Eva Dauberton
News Editor
OCC proposes changes to recovery planning guidelines
The Office of the Comptroller of the Currency (OCC) has issued a notice of proposed rulemaking to revise its recovery planning guidelines (guidelines) for large insured national banks, federal savings associations, and federal branches. The aim of this proposal is to ensure that these large banks are well-prepared and have a plan in place to respond to severe financial stress and the systemic risks they may pose.
Some context
The current guidelines require banks with total consolidated assets of over $250 billion to have a comprehensive recovery plan that includes indicators of severe stress, viable response options, and an assessment of how these options would impact the bank. These guidelines also cover various aspects, such as organisational structure, decision-making procedures, management reports, communication procedures, and other relevant information.
However, based on recent events and supervisory experience, the OCC believes it is necessary to ensure that banks with average total consolidated assets between $100 billion and $250 billion are also adequately prepared and have a plan in place to address the financial effects of severe stress, considering the potential contagion effects and systemic risks they might pose.
In addition, after reviewing numerous recovery plans and examining the recovery planning processes of covered banks, the OCC has identified areas where the guidelines should be strengthened.
Key takeaways
The proposed changes include:
- Reducing the threshold for covered banks from $250 billion to $100 billion average total consolidated assets.
- Introducing a testing provision to assess the effectiveness of the overall recovery plan and its components during periods of severe stress.
- Incorporating non-financial risks considerations.
Next steps
The deadline for comment is 30 days from the date of publication in the Federal Register.
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ASIC calls for enhanced supervision of business communications
The Australian Securities and Investments Commission (ASIC) has urged market intermediaries to strengthen their supervision of business communications.
To clarify expectations, ASIC has released Information Sheet 283, “Supervising your representatives’ business communications” (INFO 283), which provides practical guidance to market intermediaries about managing risks, implementing supervisory arrangements for business communications, and assessing their effectiveness in compliance with obligations under the Corporations Act 2001 and ASIC market integrity rules.
This move follows recent enforcement actions by the US Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), which resulted in significant settlements with financial institutions for failing to preserve electronic communications.
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CFTC approves final capital comparability determinations for certain non-US nonbank swap dealers
The Commodity Futures Trading Commission (CFTC) has granted comparability determinations allowing nonbank swap dealers in Japan, Mexico, the EU (France and Germany), and the UK to comply with their local capital and financial reporting requirements instead of the CFTC's.
These determinations come with specific conditions and will be effective upon publication in the Federal Register. Dealers must notify the CFTC and receive confirmation before applying substituted compliance. An additional 180-day compliance period is granted for new obligations.
CFTC Chairman Rostin Behnam endorsed the move, a first under the 2020 regulatory framework, noting that it reflects thorough reviews and aims to avoid redundant regulatory demands while maintaining rigorous oversight and ensuring comparable outcomes.
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Hong Kong institute issues reports on financial services industry, decentralised finance and metaverse
The Hong Kong Monetary Authority (HKMA) has announced the release of two new reports that provide an in-depth analysis of the applications of decentralised finance (DeFi) and the metaverse in the financial services industry both internationally and in Hong Kong.
The reports, titled “Decentralised Finance: Current Landscape and Regulatory Developments” and “The Metaverse: Opportunities and Challenges for the Financial Services Industry”, have been produced by the Hong Kong Institute for Monetary and Financial Research (HKIMR), the research division of the Hong Kong Academy of Finance (AoF).
Key takeaways
Decentralised Finance: Current Landscape and Regulatory Developments
This report comprehensively covers the opportunities and challenges created by DeFi activities and the regulatory approaches advocated by international organisations and individual jurisdictions for cryptoasset and DeFi markets.
The report includes findings from a survey and interviews commissioned by the Hong Kong Institute for Monetary and Financial Research, gathering the views of key market participants in Hong Kong, including financial institutions and virtual asset service providers (VASPs), on the current and future applications of virtual assets (VAs).
Lastly, the report offers considerations for furthering DeFi developments in Hong Kong, aiming to contribute to discussions on improving the ecosystem and its implications for the financial services industry in Hong Kong.
The Metaverse: Opportunities and Challenges for the Financial Services Industry
This report provides an overview of the metaverse and discusses its broad implications for the financial services industry. Based on a survey and interviews commissioned by HKIMR from May to July 2023, the report describes local financial institutions’ engagement and prospects concerning the metaverse and explores the opportunities and challenges it presents.
It also explores market participants’ views on the prospects of the metaverse in Hong Kong, the metaverse talent landscape, and strategies to promote the metaverse's development in financial services.
After reviewing the regulatory initiatives on the development of the metaverse and its related fields internationally and in Hong Kong, the report concludes by offering considerations for the metaverse’s future integration into the city’s financial services industry.
Mr. Enoch Fung, Chief Executive Officer of the AoF and Executive Director of the HKIMR, stated, "We hope that these reports will provide valuable insights to market participants and regulators, locally and internationally, and help shape prospective policy initiatives and market innovations for the digital ecosystem in Hong Kong."
