relating FCA expectations were included in FG17/6.Parliament requested the FCA to review how effectively firms are adhering to the current guidance and, based on the findings, consider whether it is still appropriate.
Considering the review's findings and recent regulatory changes, the FCA is consulting on targeted amendments to FG17/6.
Multi-firm review on the treatment of PEPs
The FCA assessed how firms apply the definition of PEPs and relatives and close associates (RCAs) to individuals, evaluated how firms manage and treat them and obtained feedback from PEPs.
The FCA identified the following issues:
- Some firms had definitions for PEPs and RCAs that were broader than what the FCA would have expected.
- Some firms did not have effective arrangements to assess whether the PEP classification was still appropriate after the PEP had left public office.
- A small number of firms did not effectively consider the customer’s actual risk in their assessment and rating.
- Firms needed to improve the clarity and detail of communications with PEP and RCA customers.
- Most of the firms needed to improve staff training.
- Some firms needed to update their policies to reflect recent legislative amendments to treat UK PEPs and RCAs as having a lower level of risk than a foreign PEP unless they have other risk factors.
Guidance consultation (GC)24/4
The FCA proposes changes in four areas of the guidance:
- Clarify that non-executive board members (NEBMs) of civil service departments are not expected to fall under the definition of PEP in the UK context.
- Allow for alternative approaches to signing off on PEP relationships, provided the Money Laundering Reporting Office (MLRO) maintains oversight of all PEP relationships within the firm.
- Reflect Regulations amendments
- Make a small number of minor, mostly non-substantive changes, including removing outdated references to EU Guidance.
The deadline for feedback is 18 October 2024.
Click here to read the full RegInsight on CUBE’s RegPlatform
CP24/10: PSR consults on draft guidance to support the identification of APP scams and civil disputes
The Payment Systems Regulator (PSR) has released consultation paper (CP) 24/10 outlining draft guidance for Payment Service Providers (PSPs). The guidance aims to assist PSPs in evaluating whether a claim is solely related to a civil dispute and, therefore, not subject to reimbursement.
In policy statement (PS) 23/3, titled "Fighting authorised push payment fraud: a new reimbursement requirement," the PSR clarified that claims stemming from civil disputes would not qualify for reimbursement under the new requirement. Following extensive engagement with PSPs and industry stakeholders, the PSR has recognised the practical challenges faced by the industry in distinguishing between APP scams and civil disputes.
As a result, this draft guidance has been developed to aid PSPs in this assessment. The reimbursement policy will come into effect on 7 October 2024.
Click here to read the full RegInsight on CUBE’s RegPlatform
MAS speech to launch annual report
In a speech to launch the Monetary Authority of Singapore (MAS) Annual Report for the financial year 2023/24, Chia Der Jiun, Managing Director of MAS, provided a wide-ranging overview of the global economic landscape, Singapore's financial sector progress, and future priorities in digital finance and sustainability
Economic developments and monetary policy
Der Jiun noted that global economic resilience has been notable despite multi-decade high interest rates. The US economy is projected to achieve robust growth, while China's growth is expected to align with its 5% target, supported by policy measures. Emerging Asian economies continue to benefit from the cyclical recovery in global technology and trade sectors.
He noted too that global inflation has significantly declined from its peak, adding that the final stages of disinflation will be slower. Advanced economies are experiencing persistent price pressures from the services sector due to strong demand and tight labour markets.
Singapore’s growth momentum is set to strengthen this year, with GDP growth anticipated to align with its potential rate of 2-3%. Significant progress has been made in controlling inflation, which has reduced from its peak of 5.4% in Q1 2023. MAS Core Inflation averaged 3.1% year-on-year over April-May, down from 3.3% in Q1 2024. Monetary policy has played a crucial role, with MAS withdrawing policy accommodation early and maintaining a restrictive stance to curb inflation.
Financial sector growth
Singapore’s financial services sector has shown resilience and growth across asset management, debt markets, wealth management, insurance, and banking.
Asset management
The asset management industry has expanded, with assets under management (AUM) reaching S$5.41 trillion as of 31 December 2023, marking a 10% growth from the previous year. Private markets have seen significant growth, with private equity and venture capital AUM growing at a compound annual growth rate (CAGR) of 24.6% to over S$650 billion.
Debt market
Despite high interest rates, Singapore’s corporate debt market has rebounded strongly, registering a 10.5% increase to S$566 billion. Sustainable debt issuances have also grown, solidifying Singapore’s position as ASEAN's largest sustainable debt market.
Wealth management
The wealth management industry continues to thrive, attracting global wealth due to high regulatory standards. Despite a significant money laundering case last year, the sector's growth trajectory remains unchanged. Vigilance in financial institutions has been key, with Suspicious Transaction Reports (STRs) enabling law enforcement to uncover illicit activities.
