CUBE RegNews: 6th February

Posted: 2024-02-06

US-UK financial regulatory working group update   

The US-UK Financial Regulatory Working Group met in London in January for their ninth official meeting. 

The meeting brought together officials and senior staff from prominent regulatory bodies, including the Bank of England, HM Treasury (HMT), the Financial Conduct Authority, Board of Governors of the Federal Reserve System, Commodity Futures Trading Commission (CFTC), Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency, and Securities and Exchange Commission. 

Key themes addressed during the meeting included: 

• Economic and financial stability outlook: The group commenced with a comprehensive assessment of the economic and financial stability outlook, considering current trends, market conditions, and global factors shaping the landscape. 
• Banking issues: Discussions centred on developments within domestic banking systems, including regulatory updates, proposed revisions to capital requirements, and enhancements to the UK’s resolution regimes. The importance of international dialogue to ensure effective implementation of regulatory initiatives and reforms was noted. 
• Non-bank financial intermediation (NBFI): The group underscored the importance of fostering resilience in the NBFI sector, exchanging insights on domestic reform agendas and engaging at global forums to address vulnerabilities and enhance market preparedness. 
• Climate-related financial risks and sustainable finance: The group shared recent developments including the International Sustainability Standards Board’s (ISSB) final disclosure standards, noting the vision of promoting interoperability. The UK team noted the launch of the Transition Plan Taskforce Disclosure framework and the industry code of conduct for environmental, social, and governance (ESG) ratings and data providers and the Transition Finance Market review. 
• Digital finance: Discussions covered updates on crypto-asset markets, regulation, and oversight, as well as developments in Central Bank Digital Currency (CBDC) and artificial intelligence (AI) within the financial services sector. 
• Cross-border regimes and operational resilience: The group acknowledged the importance of international cooperation in areas such as cross-border regimes, particularly the CFTC and HMT ongoing work on central counterparties/derivatives clearing organisations. 

The meeting concluded with a commitment to reconvene in September 2024. 

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First National Bank to pay $13.5 million settlement for lending discrimination in North Carolina    

The Justice Department and the State of North Carolina have announced that First National Bank of Pennsylvania (FNB) will pay $13.5 million to settle allegations that it engaged in a pattern of lending discrimination by redlining predominantly Black and Hispanic neighbourhoods in Charlotte and Winston-Salem, North Carolina. 

According to the complaint, from 2017 to 2021, FNB failed to provide mortgage lending services to predominantly Black and Hispanic neighbourhoods in Charlotte and Winston-Salem. Furthermore, the bank discouraged people seeking credit in those communities from obtaining home loans. FNB’s branches in both cities were predominantly in white neighbourhoods, with the bank closing its only branch in a predominantly Black and Hispanic neighbourhood in Winston-Salem in 2021. 

The complaint also alleges that FNB relied on mortgage loan officers working out of predominantly white areas to generate loan applications. The bank did not track how its mortgage loan officers developed loan referrals or distributed the bank’s mortgage marketing materials. 

The Justice Department and the State of North Carolina have proposed consent orders that require FNB to invest $13.5 million to increase credit opportunities for communities of colour in Charlotte and Winston-Salem. Specifically, FNB will: 

• Invest at least $11.75 million in a loan subsidy fund to increase access to home mortgage, home improvement, and home refinance loans for residents of majority-Black and Hispanic neighbourhoods in FNB’s Charlotte and Winston-Salem service areas. 
• Spend $1 million on community partnerships to provide services related to credit, consumer financial education, homeownership and foreclosure prevention for residents of predominantly Black and Hispanic neighbourhoods in those service areas. 
• Allocate $750,000 for advertising, outreach, consumer financial education, and credit counselling focused on predominantly Black and Hispanic neighbourhoods in those service areas. 
• Open three new branches in predominantly Black and Hispanic neighbourhoods in Charlotte and Winston-Salem (two in Charlotte and one in Winston-Salem), with at least one mortgage banker assigned to each branch. 
• Hire a director of community lending who will oversee the continued development of lending in communities of colour. 

