Greg Kilminster
Head of Product - Content
Michelle Bowman speech on fintech
In a speech at the Eighth Annual Fintech Conference, Federal Reserve Governor Michelle W Bowman emphasised the critical role of regulatory engagement with financial technology and innovation.
Bowman reiterated that regulators must strike a balance between fostering innovation and managing the risks that come with the rapid pace of technological change in the financial services industry.
“Regulators have an obligation to understand the functionality of new innovations, including the benefits that innovation can bring and the accompanying risks,” Bowman said.
Embracing innovation while managing risks
Bowman’s remarks focused on how the financial sector, and the regulators overseeing it, must remain adaptable as new technologies emerge. She acknowledged that the potential of fintech to make the banking system more efficient and accessible is significant, but the risks cannot be ignored.
“To be effective in the face of this ongoing evolution, regulators must be aware of the potential risks and how existing technology could be leveraged for new services,” Bowman said, adding that the pace of technological change often outstrips the development of regulatory frameworks. This dynamic, she argued, requires a delicate balancing act between encouraging innovation and safeguarding the stability of the financial system.
She outlined three core principles regulators should adhere to when engaging with fintech innovations: “First, we must be willing to develop an understanding of new technology. Second, we must be open in considering how we approach innovation. And finally, we must prioritise how we integrate innovation as we revise or enhance regulatory frameworks.”
These principles, Bowman suggested, are vital for ensuring that fintech innovations are effectively incorporated into the broader financial system without compromising on security or consumer protection.
Honouring leadership in fintech
A significant portion of Bowman’s speech was devoted to recognising the contributions of Patrick Harker, President and CEO of the Philadelphia Federal Reserve, who is due to retire next year. Harker, described by Bowman as an “accidental economist,” was lauded for his methodical and analytical approach, which has had a lasting impact on the Federal Reserve’s engagement with financial innovation.
Looking ahead
While Bowman acknowledged the achievements of Harker and the Fintech Conference, her speech carried a clear message about the future. She urged regulators to remain “vigilant but nimble” as they continue to adapt to the rapidly changing fintech landscape, emphasising the need for ongoing dialogue between regulators and industry leaders.
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MAS issues AML letter
The Monetary Authority of Singapore (MAS) has issued new guidance for financial institutions (FIs) regarding the audit of anti-money laundering and countering the financing of terrorism (AML/CFT) policies, procedures, and controls. The letter, sent to all FIs, highlights the importance of maintaining a well-resourced audit function and outlines best practices to ensure FIs’ AML/CFT controls remain effective and compliant with regulatory requirements.
Some context
Under MAS regulations, financial institutions are required to have an independent audit function to regularly assess the effectiveness of their AML/CFT frameworks. This function plays a critical role in overseeing FIs’ exposure to money laundering (ML) and terrorism financing (TF) risks. With evolving business strategies and increasingly complex regulatory environments, MAS has emphasised the need for financial institutions to refine their AML/CFT audit processes to stay ahead of emerging risks.
Key takeaways
- Adequate expertise and external support: The letter stresses the importance of ensuring that the audit function is equipped with sufficient AML/CFT expertise. The size and nature of the business should dictate the level of expertise required. Additionally, financial institutions may engage external experts to conduct independent assessments, especially for specific aspects of their AML/CFT frameworks.
- Risk-based audit approach: Financial institutions must undertake regular AML/CFT risk assessments to adapt their audit scopes according to the institution’s ML/TF risk profile. Any changes in business strategies, customer profiles, or regulatory requirements should inform the frequency and intensity of audits. Higher-risk areas should be prioritised, while a baseline audit cycle for lower-risk areas should ensure continued oversight.
- Harnessing data analytics: The letter encourages financial institutions to incorporate data analytics into their AML/CFT audits to enhance risk identification and sample selection. Examples of effective use of such tools include the automation of customer risk-scoring and the application of machine learning models to detect anomalies that may go unnoticed by standard transaction monitoring systems.
- Peer-led best practices: MAS also acknowledges the publication of the Anti-Money Laundering Audit Peer Group’s (AAPG) Best Practice Paper, which provides a comprehensive set of standards for conducting AML/CFT audits in banks. FIs are advised to conduct a gap analysis of their current audit practices against the guidelines in both the MAS circular and the AAPG’s paper.
Next steps
Financial institutions are expected to take these guidelines into account when structuring their AML/CFT audit frameworks. Conducting a thorough gap analysis and ensuring that audit practices are aligned with MAS recommendations will be crucial in supporting effective risk management and regulatory compliance. Institutions are also encouraged to stay updated on best practices, as further guidance from industry-led initiatives like the AAPG continues to evolve.
