Greg Kilminster
Head of Product - Content
Elizabeth McCaul speech on the future of banking supervision
In a speech at the Supervision Innovators Conference 2024, Elizabeth McCaul, Member of the Supervisory Board of the European Central Bank (ECB), outlined the ECB’s strategy to integrate digital tools and artificial intelligence (AI) to ensure European banking supervision remains resilient in an evolving landscape.
Reflecting on a decade of supervision
Speaking on the tenth anniversary of the Single Supervisory Mechanism (SSM), McCaul highlighted the changing dynamics of the financial sector, shaped by technological, environmental, and economic mega trends. "We are in the midst of a fast-paced and unprecedented development which is changing every aspect of the economy," she said. Drawing parallels with AI’s role in other industries, McCaul argued that banking supervision should also aim for a proactive approach: “Predicting accidents before they occur: isn’t that also a goal worthy of banking supervision?”
McCaul stressed that, as banks become more dependent on data and third-party platforms, supervisors must embrace advanced technology to mitigate emerging risks. “To keep the banking sector safe and sound in the face of these trends, we need to equip the supervisors of the future with the right tools and skills.”
A new strategy for 2024-2028
The cornerstone of the ECB’s approach is the SSM tech strategy for 2024-2028, built on two key pillars: people and technology. The strategy aims to deliver what McCaul termed “supervision at your fingertips,” where human expertise is enhanced by cutting-edge digital tools.
McCaul introduced a symbolic figure named Pete, representing the fusion of 'people' and 'technology.' Pete embodies the ECB’s vision of supervisors who are equipped with the skills and technology to meet the demands of an increasingly complex financial sector.
Fostering an innovation culture
The first pillar of the strategy focuses on investing in people—particularly supervisors like Pete. McCaul stressed the importance of fostering a “user-focused innovation culture,” encouraging the adoption of supervisory technology (suptech) tools across the ECB and national competent authorities (NCAs). The ECB’s SupTech Champions initiative plays a key role in this, providing training to more than 1,000 supervisors across Europe.
The initiative, McCaul noted, has been instrumental in building a tech-savvy supervisory workforce, with 45 champions already in place. "We are convinced that having a clear user focus in all our technological activities will encourage the take-up of our tools,” she said.
Deepening global partnerships
McCaul also highlighted the ECB’s efforts to tap into global innovation networks, collaborating with academic institutions and industry leaders in AI, cloud technology, and big data. These partnerships ensure that supervisors have access to the latest technology, helping them stay ahead of emerging risks such as climate-related threats and cyber risks.
Harnessing technology for effective supervision
The second pillar of the strategy focuses on modernising the ECB’s technological infrastructure. McCaul explained that the ECB is consolidating and upgrading its core IT systems, making them more modular, scalable, and secure. A flagship initiative in this area is Olympus, a project designed to future-proof the ECB’s IT landscape. “Through Olympus, we aim to proactively shape our IT landscape and make it ready for the upcoming challenges and opportunities offered by new technologies,” she noted.
The goal is to create a unified system where supervisors can work collaboratively across the ECB and NCAs. McCaul described a future where tools like the SSM Cockpit—a user-friendly platform integrated with AI capabilities—allow supervisors to navigate complex tasks more efficiently.
AI and analytics: boosting risk detection
McCaul highlighted the growing importance of AI and advanced analytics in banking supervision. The ECB has been developing tools such as Delphi, which integrates structured and unstructured data to enhance risk assessments. "Supervisory analytics will give Pete and his colleagues new insights which will help them stay ahead of emerging risks," McCaul said.
Additionally, the ECB is exploring AI-driven automation to streamline supervisory processes. Tools like AthenaGPT and Virtual Lab allow supervisors to process vast amounts of data quickly, while AI provides insights to enhance decision-making. However, McCaul stressed that human oversight remainsessential: “Our vision is for supervisors to be increasingly empowered by GenAI, while remaining engaged in the process.”
McCaul concluded by reflecting on the ECB’s accomplishments, including the widespread adoption of suptech tools and global recognition for innovation. Yet, she acknowledged that much work remains. “If we want to truly equip Pete for the future, it's clear that our work has only just begun,” she said.
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FinCEN releases toolkit to educate small businesses on beneficial ownership reporting
The Financial Crimes Enforcement Network (FinCEN) has launched a toolkit to assist small businesses in understanding their obligations under the Corporate Transparency Act (CTA). The toolkit provides a range of resources aimed at simplifying compliance with beneficial ownership reporting requirements, which are designed to enhance transparency and combat illicit finance.
