Greg Kilminster
Head of Product - Content
ECB issues second digital euro update
The European Central Bank (ECB) has published its second report on the digital euro, outlining progress made since its previous report in June 2023. The report provides an update on the ongoing investigations and assessments related to the potential issuance of a digital euro.
Some context
The ECB has been exploring the potential issuance of a digital euro since 2021, driven by the evolving digital landscape and the need to adapt to changing payment habits. A digital euro would be a digital form of the euro, complementing existing forms of money such as cash and bank deposits.
Key takeaways
- Continued exploration: The ECB continues to investigate the potential benefits and risks of a digital euro. Key areas of focus include:
- Use cases: Identifying the potential use cases for a digital euro, considering the needs of citizens, businesses, and the broader economy.
- Technological feasibility: Assessing the technical feasibility of implementing a digital euro, including issues such as security, privacy, and interoperability.
- Legal framework: Examining the legal and regulatory framework that would be required to support a digital euro.
- Public consultation: The ECB has engaged in extensive public consultations to gather feedback on the potential design and features of a digital euro. This input has been valuable in shaping the ongoing investigations.
- No decision on issuance: The ECB has not yet made a decision on whether to issue a digital euro. The ongoing investigations will inform this decision, which is expected to be made in the coming years.
Next steps
The ECB will continue to work closely with stakeholders, including national central banks, the European Commission, and the private sector, to investigate further the potential issuance of a digital euro. The ECB will also continue to monitor developments in the digital landscape and refine its approach as needed.
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ASIC warns insurers over complaints handling
The Australian Securities and Investments Commission (ASIC) has issued a strong warning to insurers regarding potential shortcomings in their complaints handling processes. ASIC has identified several areas of concern, including insufficient root cause analysis, inadequate customer redress, and a lack of proactive measures to prevent future complaints.
Some context
Insurers are subject to strict ASIC regulatory requirements regarding the handling of customer complaints. These requirements aim to ensure that customer complaints are investigated fairly and promptly, and that appropriate redress is provided where necessary.
Key takeaways
- Focus on root cause analysis: ASIC has emphasised the importance of conducting thorough root cause analyses of customer complaints. This involves identifying the underlying factors that led to the complaint in the first place, rather than simply addressing the immediate issue.
- Improving customer redress: ASIC has highlighted the need for insurers to provide fair and effective redress to customers who have suffered a loss due to the insurer's actions or omissions. This may include financial compensation, rectification of errors, or other appropriate remedies.
- Proactive complaint prevention: ASIC has urged insurers to take proactive steps to prevent future complaints. This may include implementing improved training programs for staff, enhancing internal controls, and improving communication with customers.
- Potential enforcement action: ASIC has warned that insurers that fail to meet their obligations regarding complaints handling may face enforcement action, including civil penalties and other sanctions.
Next steps
Insurers should review their current complaints handling processes in light of ASIC's concerns. This includes conducting a thorough assessment of their root cause analysis procedures, ensuring that customer redress is fair and effective, and implementing measures to prevent future complaints.
Click here to read the full RegInsight on CUBE's RegPlatform.
Gensler's "ode" to markets, competition and the SEC
In what he described as potentially his final public speech as Chair of the Securities and Exchange Commission (SEC), Gary Gensler addressed the American Bar Association’s Federal Regulation of Securities Winter Meeting and reflected on three interconnected themes: the importance of capital markets, the role of competition, and the necessity of regulatory frameworks to maintain trust and efficiency.
Gensler noted the pivotal role the US capital markets play, representing more than 40% of global markets despite the US accounting for only 24% of the global economy. These markets, worth $120 trillion, are not only a cornerstone of the domestic economy but also a linchpin of the dollar's global dominance.
Gensler emphasised the nonbank sector’s role in facilitating the allocation and pricing of capital. He also highlighted the comparative strength of the US system, where capital markets facilitate 75% of corporate debt financing, far outpacing Europe and Asia. "On balance, our entire economy benefits from the breadth, depth, and liquidity of our capital markets," he said.