FNB has also agreed to retain independent consultants to enhance its fair lending program and better meet the communities’ needs for mortgage credit. The bank will conduct a community credit needs assessment, evaluate its fair lending compliance management systems, and conduct staff trainings. The proposed consent orders are subject to court approval. 

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ASIC grants no-action position to institutional investors under UCT regime        

The Australian Securities and Investments Commission (ASIC) has recently granted a limited class no-action position for institutional markets under the Unfair Contract Terms (UCT) regime.  

The UCT regime outlines the criteria for a term in a standard form contract to be considered unfair and was amended in November 2023. The amendments make UCTs illegal, impose substantial penalties for each unfair term, and expand the class of small businesses relying on UCT protections. 

In September 2023, the Australian Financial Markets Association (AFMA) raised concerns regarding the applicability of the amended UCT regime to certain sophisticated participants and requested a class no-action letter in respect of any potential non-compliance. After consulting with Treasury, AFMA, and industry participants, ASIC has granted a limited class no-action position.  

Under this position, ASIC will not take any action for a contravention where each counterparty to a standard form contract is an institutional investor or where each counterparty to an industry standard form contract is a wholesale client, and the contract is used for dealing in, or related to a dealing in, financial markets. Additionally, ASIC will not take action where an Australian financial services licensee benefits from the no-action position and does not report such contravention as required under section 912DAA of the Corporations Act.   

This no-action position will remain valid until the end of 9 November 2027 or the end of the day on which any amendments to the ASIC Act commence, whichever is earlier. 

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Hong Kong DPS protection limit increased to HK$800,000    

The Hong Kong Deposit Protection Board (Board) has released the results of the public consultation on the Deposit Protection Scheme (DPS) enhancements, which ran from July to October 2023. 

In response to the feedback received, the Board has decided to increase the protection limit of the DPS by 60% to HK$800,000, with the new limit expected to be in effect in the fourth quarter of 2024 once the necessary legislative amendments are prepared. 

In addition, other enhancements will be implemented in phases by early 2025. These include refining the levy system to account for the higher protection limit, improving deposit protection arrangements in the event of a bank merger, expanding the display of the DPS membership sign to digital channels, and simplifying negative disclosure requirements for private banking customers. 

The Board plans to review the limit in three years, with conclusions published the following year. 

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Consultations: February deadlines 

United Kingdom

DP23/4: Regulating cryptoassets Phase 1: Stablecoins: Deadline 6 February 2024 

This discussion paper from the FCA and Bank of England is intended to help develop the FCA’s regime for fiat-backed stablecoins including when used as a means of payment. The Treasury’s recent Policy Statement sets out their intention to define fiat-backed stablecoins in legislation, expecting it to capture those stablecoins which seek to maintain a stable value by reference to a fiat currency, and hold (in part or wholly) currency as ‘backing’. 

PS23/13 Introducing a gateway for firms who approve financial promotions: Deadline 7 February 2024 

The Financial Conduct Authority has published PS23/13, which confirms the regulator’s new policy on introducing a gateway for firms who approve financial promotions. The new gateway is created by FSMA 2023 and requires authorised firms to ‘pass through’ before being able to approve financial promotions for unauthorised firms. 

CP24/23 – Funded reinsurance: Deadline 16 February 2024 

This consultation paper sets out the PRA’s proposed expectations in respect of life insurance firms entering into or holding funded reinsurance arrangements as cedants. Funded reinsurance is a form of collateralised quota share reinsurance contract which transfers part or all of the asset and liability risks associated with a portfolio of annuities to a third party. The contracts are typically collateralised with a portfolio of assets which meets the investment guidelines agreed between the cedant and the third party. 

CP25/23 – Supervisory statement – Prudential assessment of acquisitions and increases in control: Deadline 23 February 2024 

This consultation paper sets out the PRA’s and the FCA’s proposals to replace EU guidelines on the prudential assessment of acquisitions and increases of qualifying holdings in the financial sector. 

