Greg Kilminster
Head of Product - Content
Hong Kong’s FSTB outlines future of virtual assets regulation
The secretary of Hong Kong’s Financial Services and the Treasury Bureau (FSTB), Christopher Hui, has released a blog post outlining the future of virtual asset regulation. In the post, he reiterates that Hong Kong’s approach to virtual assets (VA) is based on responsible and risk-centric regulation that fosters financial innovation, which is only possible through providing a robust and transparent regulatory environment.
The current regulatory initiatives include:
Licensing and regulatory system for Virtual Asset Service Providers (VASP)
The licensing and regulatory system for Virtual Asset Service Providers (VASP) has been in place since 1 June last year. Hui reminds firms that existing service providers are required to submit their license applications to the Securities and Futures Commission (SFC) by 29 February. Service providers that do not meet the regulatory requirements will be issued a “No-deeming notice.” All existing service providers that have not submitted their application by 29 February or received a “No-deeming notice” must begin ceasing operations and complete the process by 31 May of this year or within three months since the issuance of the notice. As the deadline for existing service providers to submit license applications approaches at the end of this month, the SFC is also actively preparing for enforcement work and will step up publicity efforts. The FSTB will continue to use a multi-pronged approach that includes comprehensive public education, enhancing enforcement, and timely information dissemination to facilitate the robust and responsible development of the market.
Upcoming regulations for Over-the-counter (OTC) venues
Hui notes that the VA ecosystem also includes some over-the-counter (OTC) venues that are not yet regulated. The FSTB will launch a consultation very soon on a proposed regulatory framework.
Consultation on regulatory regime for stablecoin issuers
Together with the Hong Kong Monetary Authority (HKMA), the FSTB is consulting on the legislative proposal for a regulatory regime for stablecoin issuers. The proposed regulatory system requires all qualified fiat-referenced stablecoin (FRS) issuers to obtain a license issued by the HKMA. As the two-month consultation period will end at the end of this month, Hui encourages firms to respond before the deadline.
The HKMA will also introduce a “sandbox” arrangement to gather opinions, convey regulatory expectations, and provide compliance guidance to issuers planning to issue FRS in Hong Kong.
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ESMA report reveals investor protection concerns for SDG funds
The European Securities and Markets Authority (ESMA) has released a report that focuses on investment funds that claim to support the United Nations Sustainable Development Goals (SDGs) – impact funds. The report specifically analyses whether these funds are fulfilling their promises to investors.
The report is likely to be of interest to firms as it outlines a methodological approach to identifying SDG funds and assessing the extent to which their holdings align with their claims.
According to the report, SDG funds remain a relatively small market in the EU, with a total value of EUR 74bn as of September 2023, which is less than 1% of the EU fund industry. However, the report suggests these funds do not seem to display greater alignment, raising investor protection concerns.
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ESAs publish cross-sectoral stocktake of BigTech financial services provision
The European Supervisory Authorities (EBA, EIOPA, and ESMA) have published a report on the state of BigTech’s direct financial services provision within the EU. The report is based on a survey of the National Competent Authorities (NCAs) represented on the European Forum for Innovation Facilitators (EFIF).
The report identifies the types of financial services that BigTechs currently provide in the EU. It also highlights the related opportunities, risks, and regulatory and supervisory challenges.
Type of financial services
According to the report, most BigTech subsidiary companies licensed to provide financial services in the EU mainly offer services in the payments, e-money, and insurance sectors, and occasionally in the banking sector.
Opportunity and risks
The report highlights risks related to intra-group interconnectedness and notes that the existing supervisory and regulatory framework applicable to BigTech financial services activities is typically activity-based rather than entity/group-based. The absence of applicable consolidation or conglomerate regulation/supervision might warrant policy actions if BigTech direct provision of financial services in the European market were to continue to grow.
NCAs also identified deficiencies in notification practices regarding cross-border financial services as a recurring issue. They called for additional steps to strengthen cross-border and cross-disciplinary supervision.
Next steps
The ESAs plan to continue monitoring the relevance of BigTech in the EU financial services sector and to foster the exchange of information between EFIF members and other relevant financial and non-financial sector authorities involved in monitoring BigTech activities, such as data protection and consumer protection authorities.
The ESAs may also conduct thematic analyses to increase supervisory visibility over specific activities to continue converging in monitoring emerging activities and new trends.
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MAS issues consultation paper to simplify access to cost-effective insurance products
The Monetary Authority of Singapore (MAS) has released a consultation paper that aims to simplify the requirements and facilitate access to simple and cost-effective insurance products. This proposal would allow financial institutions to collect a reduced set of client information when making recommendations on selected life or long-term accident and health insurance policies.
Under section 36(1) of the Financial Advisers Act 2001 (FAA), financial institutions that provide financial advice are required to have a reasonable basis for recommending any investment product. The Notice on Recommendations on Investment Products (FAA-N16) lays out the information financial institutions are required to collect and document from the client with respect to investment products.
The proposal would allow financial institutions to rely on the rules of thumb in the Basic Financial Planning Guide (Guide) when making recommendations on selected insurance policies. The Guide is a financial planning tool developed by MAS and MoneySense, in conjunction with the CPF Board and various industry associations, to encourage consumers to take steps to enhance their financial well-being.
The proposal also promotes the adoption of the Guide by the financial advisory industry, enabling consumers to purchase simple and cost-effective insurance policies to meet their needs more easily, which can help narrow insurance protection gaps in Singapore.
The deadline for comments is 15 March 2024.
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