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Australian government backs AFCA to address increase in scams
The Australian government has taken a significant step in strengthening protections for victims of scams, announcing $14.7 million in funding over two years for the Australian Financial Complaints Authority (AFCA). This funding will allow AFCA to establish a streamlined process for victims to seek compensation, offering a clear path for redress when internal dispute resolution fails. The initiative forms part of a broader push to make Australia a more hostile environment for scammers.
Some context
Scams have become a growing threat to Australian consumers, with AFCA reporting that 11,000 of the 100,000 complaints it received in 2023-24 were scam-related. The rise in scam activity has highlighted gaps in the country’s current redress mechanisms, particularly in areas like social media, where no formal dispute resolution processes exist. The government's Scams Prevention Framework aims to close these gaps by imposing mandatory codes of conduct on banks, telecom companies, and digital platforms, ensuring these industries take more responsibility for protecting consumers from scams.
Key takeaways
The government's funding will enable AFCA to expand its remit, allowing victims of scams to access compensation through a "single door" approach. This means that individuals who are scammed across multiple sectors—such as losing money through a bank account after being targeted on social media—will have a unified complaints process. Both the bank and the social media platform could be held liable if they fail to provide adequate protections.
Assistant Treasurer Stephen Jones emphasised the importance of holding businesses accountable, stating: “Our scams crackdown will cut off the avenues scammers use by setting a high bar for what businesses must do to prevent them. Scam victims will have a clear pathway for redress.”
Currently, social media companies do not offer internal or external dispute resolution processes, making it nearly impossible for victims to seek compensation. The new funding and expanded AFCA remit represent a major shift in consumer protection.
Next steps
The AFCA expansion is part of the broader Scams Prevention Framework, which is still under development. The first sectors—banks, telecommunications companies, and digital platforms—will soon be subject to mandatory codes, facing significant penalties for non-compliance. Consultation on the exposure draft of the Framework legislation concluded in early October 2024, and the government is now reviewing the feedback to refine the bill before introducing it to Parliament later this year.
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New Zealand’s Financial Markets Authority publishes annual report
In its 2023/24 Annual Report, the Financial Markets Authority (FMA) highlights significant developments across its regulatory responsibilities, alongside challenges posed by evolving financial markets and regulatory reforms.
Strategic initiatives and regulatory priorities
The FMA's overarching objective remains promoting fair, efficient, and transparent financial markets. In line with this, the 2023/24 year saw the FMA set strategic priorities for the next four years, as outlined in its Statement of Intent for 2024-2028.
One notable regulatory shift includes the opening of licensing under the Conduct of Financial Institutions (CoFI) regime. This new framework mandates banks, insurers, and non-bank deposit-takers to comply with a 'fair conduct principle'—a key regulatory change aimed at ensuring that financial institutions treat customers fairly. The FMA anticipates the regime will come into effect in 2025, setting the stage for further collaboration with the financial services sector to ensure compliance and safeguard consumer interests.
Governance and culture
The FMA recognises the importance of strong governance and organisational culture, not just within the entities it regulates but also internally. The “Leading with Mana” leadership programme was a significant internal initiative aimed at fostering trust, collaboration, and psychological safety. The FMA also continues to reinforce its zero-tolerance stance on workplace bullying and harassment, maintaining policies and support structures for raising concerns.
The Authority’s leadership changes also reflect its focus on resilience and adaptability. Notable departures, the report states, mark a period of transition within the FMA’s executive team, as the organisation prepares to address more expansive regulatory remits and industry changes.
Enforcement and market surveillance
The report highlights key enforcement actions, demonstrating the FMA’s commitment to tackling financial misconduct. Penalties imposed on Kiwibank, Vero, and the Medical Assurance Society in 2024 reflect the regulator's continued focus on fair dealing and consumer protection. These actions follow extensive investigations into breaches related to the misapplication of multi-policy discounts and other advertised benefits.
The FMA also ramped up efforts to combat scams, with notable success in raising public awareness. A 356% increase in visits to the FMA’s scam-related website pages shows growing public awareness of fraud prevention, an area the regulator continues to focus on.
Climate disclosures and sustainability
With the first climate statements published in early 2024 under the Climate-related Disclosures regime, the FMA has been instrumental in guiding market participants through this new regulatory requirement. The collaboration with the External Reporting Board to create reader guides for these statements highlights the regulator’s commitment to enhancing transparency and supporting informed investment decisions. As climate change becomes a central issue for financial markets, the FMA’s work in this space is likely to expand further in the coming years.