CP23/26: Implementing the Overseas Funds: Deadline 12 February 2024 

This consultation is proposing new rules and guidance to operationalise the Overseas Funds Regime so that overseas funds can apply to the FCA for recognition and know which FCA rules they will need to comply with. 

CP23/27: Reforming the commodity derivatives regulatory framework Regime: Deadline 16 February 2024 

This consultation is part of the broader Wholesale Markets Review (WMR), which is the review of UK wholesale financial markets and sets out the regulator’s proposals concerning the key pillars of the commodity derivatives regulatory regime. 

CP23/29 Access to Cash: Deadline 8 February 2024 

This consultation sets out proposals to establish a new regulatory regime on how the FCA supports access to cash in an increasingly digital world. 

Cycle 2 APP fraud data reporting guidance for PSPs: Deadline 16 February 2024 

Finalised reporting guidance for the second reporting cycle aiming to help Payment Service Providers provide the Payment Systems Regulator with the correct data and any additional information.  

CP23/33 Consultation on payments to data providers and DRSP forms including Policy Statement for the framework for UK consolidated tape: Deadline 9 February 2024 

This consultation contains proposals for consultation on payments from the bond CTP to trading venues and APAs that will have to give data to the CTP and consultation proposals on changes to authorisation and other forms for CTPs, APAs and ARMs. The changes are necessary to reflect the proposed changes to the DRSRs, consolidation of requirements in the FCA Handbook and the new provisions about the operation of CTPs. 

United States

Protection of Clearing Member Funds Held by Derivatives Clearing Organizations: Deadline 16 February 2024  

The CFTC is proposing regulations to ensure clearing member funds and assets receive the proper treatment in the event the derivatives clearing organisation enters bankruptcy by requiring, among other things, that clearing member funds be segregated from the DCO’s own funds and held in a depository that acknowledges in writing that the funds belong to clearing members, not the DCO. In addition, the Commission is proposing to permit DCOs to hold customer and clearing member funds at foreign central banks subject to certain requirements.   

Real-Time Public Reporting Requirements and Swap Data Recordkeeping and Reporting Requirements: Deadline 26 February 2024 

The proposed amendments to Parts 43 and 45 would allow a unique product identifier and product classification system (UPI) to be implemented for the Other Commodity asset class. On 16 February 2023, the CFTC issued an order designating a UPI to be used in swap recordkeeping and data reporting for the Interest Rate, Credit, Foreign Exchange, and Equity asset classes. [See CFTC Press Release No. 8659-23] Use of the UPI for these four asset classes is expected by no later than January 29, 2024. The proposed revisions allow the UPI to be extended to the Other Commodity asset class in the future, in accordance with CFTC regulations.  

Final Rule Regarding Access to Beneficial Ownership Information: Deadline 20 February 2024  

The final rule from FInCEN that establishes the framework for access to and protection of beneficial ownership information.  

Capital and Financial Reporting Requirements for Swap Dealers and Major Swap Participants: Deadline 13 February 2024 

The CFTC is proposing to amend certain of the Commission’s regulations that impose minimum capital requirements and financial reporting obligations on swap dealers and major swap participants. 

SR-FINRA-2024-003: Proposed Rule Change to Adopt FINRA Rule 6897(b) (CAT Cost Recovery Fees): Deadline 11 February 2024  

FINRA has proposed a rule change to adopt FINRA Rule 6897(b) (CAT Cost Recovery Fees) to implement a historical Consolidated Audit Trail (“CAT”) recovery assessment through which FINRA would recoup its contributions to recoverable historical CAT costs incurred prior to January 1, 2022.  

SR-FINRA-2024-004: Proposed Rule Change to Amend FINRA Rule 6730 (Transaction Reporting): Deadline 09 February 2024  

FINRA has proposed a rule change to Amend FINRA Rule 6730 (Transaction Reporting) to Reduce the 15-Minute TRACE Reporting Timeframe to One Minute with exceptions for member firms with de minimis reporting activity and for manual trades.  