Insurance
The insurance sector grew in 2023, with net premiums and total assets increasing by 6.4% and 6.8% respectively. Demand for life, health, and wealth protection continues to drive robust growth, with investments in data analytics and technology enhancing the sector's capabilities.
Banking
The banking sector remains robust, with total assets growing at a 5.5% CAGR over 2018-2023. Major banks have expanded their regional capabilities, particularly in capital markets, wealth management, sustainability, and technology.
Digital finance and resilience
Digitalisation in financial services has brought convenience but also increased the complexity and interconnectedness of IT systems. MAS has set a standard for banks, limiting disruptions to critical systems to no more than four hours within any 12-month period. Enhancements to the Technology Risk Management Notice and a technology assurance programme are being considered to ensure resilience in service delivery.
Scam prevention remains a priority. MAS, in collaboration with the financial industry and the Police, has implemented measures to combat scams, including removing One-Time Passwords (OTPs) for bank account login and introducing Money Lock features. Although scams involving remote takeover by malware have decreased, Der Jiun noted that continued vigilance is necessary to counter new scam typologies.
Fair dealing in financial services
MAS has issued updated Fair Dealing Guidelines to ensure products suit customer needs and advice is accurately represented. The objective is to raise standards across the industry, placing clear responsibility on the Board and Senior Management of financial institutions to implement strategies for achieving these outcomes.
Sustainability
Sustainable finance presents significant opportunities, with MAS supporting upskilling in sustainability-related regulations and standards. The financial sector will play a crucial role in supporting the region’s transition to net zero.
Artificial Intelligence (AI)
AI adoption in financial services is set to increase, noted Der Jiun, with MAS focusing on talent, trust, and technology centres of excellence. A study on GenAI’s impact on job roles in the sector will inform steps to equip the workforce with necessary skills. Governance is essential to ensure AI is used responsibly, with MAS providing guidance and support for AI centres of excellence in Singapore.
Quantum technology
Quantum computing holds transformative potential in financial services. MAS is collaborating with the National Quantum Office to build capabilities in quantum computing and security. Up to S$100 million in funding support will be provided for AI and Quantum projects.
MAS financial results
Der Jiun finished by noting that for FY2023/24, MAS recorded a net profit of S$3.8 billion, comprising investment gains of S$12.7 billion and a positive currency translation effect of S$1.7 billion, partially offset by S$10.6 billion in net costs.
Click here to read the full RegInsight on CUBE’s RegPlatform
MAS invests S$100 million to boost quantum and AI in finance
The Monetary Authority of Singapore (MAS) has confirmed an additional S$100 million investment under the Financial Sector Technology and Innovation Grant Scheme (which was introduced by MAS in June 2015 to support the creation of a vibrant ecosystem for innovation in the financial sector) to enhance quantum and artificial intelligence (AI) capabilities in the financial sector.
Quantum technology development
Quantum technology is evolving quickly and many commentators believe it has the potential to revolutionise the financial industry. In line with the National Quantum Strategy announced in May 2024, MAS is introducing a Quantum track under FSTI 3.0, which includes:
- Technology centres grant: Supports setting up quantum computing and security innovation centres, offering up to 50% funding for manpower and other expenses for 24 months.
- Technology innovation grant: Has two sub-tracks to support the adoption of quantum technology solutions, providing up to 50% co-funding.
- Security grant: Aims to enhance cybersecurity using Post-quantum Cryptography and Quantum Key Distribution, with up to 30% funding support.
MAS will also collaborate with educational institutions to develop talent in quantum technologies for the financial sector.
AI adoption enhancement
With AI tools becoming more accessible, MAS will enhance the AI and data grant scheme under FSTI 3.0 to:
- Boost AI development: Support the establishment of AI innovation centres in Singapore for developing, testing, and deploying AI solutions.
- Develop industry-wide AI platforms: Foster collaboration among financial institutions to tackle industry-wide issues, starting with scam and fraud detection.
Click here to read the full RegInsight on CUBE’s RegPlatform
Michelle Bowman: Evaluating liquidity, supervision, and regulatory reform
In a speech at the Exploring Conventional Bank Funding Regimes in an Unconventional World conference, Federal Reserve Governor Michelle W Bowman reflected on the failures of Silicon Valley Bank (SVB), Signature Bank, and First Republic Bank and discussed the critical need for regulatory reform in the banking sector, particularly in light of recent disruptions.
Reflecting on recent bank failures
Bowman marked the one-year anniversary of the collapse of SVB and Signature Bank as pivotal events prompting a reevaluation of the regulatory framework. The repercussions of these failures have expanded the reform agenda to include areas such as bank capital regulation, supervision, fintech partnerships, and liquidity and funding mechanisms.
Principles guiding regulatory reform
A central theme in Bowman’s speech was the importance of reflective and principled regulatory reform. She called for a deep understanding of the banking system, rigorous analysis, and targeted reforms. Bowman emphasised the need for a balanced approach that avoids overreach while addressing critical vulnerabilities.