Capital markets
Gensler lauded innovations such as money market funds and collective investment vehicles, which provide diversification and lower costs to investors. However, he cautioned against complacency, noting that not all risks are equal. “Finance, at its core, is about the pricing and allocation of money and risk,” he stated, highlighting the importance of identifying and addressing systemic vulnerabilities.
Competition
Gensler stressed the need for robust competition in capital markets, calling it essential for efficiency, innovation, and economic growth. “Competition lowers costs, lowers risks, and promotes innovation,” he remarked, noting that competitive markets benefit investors, issuers, and intermediaries. However, he warned against the historical tendency of finance toward centralisation, emphasising vigilance against undue market concentration.
Regulatory frameworks
Drawing analogies to road traffic and sports, Gensler argued that "common-sense rules of the road" are vital for maintaining market trust and efficiency. These regulations, akin to stop signs or referees in football, prevent chaos and ensure fair play. He pointed to the SEC’s role in updating rules to keep pace with evolving market conditions, stating, "We at the SEC have a duty to regularly update our rules to drive greater efficiency and resiliency."
Key reforms
Gensler highlighted recent regulatory actions aimed at bolstering the resilience and fairness of Treasury and equity markets. In the $28 trillion Treasury market, the SEC has introduced reforms to expand central clearing and promote competition. In equity markets, a long-overdue update to the national market system rules was implemented, allowing narrower pricing increments and improved transparency in broker execution quality.
Additionally, the settlement cycle was shortened to one day, ensuring quicker access to funds for investors. He also cited the approval of expanded trading hours, contingent upon enhanced transparency and investor protections, as an example of balancing innovation with regulation.
Recognising his comments might be seen as an “ode to the capital markets, competition, and the SEC,” Gensler expressed pride in his tenure. “Every American benefits from our unique combination of regulation, robust competition, and large, deep capital markets,” he stated. As his term nears its end, Gensler reiterated the SEC’s role in fostering trust, competition, and innovation—pillars that underpin the US economy’s strength.
Click here to read the full RegInsight on CUBE's RegPlatform.
CFTC publishes enforcement review
The Commodity Futures Trading Commission (CFTC) has announced a record-breaking $17.1 billion in monetary relief and sanctions for fiscal year 2024. This marks the largest enforcement result in the agency’s history, driven by significant actions in digital asset cases, voluntary carbon markets, and compliance-related enforcement.
Some context
The CFTC’s enforcement programme is a cornerstone of its efforts to protect market participants and ensure the integrity of the derivatives and commodities markets under its jurisdiction. FY 2024 saw the resolution of several high-profile cases, including the largest recovery in the agency’s history from FTX and Binance. The year’s enforcement focus spanned traditional markets, emerging areas like digital assets and carbon credits, and robust compliance measures for regulated entities.
CFTC chairman Rostin Behnam stated, "The CFTC remains steadfast in its duties to protect customers and oversee markets critical to the US economy. Misconduct in our jurisdictional markets is rarely confined, especially as these boundaries are continually being redefined by disruptive technology."
Key takeaways
Digital assets
- The CFTC secured $12.7 billion from FTX and Alameda Research, the largest recovery in its history. Cases against other FTX figures, including Samuel Bankman-Fried, are ongoing.
- Binance and its founder Changpeng Zhao were penalised $2.85 billion for operating an illegal derivatives exchange and evading regulations.
- A federal court upheld charges against Voyager Digital’s former CEO for commodity pool fraud.
Voluntary carbon markets:
- The CFTC brought its first-ever fraud cases in this sector, including a $1 million penalty for false reporting by CQC Impact Investors LLC.
Market integrity:
- TotalEnergies and Trafigura were fined $48 million and $55 million, respectively, for manipulation in energy markets.
Compliance and recordkeeping
- The CFTC imposed significant penalties on regulated entities for compliance failures, including $200 million against J.P. Morgan Securities for inadequate trade surveillance.
Whistleblower programme
- A record 15 whistleblowers received awards totalling $42 million. Since its inception, the programme has granted nearly $390 million in awards and contributed to enforcement actions yielding over $3.2 billion in relief.
Next steps
The CFTC’s FY 2024 results shows its commitment to rigorous enforcement and market oversight. With evolving risks in digital and traditional markets, the agency’s priorities remain focused on deterring misconduct, enhancing compliance, and ensuring robust protections for market participants. Future enforcement efforts are expected to expand into emerging areas while maintaining vigilance in established markets.
