CUBE RegNews: 22nd February

Greg Kilminster

Greg Kilminster

Head of Product - Content

Enhancing global financial stability through cooperation: insights from Ashley Alder’s speech  

In a speech at the UK Mission to the European Union event, Ashley Alder, chair of the Financial Conduct Authority (FCA), discussed the importance of global cooperation among regulators, particularly in the face of cross-border risks. Alder highlighted the FCA’s commitment to open markets and outlined key areas of focus, including environmental, social, and governance (ESG) considerations, Fintech innovation, and the regulation of non-bank financial institutions (NBFI). 

Commitment to open markets 

Alder stressed the significance of effective cooperation in managing the risks associated with large volumes of cross-border financial activity. He emphasised the FCA’s alignment with an open markets philosophy, with statutory objectives aimed at enhancing market integrity, promoting competition, and protecting consumers. He also stressed the benefits of healthy competition and consistent standards in reducing frictions across financial markets, facilitating capital formation, and fostering international competitiveness. 

Overseas funds regime and regulatory cooperation 

Alder highlighted recent initiatives, such as the UK’s decision to deem EU states equivalent under the Overseas Funds Regime, enabling greater market access for EU funds in the UK. He also cited the UK-Switzerland financial services agreement as a model for enhanced regulatory cooperation and market access, emphasising the importance of reciprocity in regulatory frameworks. Alder also noted the FCA’s commitment to finding consistent international responses to emerging challenges, including ESG considerations, Fintech innovation, and the growth of NBFI. 

ESG, fintech, and NBFI 

Alder noted the need for international cooperation in developing common standards and approaches to dealing with the challenges posed by these three issues. 

He highlighted the progress made by international bodies such as the International Sustainability Standards Board (ISSB) and the EU’s International Platform on Sustainable Finance (IPSF) in promoting global consistency in ESG disclosures and frameworks. Alder als emphasised the importance of regulatory sandboxes and international collaboration in managing risks associated with Fintech innovation and the evolving role of Big Tech in financial services. 

Alder discussed the growing importance of regulating NBFI, emphasising the need for improved data and supervision to address systemic risks in opaque markets. He highlighted the FCA’s collaboration with international partners in the Financial Stability Board’s Leverage Working Group to identify gaps in data and policy tools for monitoring systemic risk in NBFI. 

Alder emphasised the continued importance of collaboration between the UK and EU in upholding high regulatory standards and promoting financial stability. He highlighted the UK-EU Memorandum of Understanding (MOU) on regulatory cooperation as a positive step towards deepening relationships and upholding shared values. 

In conclusion, Ashley Alder’s speech stressed a common regulatory theme: the vital role of global cooperation in enhancing financial stability and addressing cross-border risks. He ended by saying that by working together to develop common standards and approaches, regulators can foster open and competitive global economies, ensuring a prosperous future for generations to come. 

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ECB releases latest supervisory newsletters

The European Central Bank (ECB) has issued a series of supervisory newsletters commenting on policies and recently conducted compliance assessments. In particular, it covers: 

Supervision of third-country groups in the EU 

This newsletter outlines the ongoing initiatives to ensure that third-country banks operating in the region are subject to thorough supervision and a level playing field is created. It covers two significant developments- the multilateral memorandum of cooperation signed on 19 January 2024 and the new Capital Requirements Directive VI.  


As it stands, subsidiary banks established in countries that are part of the banking union are subject to european banking supervision and the EU rulebook. They are also permitted to offer services to customers in other EU Member States. They can establish their branches there, either under the group’s EU passport or provide services directly across the borders within the single market. On the other hand, branches of third-country groups in the EU are supervised at the national level based on national regulatory requirements. This means that entities belonging to the same third-country group can have different supervisors within the EU and can be subject to different regulatory requirements. 

Multilateral memorandum of cooperation  

The multilateral memorandum of cooperation is a collaborative endeavour between the ECB and the national supervisors of third-country branches in participating member states. The primary objective of this memorandum is to ensure the comprehensive supervision of all operations of third-country groups in (EU). Additionally, it aims to facilitate the development of the supervisory framework while coordinating activities. The memorandum offers significant opportunities for information exchange on third-country branches and subsidiaries, including the licensing of new third-country branches.  

In essence, the memorandum establishes supervisory fora for third-country groups with a substantial presence in european banking supervision, establishing a more robust and coordinated approach. 

New Capital Requirements Directive VI 

The New Capital Requirements Directive VI, which has recently been introduced, brings about significant improvements in the regulatory framework for the banking sector. This directive establishes harmonised minimum standards for authorising or withdrawing authorisation from branches, internal governance, risk control, and reporting requirements. Moreover, it requires larger third-country branches to be included within EU supervisory colleges, particularly those with substantial deposit-taking activities or those that do not fully meet the EU’s requirements. 

Interaction between initiatives  

The ECB acknowledges that the application of the provisions of the Capital Requirements Directive VI will likely require a review of the memorandum in due course. Meanwhile, the memorandum will support european banking supervision in enhancing its oversight of third-country groups. 

Assessment of Pillar 3 disclosures  

This newsletter offers an overview of the ECB findings regarding banks’ compliance with the Pillar 3 disclosure requirements, with a particular focus on climate-related and environmental (C&E) risks. Banks are required to disclose information in comprehensive qualitative and quantitative templates, as outlined by the European Banking Authority (EBA), as of the first reference date of 31 December 2022.  

Between March and August 2023, the ECB collected Pillar 3 data from 107 banks through their public disclosure documents. Despite the challenges posed by the dispersion of environmental, social, and governance (ESG) risk data across various reports and presented in different formats, the ECB found that all eligible banks managed to disclose most of the required data. However, the ECB identified several areas that needed improvement: 

Quantitative templates: Banks encountered difficulties while populating quantitative templates, ranging from misreported units to differences between banks in the use of metrics and concepts.  