Enhancing the lender of last resort function
Bowman discussed the importance of improving the Federal Reserve’s discount window and payments infrastructure. She highlighted operational challenges faced by banks during last year’s banking stress, noting that frictions in accessing the discount window exacerbated the situation for some institutions. To address these issues, Bowman has advocated for extending operating hours for Fedwire Funds Service and the National Settlement Service and modernising the technology underpinning discount window loans.
Improving bank liquidity sources
The Federal Reserve’s role as a lender of last resort was scrutinised, with Bowman acknowledging that the discount window should serve as a backup liquidity resource, not a primary funding mechanism. She proposed that banks preposition collateral at the discount window to ensure readiness during times of stress. However, Bowman cautioned that this should be balanced against the operational implications for other liquidity sources like Federal Home Loan Bank (FHLB) advances.
Addressing discount window stigma
The perceived stigma associated with discount window borrowing remains a significant issue. Bowman suggested that improving the operational readiness of the discount window and integrating it more effectively into banks’ liquidity planning could help mitigate this stigma. She also raised the possibility of recognising discount window borrowing capacity within the liquidity coverage ratio framework.
Regulatory reform and supervision
Turning to bank supervision, Bowman stressed the importance of prioritising core risks such as concentration, interest rate, and liquidity risks. She criticised the tendency to focus on broader, qualitative risks at the expense of these fundamental issues. Effective supervision, according to Bowman, requires transparency, a focus on critical financial risks, and avoiding distractions from less pressing areas.
Addressing mission creep
Bowman pointed to regulatory mission creep, exemplified by recent climate-related financial risk guidance. While acknowledging the importance of climate change, she questioned whether it warrants a shift in supervisory focus away from immediate, core financial risks.
Capital requirements and the broader regulatory framework
Bowman advocated for a careful reassessment of capital requirements within the broader regulatory framework. She highlighted the need to address known constraints, such as the enhanced supplementary leverage ratio (eSLR), which can disrupt market functioning during stress periods. The current piecemeal approach to rulemaking, she argued, often overlooks the aggregate impact of regulations and their complementary nature.
Bowman’s address highlighted the complexity of regulatory reform in the banking sector. She called for a measured, principle-based approach that addresses identified weaknesses without imposing unnecessary burdens. Her remarks emphasised the need for a regulatory framework that promotes resilience and stability in the banking system while remaining adaptable to evolving challenges.
Click here to read the full RegInsight on CUBE’s RegPlatform
CIRO proposes amendments to UMIR to target issues in ETF trading
The Canadian Investment Regulatory Organisation (CIRO) is proposing amendments to the Universal Market Integrity Rules (UMIR) to address transparency issues related to the execution of certain orders in Exempt Exchange-traded Funds (ETFs) and to remove an outdated prohibition.
Some context
The proposals aim to address two main issues related to trading ETFs in the Canadian market. The first issue is with the execution of trades in ETFs at NAV (Net Asset Value), as the NAV is not typically published until after trading has ended for the day. This results in trades being executed the following trading day with shortened settlement terms to align with the date of NAV publication, lacking transparency about the nature of the trade.
The second issue relates to the definition of “intentional cross” in UMIR 1.1.2, which excludes certain trades, causing complexity and challenges, especially for less liquid securities like ETFs. The prohibition of intentional cross-trades where one Participant has entered a “jitney order” introduces unnecessary complexity and risk, impacting the current structure of the Canadian market.
Key takeaways
The Proposed Amendments would, therefore, amend UMIR to:
- Increase transparency around the execution of certain orders in ETFs, where the execution price of the order references the NAV of the ETF as published by the issuer of the ETF under applicable securities legislation.
- Remove an outdated prohibition in the definition of “intentional cross” in UMIR 1.1 and clarify its application.
Next steps
The deadline for feedback is 18 October 2024
Click here to read the full RegInsight on CUBE’s RegPlatfor
New Zealand strengthens anti-money laundering measures
The Financial Action Task Force (FATF) has published its 3rd follow-up report and technical compliance re-rating for New Zealand.
Since the last review in 2021 and a follow-up in 2022, the report notes New Zealand has made significant strides in combating money laundering and terrorist financing. FATF has recognised these efforts by upgrading the country's ratings on five key recommendations.
New Zealand's updated ratings are as follows:
- Recommendation 14: Upgraded from partially compliant to largely compliant.
- Recommendation 16: Upgraded from partially compliant to largely compliant.
- Recommendation 19: Upgraded from partially compliant to compliant.
- Recommendation 22: Upgraded from partially compliant to largely compliant.
- Recommendation 23: Upgraded from partially compliant to largely compliant.
Currently, New Zealand is compliant with nine of FATF's recommendations and largely compliant with 25, with only six areas still rated as partially compliant. New Zealand will continue to report its progress to FATF, with the next review set for the 5th round of mutual evaluation.
Click here to read the full RegInsight on CUBE’s RegPlatform