Click here to read the full RegInsight on CUBE's RegPlatform.
CFTC addresses AI in derivatives markets
In a staff advisory the US Commodity Futures Trading Commission (CFTC) has addressed the use of artificial intelligence (AI) in regulated derivatives markets. The advisory notes the transformative potential of AI while reminding registered entities of their obligations under the Commodity Exchange Act (CEA) and CFTC regulations.
Some context
The advisory draws upon public comments received earlier this year, engagements with industry stakeholders, and contributions from the Chairman's AI Task Force. It emphasises that while AI applications in areas such as trading, surveillance, and risk management could improve efficiency, they also introduce unique risks requiring robust oversight. The CFTC’s divisions will continue monitoring developments and may propose further guidance or regulations as AI technology evolves.
Key takeaways
- Scope of regulatory expectations: Entities implementing AI must ensure compliance with all applicable CEA and CFTC regulations, regardless of whether systems are developed internally or procured from third parties.
- Key areas of AI application:
- Order processing and trade matching: AI may be used to optimise system resources for trade execution, but entities must uphold principles of open and competitive markets.
- Market surveillance: AI’s analytic capabilities can enhance detection of abusive trading practices and anomalies, yet firms must maintain adequate human oversight.
- System safeguards: Organisations must implement controls covering risk management, cybersecurity, and operational resilience when deploying AI.
- Clearing and settlement: AI could support settlement processes by identifying trade anomalies and mitigating operational risks.
- Responsibility and oversight: Even when using third-party AI solutions, entities remain fully accountable for compliance. Regular risk assessments and policy updates are expected to reflect the use of AI technologies.
Next steps
In a related statement, CFTC chair Rostin Behnman added: “[this] advisory is a measured first step to engage with the marketplace and ensure ongoing compliance with the Commodity Exchange Act and the CFTC’s regulations. The advisory is emblematic of the CFTC’s technology-neutral approach, which balances market integrity with responsible innovation in the derivatives markets”. The CFTC encourages regulated entities to engage with its staff when implementing AI-related systems and processes. The advisory stresses the importance of incorporating AI considerations into risk assessments, governance frameworks, and regulatory submissions. The Commission may revisit the advisory as technological and market conditions evolve.
Click here to read the full RegInsight on CUBE's RegPlatform.
Singapore looks to phase out cheques
The Monetary Authority of Singapore (MAS) has released a consultation paper outlining its roadmap to phase out corporate cheques and transition retail cheque users to digital payment solutions. This initiative aligns with Singapore’s Smart Nation vision and aims to modernise the payments landscape while maintaining inclusivity.
Some context
Cheque usage in Singapore has significantly declined, with transaction volumes falling by 80% since 2016. Corporate cheques are set to be eliminated by the end of 2026, while retail cheques will remain available for individuals who face barriers to adopting electronic payments. MAS proposes introducing a cost-efficient cheque processing system, CTS Lite, to accommodate the reduced cheque volumes.
The initiative reflects broader trends, as MAS and the Association of Banks in Singapore (ABS) work to develop digital alternatives such as the Electronic Deferred Payment (EDP) system and EDP+, which replicate the functionality of post-dated cheques and cashier's orders, respectively.
Key takeaways
- Corporate cheques phase-out: From 1 July 2025, banks will stop issuing corporate cheque books. Processing of corporate cheques will cease entirely after 31 December 2026.
- Retail cheques: Individuals can continue using retail cheques, supported by a redesigned CTS Lite system, scheduled to launch in 2027. CTS Lite will operate on a lower-cost, cloud-based model but will slightly adjust deposit cut-off times and fund availability timelines.
- Digital payment solutions: EDP and EDP+ will offer electronic alternatives for corporate users, addressing specific use cases such as post-dated payments. These systems, leveraging existing platforms like PayNow and GIRO, are set to launch in mid-2025.
- Public education: MAS and ABS will roll out a communications campaign to guide businesses and individuals through the transition, highlighting the advantages of digital payments and providing targeted outreach to users reliant on cheques.