SR-FINRA-2024-001: Proposed Rule Change to Amend FINRA Rule 3240 (Borrowing From or Lending to Customers): Deadline 12 February 2024 

FINRA is proposing to amend Rule 3240 (Borrowing From or Lending to Customers) to strengthen the general prohibition against borrowing and lending arrangements, narrow some of the existing exceptions to that general prohibition, modernize the immediate family exception, and enhance the requirements for giving notice to members and obtaining members’ approval of such arrangements.  

SR-FINRA-2024-002: Notice of Filing of a Proposed Rule Change to Adopt FINRA Rule 6897(a) and Supplementary Material: Deadline 11 February 2024 

FINRA is proposing to adopt FINRA Rule 6897 (Consolidated Audit Trail Funding Fees) to establish fees for Industry Members5 related to certain historical costs of the National Market System Plan Governing the Consolidated Audit Trail (the “CAT NMS Plan” or “Plan”) incurred prior to January 1, 2022. These fees would be payable to Consolidated Audit Trail, LLC (“CAT LLC” or “the Company”)6 and referred to as Historical CAT Assessment 1. 

Guidelines Establishing Standards for Corporate Governance and Risk Management for Covered Institutions With Total Consolidated Assets of $10 Billion or More: Deadline 09 February, extended from 11 December 2023 

The Federal Deposit Insurance Corporation (FDIC) is seeking comment on proposed corporate governance and risk management guidelines (Guidelines) that would apply to all insured state nonmember banks, state-licensed insured branches of foreign banks, and insured state savings associations that are subject to Section 39 of the Federal Deposit Insurance Act (FDI Act), with total consolidated assets of $10 billion or more on or after the effective date of the final Guidelines.  

Europe

Draft Guidelines on complaints-handling of credit servicers under Directive (EU) 2021/2167: Deadline 9 February 2024 

The proposed Guidelines from the EBA specify the requirement in relation to credit servicers to establish and maintain effective and transparent procedures for the handling of complaints from borrowers in accordance with Article 24(1) of Directive (EU) 2021/2167. 

Guidelines on preventing the abuse of funds and certain crypto-assets transfers for money laundering and terrorist financing purposes under Regulation (EU) 2023/1113 (‘The Travel Rule Guidelines’): Deadline 26 February 2024 

These proposed Guidelines from the EBA set out common standards of information PSPs and CASPs should include in relevant fields when transferring crypto-assets and funds. They also set out the steps CASPs and ICASPs should take if the full information cannot be transmitted due to technical limitations. 

Consultation on draft RTS on the materiality of extensions and changes to the use of FRTB IMA and changes to the subset of MRF (EBA/CP/2023/36): Deadline 29 February 2024 

The EBA is consulting on its draft Regulatory Technical Standards (RTS) on the conditions for assessing the materiality of extensions and changes to the use of internal models as well as to the subset of the modellable risk factors applicable under the Fundamental Review of the Trading Book (FRTB) rules. These RTS are part of the Phase 4 deliverables of the EBA roadmap for the new market and counterparty credit risk approaches.  

Draft Regulatory Technical Standards on the conditions for assessing the materiality of extensions and changes to the use of alternative internal models and changes to the subset of the modellable risk factors referred to in Article 325bc under Article 325az(8)(a) of the CRR: Deadline 29 February 2024 

This is a consultation on the draft Regulatory Technical Standards (RTS) covering the conditions for assessing the materiality of extensions and changes to the use of internal models as well as to the subset of the modellable risk factors applicable under the Fundamental Review of the Trading Book (FRTB) rules.  