Qualitative templates: Banks often failed to offer detailed qualitative information and did not clearly differentiate the integration of environmental, social, and governance risks into their governance and risk management frameworks. Much of the forward-looking information was not sufficiently disclosed, such as banks’ plans to meet business model and strategy targets, including plans over the medium and long term. Banks also need to explain better how they identify, measure, and monitor activities and exposures sensitive to ESG risks, covering relevant transmission channels and ensuring a link with assessments of conventional risks. 

Overall, the ECB acknowledges that even though the inaugural standardised ESG disclosures face serious data quality issues and must be treated with caution, they do serve as a valuable additional source for industry benchmarking and investor assessment of banks’ C&E risks. 

In light of the findings, the ECB found that some banks have already collaborated and published a report identifying common practices to facilitate more transparent disclosures, thereby mitigating a lack of comparability. 

New policy for more bank board expertise on ICT and security risks  

In this newsletter, the ECB has announced a new policy focusing on assessing the collective knowledge and expertise of management teams in banks in regard to Information and Communication Technology (ICT) and security risks.  

The policy, effective from 1 March 2024, aims to ensure that banks are equipped to manage the evolving landscape of digital banking services effectively.   

Background: identifying knowledge deficiencies in banks   

Ongoing supervisory efforts by the ECB and national regulators have unearthed deficiencies in the understanding of ICT and security risks among supervised banks. Recognising the critical role of management in decision-making related to risk management, the ECB has collaborated with national supervisors to develop a dedicated policy to address these shortcomings.  

Key principles: proportionality and supervisory judgment  

The ECB’s policy is grounded on three key principles.   

  • It clarifies that expectations outlined in the policy will not supersede national legal provisions or forthcoming european legislation like the Digital Operational Resilience Act (DORA).   
  • It emphasises proportionality, taking into account the size of the bank, its exposure to ICT risks, and the relevant management positions.   
  • It underscores the principle of supervisory judgment, highlighting that assessments will be made on a case-by-case basis without automaticity.  

Supervisory expectations: enhancing collective knowledge  

The policy sets out specific expectations to ensure that management bodies possess adequate knowledge and expertise in managing ICT and security risks.  

Firstly, it mandates that members of the bank’s management body and internal control functions have a sufficient understanding of these risks and related data and reporting requirements. Additionally, it recommends having at least one non-executive member with recent and relevant experience in ICT and security risks. Regular training for all members of the management body is also encouraged to keep their knowledge up-to-date.  

Strengthening internal governance for resilient operations  

The ECB’s new policy signifies a proactive approach to enhance the resilience of banks in the face of evolving ICT and security risks. By focusing on the collective knowledge and expertise of management bodies, the policy aims to improve internal governance arrangements and ensure effective risk management practices.   

Click here to read the full RegInsight on CUBE’s RegPlatform

HK Insurance Authority publishes annual report  

Hong Kong’s Insurance Authority has published its annual report for 2022/23. The report highlights a number of initiatives as areas summarised below.  

Supervision of insurers: Strengthened compliance measures on premium financing. Provided guidance sessions for insurers. Delivered training course for intermediary management control functions. Published top ten principals with poor compliance records. Issued circular on conduct issues related to business with Mainland Chinese visitors.  

Risk-based Capital (RBC) regime: Enabling legislation passed by Legislative Council. Approval of five applications for early adoption of RBC regime.  

Regulation of insurance intermediaries: Over 85,000 registrations approved by end of transitional period. Processing of 90,000+ applications for licences. Incorporation of additional functionalities into Insurance Intermediaries Connect (IIC). Conducted inspections and issued circulars to deepen understanding among insurance broker companies. Supervisory reviews on insurance agencies conducted to assess compliance.  

Investigation and enforcement : Introduction of fast-track approach for handling disciplinary cases. Meting out of disciplinary actions for conduct breaches. Imposition of fines totaling HK$3.4 million for CPD non-compliance. Enhancement of IIC functionalities for enforcement matters.  

Protection of policy holders: Handling of more than 1,000 new cases and closure of 1,100 cases. Joint program on selling practices. Revised rules for disclosure of fulfillment ratios and historical crediting interest rates. Concluded public consultation exercise on Policy Holders’ Protection Scheme.  

Market development: Implementation of Unilateral Recognition policy for cross-boundary motor insurance. Collaboration on after-sales service centres establishment and standards.  

Global risk management centre: Issuance of catastrophe bonds for coverage against natural disasters. Regularisation of preferential treatment for Hong Kong insurance industry.  

Social value of insurance: Launch of “QDAP Selection Made Easy” tool. Clearance of revamped Investment-linked Assurance Scheme products and Protection Linked Plan for authorisation.  

Insurtech: Identification of over 30 use cases for Open API. Collaboration for central register construction.  

Asian Insurance Forum (AIF): Participation of 1,500 delegates in AIF 2022.  

AML/CFT: Vigilance on virtual onboarding projects. Amendment of Guideline 3. Awareness-raising seminars and webinars.  

Environmental, social and governance: Participation in Green and Sustainable Finance initiatives. Adoption of measures for paperless operations and CSR.  

Engagement with stakeholders: Conduct of Insurance Literacy Tracking Survey. Dissemination of information through various channels. Engagement with industry stakeholders and government.  

Regulatory community: Participation in International Association of Insurance Supervisors and Asian Forum of Insurance Regulators activities. Hosting of joint meetings with Mainland regulators.   

Click here to read the full RegInsight on CUBE’s RegPlatform