- Continued support: Cashier’s orders and USD cheques will remain available. MAS will collaborate with stakeholders to improve the cost and convenience of digital USD payment solutions over the long term.
Next steps
MAS invites feedback from financial institutions, industry stakeholders, and the public on its proposals by 17 January 2025. Key areas for consultation include strategies for facilitating the transition to e-payments, feedback on the CTS Lite system, and measures to enhance the adoption of USD payment alternatives.
Click here to read the full RegInsight on CUBE's RegPlatform.
Hong Kong consults on banking regulation changes
The Hong Kong Monetary Authority (HKMA) has published a consultation paper proposing enhancements to the Banking Ordinance (BO), aimed at modernising regulatory frameworks to address emerging challenges in banking supervision. Key proposals include establishing a statutory regime for bank holding companies, increasing flexibility for engaging skilled experts, and implementing technical amendments to streamline processes.
Some context
The BO, enacted in 1986, has undergone periodic reviews to reflect global and domestic developments. This latest review follows evolving regulatory landscapes and aims to align Hong Kong’s banking system with international standards, such as the Basel Committee on Banking Supervision’s Core Principles. While Hong Kong’s banking sector remains robust, the proposed changes are designed to enhance resilience and efficiency in response to modern financial complexities, such as digitalisation and cross-border supervision.
Regulatory framework for bank holding companies
The HKMA proposes a statutory regime granting it direct powers to regulate and supervise designated holding companies of locally incorporated authorised institutions (AIs). This would improve transparency, allow oversight of group-wide risks, and align Hong Kong with international practices. Key powers would include:
- Requiring AIs to be held by locally incorporated intermediate holding companies.
- Imposing prudential standards on holding companies to ensure they act as sources of support, not risk, for AIs.
- Allowing intervention to address governance, risk management, or non-compliance issues.
Engaging skilled experts
To address increasing operational complexity, the HKMA seeks authority to appoint skilled persons to assist with specific regulatory functions. These experts could be tasked with reviewing technical matters or preparing reports on AIs. The proposal also includes extending official secrecy and statutory immunity provisions to such appointments, ensuring confidentiality and operational efficiency.
Technical amendments
The paper outlines various amendments to address operational challenges, streamline regulatory processes, and better align with international standards. Notable changes include:
- Expanding the scope of non-Hong Kong supervisors to conduct examinations on AIs.
- Allowing electronic submissions and use of digital signatures to enhance administrative efficiency.
- Introducing new exemptions and notification requirements to reduce compliance burdens.
Public interest in resolutions
A proposed amendment to the Financial Institutions (Resolution) Ordinance would include explicit reference to “public interest” in the conditions for initiating financial institution resolutions. This aligns Hong Kong’s regime with those of major jurisdictions like the EU and UK, enhancing flexibility in crisis management.
Next steps
The HKMA is inviting feedback from stakeholders and the public until 28 January 2025. Responses will inform potential legislative amendments. The proposals aim to ensure that Hong Kong’s regulatory framework remains fit for purpose while supporting the stability and competitiveness of its banking system.
Click here to read the full RegInsight on CUBE's RegPlatform.
MAS continues to revise compliance toolkits
The Monetary Authority of Singapore (MAS) is continuing to update its compliance toolkits with three further updates published.
- The compliance toolkit for real estate investment trust managers (REIT) has been revised. The toolkit aims to provide REIT Managers with a simple reference on the common applications, forms and submissions pursuant to the SFA that are applicable to REIT Managers.
- The compliance toolkit for approvals, notifications and other regulatory submissions to MAS under the Securities and Futures Act has been revised. This Compliance Toolkit aims to provide guidance on Applications for approvals from MAS; Notifications to be submitted to MAS; and other regulatory submissions to MAS (e.g. financial returns).
- Finally, the compliance toolkit for approvals, notifications and other regulatory submissions to MAS For Licensed Trust Companies; Exempt Trust Companies; Exempt Persons Providing Trust Services; and Trustees of Approved Collective Investment Schemes has been issued which also aims to provide similar guidance.
Authorised institutions are advised to familiarise themselves with the latest versions of the toolkits and the applicable regulatory requirements.
Click here to read the full RegInsight on CUBE's RegPlatform.