Engagement with financial institutions and the public
The FMA’s engagement with stakeholders remains central to its approach. The report acknowledges a slight drop in positive responses to the Ease of Doing Business and Investor Confidence surveys, indicating areas for improvement. In response, the FMA has launched initiatives aimed at improving communication clarity and effectiveness with stakeholders, including the introduction of an internal ‘message bank’ to ensure consistent and concise communication.
At the consumer level, the FMA continues to focus on building trust and confidence, particularly in light of the economic pressures facing New Zealand households. The ongoing work of Financial Advice Providers (FAPs) has been a key focus, and while the transition to the new regulatory regime has been largely successful, the FMA flagged concerns over some FAPs adopting a 'tick-box' approach to compliance, which could lead to poor client outcomes.
International and domestic cooperation
The FMA remains actively engaged in international regulatory collaboration, attending global conferences and meeting with overseas regulators, including the UK Financial Conduct Authority, Australian Securities and Investments Commission, and others. This cross-border cooperation is particularly crucial as the rise of scams and other misconduct often traverses national borders.
Domestically, the FMA works closely with the Council of Financial Regulators (CoFR), comprising key agencies such as the Reserve Bank of New Zealand, the Commerce Commission, and the Ministry of Business, Innovation and Employment (MBIE). Under the CoFR framework, the FMA has led efforts in climate-related risk and scam prevention, highlighting its commitment to both regulatory innovation and consumer protection.
Conclusion
With a focus on fair conduct, effective governance, and collaboration, the FMA believes it is well-positioned to guide New Zealand’s financial markets through the evolving landscape of financial services. However, the challenges of maintaining public confidence and ensuring compliance across the industry remain significant, requiring ongoing vigilance and adaptability from both the regulator and the markets it oversees.
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FINRA strengthens restrictions on borrowing and lending between brokers and clients
In a bid to tighten restrictions on borrowing and lending arrangements between registered brokers and their clients, the Financial Industry Regulatory Authority (FINRA) has announced amendments to its Rule 3240. The revised rule, which will take effect on 28 April 2025, further limits the scope of permissible lending relationships and modernises the definition of “immediate family” for such exceptions. This move follows a retrospective review conducted by FINRA, which highlighted concerns over potential conflicts of interest and the protection of investors, particularly vulnerable groups such as senior citizens.
The amendments also bring new obligations on financial firms to assess and approve lending arrangements that involve their registered representatives, particularly where such relationships could pose risks to clients.
Stricter prohibitions on broker-client loans
FINRA’s Rule 3240 traditionally prohibited brokers from borrowing from or lending to their clients, except under specific circumstances. The latest revisions extend this prohibition by clarifying that lending arrangements made before a broker-client relationship begins are also subject to the rule. This change will also now apply to any former clients who have had an account with the broker within the past six months.
Additionally, borrowing or lending arrangements that might introduce similar conflicts to direct broker-client arrangements, such as owner-financing, will now fall under the scope of the rule.
Changes to "immediate family" exception
One key exception to the general prohibition under Rule 3240 allows brokers to borrow from or lend to family members. However, the definition of “immediate family” has been updated to better reflect modern relationships. Spouses and domestic partners are now explicitly included, as well as step and adoptive family members. The scope has been broadened to cover individuals residing in the broker’s household and those financially supported by the broker.
Narrowing of personal and business relationship exceptions
Other notable changes involve a tightening of the exceptions related to personal and business relationships. For personal relationships, the revised rule now requires that any lending or borrowing arrangements must be based on a "bona fide, close personal relationship" formed prior to the establishment of the broker-client relationship. Similarly, the business relationship exception now only applies where a "bona fide business relationship" exists independently of the broker-client dynamic.
FINRA has provided further guidance to help firms and brokers assess whether these relationships meet the new criteria, including illustrative examples of acceptable and non-acceptable relationships.
Enhanced notice and approval processes
Firms are now required to strengthen their oversight of borrowing and lending arrangements. All notices regarding such arrangements must be made in writing and retained by the firm. Furthermore, firms are obliged to conduct a “reasonable assessment” of the risks posed by any arrangement and make a formal “reasonable determination” on whether to approve it.