Some context
Enacted in 2021, the CTA requires many companies doing business in the USA to disclose details about their beneficial owners—the individuals who own or control them—to FinCEN, a bureau of the US Treasury. This move seeks to combat financial crimes, such as money laundering, by providing law enforcement with accurate ownership data.
FinCEN’s toolkit is structured to help private, public, and non-profit organisations share information about these reporting requirements. It includes templates for emails, newsletters, social media posts, and other communications, making it easier for stakeholders to disseminate crucial information to the small business community.
Key takeaways
What’s in the toolkit
The toolkit contains several resources designed to educate small business owners about the new beneficial ownership reporting requirements. These include:
- Overview: A general background on the CTA and reporting obligations.
- FAQs: Detailed answers to common questions regarding who needs to file, what needs to be reported, and the filing deadlines.
- Templates: Ready-to-use content for newsletters, websites, and emails, allowing organisations to spread the word efficiently.
- Sample social media posts and images: Pre-prepared content for sharing on social media channels.
FinCEN has also provided instructional videos and brochures to make the filing process as smooth as possible.
Who needs to file?
The reporting requirement applies to companies created or registered in the US, including corporations, LLCs, and other entities formed by filing with state or tribal authorities. Foreign companies registered to do business in the US also need to comply. Large companies, which already disclose ownership information through other regulatory channels, are generally exempt.
What to report and how to file
Companies must report basic information about their beneficial owners, such as name, address, and date of birth. Filing is quick, secure, and free of charge, with most small businesses expected to complete the process without needing legal or accounting assistance.
Companies formed before 2024 must file by 1 January 2025, while those created or registered in 2024 have 90 days to comply. Beginning in 2025, newly created companies will have 30 days to file.
Penalties for non-compliance
Failure to comply with the beneficial ownership reporting requirements can result in significant penalties, including civil fines of up to $591 per day and potential criminal penalties of up to two years imprisonment and fines of up to $10,000. Companies are advised to ensure their information is accurate and promptly updated to avoid such consequences.
Next steps
FinCEN’s toolkit offers a valuable resource for small businesses and organisations seeking to comply with the Corporate Transparency Act’s reporting requirements. With an extended deadline for existing companies and easy access to the E-Filing system, the toolkit simplifies the reporting process and enhances transparency efforts. For additional guidance or questions, businesses can contact FinCEN through its website or social media channels.
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CFPB Director discusses misuse of personal data
Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra delivered opening remarks at the Aspen Institute, discussing the abuse and misuse of personal data.
He focused on President Biden’s Executive Order on preventing access to Americans’ bulk sensitive personal data and United States government-related data by countries of concern.
In describing regulators’ concerns in that area, Chopra provided an update on CFPB initiatives. Specifically, he mentioned that:
- The CFPB has initiated a rulemaking process to ensure that data brokers are adhering to the Fair Credit Reporting Act (FCRA), which protects consumer rights.
- The CFPB will soon propose a rule granting consumers more control over their sensitive data.
NB: The FCRA provides a range of protections, including accuracy standards, dispute rights, and restrictions on how data can be used. The law covers data brokers like credit reporting companies and background screening firms, as well as those who report information to these firms.
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OCC issues September enforcement summary
The Office of the Comptroller of the Currency (OCC) has summarised its September enforcement actions which targeted several national banks and individuals for unsafe or unsound practices.
Two banks, First Federal Savings Bank of Kentucky, and Wells Fargo Bank, N.A. were subjected to formal agreements. These agreements require the former to rectify deficiencies in strategic planning and budgeting, succession planning, liquidity risk management, and interest rate risk management, and, in the case of Wells Fargo, to rectify deficiencies related to the bank’s financial crimes risk management practices and anti-money laundering internal controls in several areas
On the individual level, the OCC issued Orders of Prohibition against a former Lead Associate at a Brooklyn, New York, branch of JPMorgan Chase Bank, N.A., Columbus, Ohio, for engaging in a scheme to steal bank funds and falsely reporting the receipt of counterfeit bills in the bank’s general ledger.
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Enhancement for superannuation data collections: APRA responds to industry feedback
The Australian Prudential Regulation Authority (APRA) has issued its response to feedback on proposed enhancements to superannuation data collection. The updates focus on improving transparency around indirect investment costs and financial statements for registrable superannuation entities (RSE) licensees.