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FINTRAC issues bulletin on sanction evasion reporting
The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) has issued a special bulletin that provides a comprehensive guide to Canada’s sanctions regime.
Starting from 19 August 2024, besides existing obligations to report transactions suspected of involvement in money laundering and terrorist financing as required by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, reporting entities will also be required to submit a suspicious transaction report if they have reasonable grounds to believe that a financial transaction occurring or attempted during their operations is connected to sanctions evasion.
This special bulletin offers background information and aims to inform reporting entities about the characteristics of financial transactions linked to suspected sanctions evasion, supporting them in meeting their expanded obligations.
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Singapore launches National Asset Recovery Strategy
The Singapore Ministry of Home Affairs (MHA), the Singapore Ministry of Finance (MOF), and the Monetary Authority of Singapore (MAS) have jointly released the Singapore National Asset Recovery Strategy (the Strategy). This initiative is part of Singapore’s ongoing efforts to strengthen its Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) regime.
The Strategy is built upon four key pillars:
- Detecting suspicious and criminal activities by tracing illicit funds.
- Depriving criminals of their unlawfully obtained gains through swift seizure and confiscation.
- Maximising the recovery of assets for forfeiture and restitution to victims.
- Deterring criminals from utilising Singapore as a means to conceal, transfer, or benefit from their illicit assets.
Singapore is implementing these pillars through proactive loss prevention measures and a holistic approach involving all segments of society. Additionally, it has fostered stronger partnerships with international counterparts, community organisations, and private sector stakeholders to enhance asset recovery and loss prevention efforts.
The Strategy outlines a comprehensive approach to recovering illicit funds and assets from criminals and demonstrates Singapore’s commitment to continually enhancing these regimes.
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ASIC reminds AFS licensees of new notification obligations for experienced provider pathway
The Australian Securities and Investments Commission (ASIC) has issued a reminder to Australian Financial Services (AFS) licensees about new notification obligations related to the experienced provider pathway.
Since 21 September 2023, financial advisers meeting the criteria have been able to use the pathway to satisfy qualifications and professional year standards by making a written declaration, which must be shared with their AFS licensee(s) promptly.
Key points
- New notification requirement: From 1 July 2024, AFS licensees must notify ASIC when they receive a written declaration from a financial adviser eligible for the experienced provider pathway. Notifications must be made within 30 business days.
- Retrospective declarations: For declarations received before 1 July 2024, licensees have until 30 July 2024 to notify ASIC.
- Lodging notices: Notifications can be lodged using the "appoint (add)" and "maintain (update)" functions on ASIC Connect.
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BIS: central banks need to prepare for AI
The Bank for International Settlements (BIS) has called on central banks to embrace artificial intelligence (AI) to manage its profound impacts on the economy and financial system. In its Annual Economic Report 2024, to be released on 30 June, the BIS outlines the opportunities and challenges posed by AI, urging central banks to integrate this technology into their operations to enhance their effectiveness.
AI’s dual impact: benefits and risks
AI offers substantial benefits, such as improved efficiencies in lending, payments, insurance, and asset management. However, it also introduces significant risks, including the potential for sophisticated cyber attacks and systemic vulnerabilities like herding behaviours and fire sales.
Hyun Song Shin, Head of Research and Economic Adviser at the BIS, highlighted AI's transformative potential, noting that vast amounts of data could provide faster and richer information to detect patterns and latent risks in the economy and financial system. "All this could help central banks predict and steer the economy better," Shin remarked.
Enhanced analytical tools for central banks
The BIS also emphasises that AI can enhance central banks' analytical capabilities. For example, AI can improve "nowcasting"—the use of real-time data to predict economic variables like inflation more accurately. Data has become increasingly valuable with AI, enabling central banks to identify financial system vulnerabilities and maintain stability.
Cecilia Skingsley, Head of the BIS Innovation Hub, noted that central banks were early adopters of machine learning, positioning them well to capitalise on AI's potential. Projects like Aurora, which aims to detect money laundering, and Raven, which uses AI to enhance cyber resilience, demonstrate ongoing efforts to leverage AI.
The BIS report also notes that AI could enhance firms' ability to adjust prices in response to macroeconomic changes, influencing inflation dynamics. It adds that central banks must remain vigilant to these shifting dynamics and adapt their monetary policies accordingly.
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APRA announces minor changes to the ADI capital framework
The Australian Prudential Regulation Authority (APRA) has written to all banks and authorised deposit-taking firms (ADIs) to advise them of minor changes to the prudential standards, reporting standards, and prudential practice guides resulting from consultations in the first quarter of the year.
APRA has extended the effective date of these updated requirements by three months to provide additional time for ADIs to implement the changes. The changes will now take effect from 30 September 2024. ADIs must be compliant with the updated prudential standards by this date and meet the updated reporting requirements for the September 2024 quarter reporting period.
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