Where existing lending arrangements pre-date the formation of a broker-client relationship, brokers must notify their firm and obtain approval before engaging with the client in a professional capacity. The rule changes also make it clear that firms are not obligated to approve every arrangement, providing them with discretion to refuse where they see fit.
The amended rule will apply to all new lending arrangements and any modifications to existing arrangements from 28 April 2025 onwards. However, arrangements made before this date will not be retroactively affected.
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FCA consumer credit review
The latest review of consumer credit firms (CCFs) by regulators has highlighted significant shortcomings in financial planning, risk management, and stress testing across the sector. While some firms have shown good practice in certain areas, many are falling short of regulatory expectations, raising concerns about their ability to withstand economic shocks and maintain financial stability.
The review found varied approaches to financial planning and risk management across consumer credit firms, highlighting gaps in areas such as capital adequacy, stress testing, and wind-down planning. Here's a breakdown of the key findings:
Identifying risks relevant to the business
Good practice: Most firms had strong credit risk assessment processes and some used group resources for financial support.
Improvements needed: Many firms lacked specific financial risk metrics for capital and liquidity, especially where no regulatory requirements existed. Some firms did not assess other key risks, such as interest rate and liquidity risks, and firms with Appointed Representatives (ARs) often lacked proper risk assessments related to their AR partners.
Setting risk appetite and establishing controls
Good practice: Firms with clear risk appetites set early-warning triggers, ensuring action if risks like rising arrears emerged. Larger firms had well-developed risk management processes with strong oversight and controls.
Improvements needed: Many firms lacked a clear understanding of what level of financial resources would be adequate for their business. This was especially problematic for smaller firms that relied too much on group reporting, which led to poor visibility of their own financial positions.
Stress testing and wind-down planning
Good practice: Some firms had considered interest rate risks and performed stress testing, taking into account the potential impact of external changes on profitability and operations.
Improvements needed: Most firms had weak stress testing processes that didn't cover the full risk profile. Firms also lacked effective wind-down planning and did not fully consider the impact of economic changes like rising interest rates and liquidity shortages.
Next steps for firms
Firms are expected to strengthen their financial resilience by implementing better stress testing, clearly defining their risk appetite, and improving wind-down planning.
Click here to read the full RegInsight on CUBE's RegPlatform.
CFPB imposes hefty fines on Apple and Goldman
Tech giant Apple and Goldman Sachs have been ordered by the Consumer Financial Protection Bureau (CFPB) to pay more than $89 million in penalties and redress for mishandling Apple Card customer disputes and misleading consumers about interest-free payment plans. The companies’ failures affected hundreds of thousands of users, leading to delays in resolving disputes and unexpected interest charges on Apple products.
Some context
Apple partnered with Goldman Sachs in 2019 to launch the Apple Card, a credit card designed to boost Apple device sales and expand Goldman Sachs’ presence in consumer finance. While Apple handled customer interactions, Goldman Sachs was responsible for credit extensions and regulatory compliance. However, both companies launched the card despite knowing that critical dispute systems were not ready, leading to significant consumer harm.
Key takeaways
- Dispute handling failures: Apple’s system for handling transaction disputes failed to forward tens of thousands of cases to Goldman Sachs. Even when disputes were processed, Goldman Sachs did not consistently investigate them in accordance with federal law. As a result, many consumers were held liable for fraudulent or unauthorised charges, and some had inaccurate information added to their credit reports.
- Misleading interest-free payment options: The companies misled consumers about the availability of interest-free instalment plans for Apple devices. Many customers assumed that interest-free financing would automatically apply when purchasing Apple products with the Apple Card, but they were charged interest instead. In some instances, the interest-free option was not even displayed on Apple’s website depending on the browser used.
- Enforcement action: The CFPB has ordered Apple to pay a $25 million penalty and Goldman Sachs to pay $19.8 million in redress to affected customers, as well as a $45 million civil money penalty.
Commenting on the violations, CFPB director Rohit Chopra said: “These failures are not mere technicalities. They resulted in real harm to real people” adding that “We are not going to tolerate repeat offences here. In addition to the redress and penalty, the CFPB is prohibiting Goldman Sachs from offering a new consumer credit card unless it can provide a credible plan demonstrating that the new product will actually comply with the law. Our efforts today represent our willingness to enforce the law fairly, without regard to size or clout.”
Next steps
The CFPB’s action serves as a reminder that even major players like Apple and Goldman Sachs are not above regulatory scrutiny. Both firms will need to implement significant changes to their dispute handling processes and improve transparency around payment plans to prevent future consumer harm.
Click here to read the full RegInsight