Some context
The proposals, first put forward in November 2023, aim to refine data reporting processes to better align with industry standards. The aim was to address key gaps in how investment costs and financial statements were reported. The consultation closed in March 2024, with nine written submissions and several stakeholder meetings contributing to the review.
The proposals included enhancements to the reporting of indirect investment costs and a new framework for RSE licensee financial statements. While the feedback was generally supportive, concerns were raised regarding the complexity of the reporting process, particularly around indirect investment costs.
Key takeaways
Investment costs adjustments
One of the central concerns raised by stakeholders was the reporting of indirect investment costs. Feedback indicated that APRA’s original proposals exceeded the requirements of ASIC's Regulatory Guide 97 (RG 97), which governs the disclosure of fees and costs in product disclosure statements (PDSs). Stakeholders argued that this would impose a significant burden, given the need for a deeper "look-through" into service providers’ costs.
In response, APRA has adjusted its approach. The revised framework aligns more closely with existing industry reporting templates under RG 97, aiming to reduce the reporting burden. Instead of focusing solely on indirect costs, the reporting will now capture total investment fees and transaction costs. APRA has also provided additional guidance and extended the reporting deadline by two and a half months to facilitate compliance.
RSE licensee financial statements
For RSE licensee financial statements, submissions were generally supportive, though there were requests for clarification. Some industry members questioned whether financial statements already lodged with ASIC would suffice for APRA’s needs. Others pointed out that the reporting structure in the draft lacked flexibility to accommodate the diverse business models across RSEs.
APRA has maintained its original proposal for the financial statements, but has provided more detailed instructions and examples to address concerns. It clarified that while ASIC-lodged financial statements do not fully meet its data needs, the reporting structure will align with the financial statements already in use. The authority has also enhanced definitions and clarified expectations around related party transactions to ensure consistency across the sector.
Next steps
Looking ahead, APRA plans to finalise the reporting standards later in 2024. These include:
- Reporting Standard SRS 332.0: Expenses and Investment and Transaction Fees and Costs
- Reporting Standard SRS 101.0: Definitions for Superannuation Data Collections
- Reporting Standard SRS 340.0: RSE Licensee Financial Statements
Further consultations will follow on the confidentiality and publication of the new data, with the final updates expected by 2026. APRA remains committed to ensuring that the superannuation sector adheres to robust, transparent data reporting practices while balancing the regulatory burden on industry participants.
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ASIC refreshes guidance on conducting financial services business in Australia
The Australian Securities and Investments Commission (ASIC) has reissued Regulatory Guide 121 (RG 121) to reflect the changes that have occurred since the previous issuance in 2013. RG 121 provides general guidance to individuals or companies from outside Australia who intend to conduct a financial services business in the country.
Key takeaways
RG 121 covers various aspects, such as when an individual or company may be required to hold an Australian financial services (AFS) license to carry out financial services in Australia, the circumstances in which they may be exempt from this requirement, and the obligations associated with being an AFS licensee.
The reissued RG 121 includes amendments to the descriptions of AFS licensing exemptions and relief and updated guidance on the Courts’ interpretation of ‘carrying on a business in Australia’.
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HKMA issues circular on banking industry readiness for severe weather trading
The Hong Kong Monetary Authority (HKMA) has issued a circular to all authorised institutions (AIs) regarding the upcoming launch of the Severe Weather Trading (SWT) arrangements.
Some context
In June 2024, Hong Kong Exchanges and Clearing Limited (HKEX) announced the finalisation of the operational model and arrangements to allow Hong Kong's securities and derivatives markets to remain open during severe weather conditions. SWT will be implemented from 23 September 2024, marking the end of a seven-decade practice of suspending stock market trading during typhoons and extreme weather conditions.
Concurrently, HKMA issued a circular to set out arrangements related to banking operations that will apply upon the implementation of SWT.
Key takeaways
The circular follows two rounds of surveys conducted by the HKMA and provides an update on banks' preparedness.
To support SWT through the provision of continuous banking and payment services, HKMA found that banks made arrangements in the following areas:
- Cheque clearing and settlement
- Remote working and operational arrangements
- Services to securities brokers
- Services to bank customers
Post implementation, HKMA encourages banks to:
- Maintain comprehensive contingency plans and effective customer communication under different plausible scenarios.
- Review the requests and inquiries from their personnel and customers to assess the effectiveness of their SWT arrangements regularly.
Next steps
The HKMA will continue to work closely with the Securities and Futures Commission (SFC), HKEX, and the banking industry and provide further guidance as needed.
Click here to read the full RegInsight on CUBE’s RegPlatform