Consultation on Technical Advice on CSDR Penalty Mechanism: Deadline 29 February 2024 

The aim of this consultation from ESMA is to collect evidence and data from stakeholders on the effectiveness of the current penalty mechanism in discouraging settlement fails and incentivising their rapid resolution. In addition, it seeks feedback on ESMA’s preliminary proposals regarding: alternative parameters, when the official interest rate for overnight credit charged by the central bank issuing the settlement currency, is not available; the treatment of historical reference data for the calculation of late matching fail penalties; and alternative methods for calculating cash penalties, including progressive penalty rates. 

Public consultation on draft recast Regulation on investment fund statistics: Deadline 12 February 

The European Central Bank (ECB) has prepared a draft recast Regulation on investment fund statistics. The primary purpose of investment fund statistics is to provide policymakers with a comprehensive and timely picture of developments in the investment fund sector in the euro area. The draft recast Regulation introduces new reporting requirements that allow enhanced analysis of such developments. 

Other jurisdictions

Financial market infrastructure regulatory reforms: Deadline 9 February 2024 

The draft legislation aims to strengthen and streamline the Australian Securities and Investments Commission and the Reserve Bank of Australia’s licensing, supervisory and enforcement powers over FMIs and reallocates powers between the minister and regulators to better accord with their respective mandates.  It also enhances regulator powers over foreign entities operating FMIs with a significant Australian nexus to ensure they are subject to appropriate oversight. 

Climate-related financial disclosure: exposure draft legislation: Deadline 9 February 2024 

The Australian Treasury has released an exposure draft for consultation proposing amendments to the Australian Securities and Investment Commission Act 2001 and the Corporations Act 2001. The proposed changes aim to mandate climate-related financial disclosure requirements for large businesses and financial institutions. This follows previous discovery and design consultations held in December 2022 and June 2023.  

Consultation paper on superannuation prudential framework amendments: Deadline 28 February 2024 

The Australian Prudential Regulation Authority (APRA) has published a consultation paper on minor and consequential amendments to the superannuation prudential framework. These changes are a direct result of legislative reforms in the financial reporting and audit requirements for superannuation outlined in the Treasury Laws Amendment (2022 Measures No. 4) Act 2023. The amendments primarily affect registrable superannuation entity auditors.  

Financial advisers – amendments to certain legislative instruments: Deadline 27 February 2024 

This CP contains draft legislation to provide greater flexibility for financial advisers to demonstrate that they have met the conditions of an approved degree. The draft legislation amends the Corporations (Relevant Providers Degrees, Education and Training Standards) Determination 2021 to enable financial advisers to demonstrate that they satisfy the conditions of an approved degree/qualification.  

In addition to the above deadlines applying to Australia, the Australian Securities and Investments Commission has numerous proposals to remake class orders as follows.  Each has a consultation deadline of 16 February. 

• ASIC Class Order [CO 13/1200] Periodic statements relief for AQUA quoted and listed managed investment scheme manager. 
• ASIC Class Order [CO 13/1406] Land holding for primary production schemes. 
• ASIC Class Order [CO 13/1409] Holding assets: Standards for responsible entities. 
• ASIC Class Order [CO 13/1410] Holding assets: Standards for providers of custodial and depository services. 
• ASIC Class Order [CO 13/1621] Exemption and declaration for the operation of mFund. 

Consultation paper on Proposed Enhancements to the Policy Owners’ Protection Scheme in Singapore: Deadline 16 February 2024 

The Monetary Authority of Singapore (MAS) is proposing a policy to enhance the protection of policy owners by requiring general insurers to clearly state the benefits that are not covered in their policy documents, and by introducing a standardised methodology for calculating refunds of unused premiums for protected general insurance policies. 

Joint consultation paper to gather views on proposal to regulate issuers of stablecoin: Deadline 27 February 2024 

The Financial Services and the Treasury Bureau (FSTB) and the Hong Kong Monetary Authority (HKMA) have jointly issued a public consultation paper to gather views on proposal to regulate issuers of stablecoin. 

The legislative proposal has taken into account the feedback received from the market and the public to “Discussion Paper on Crypto-assets and Stablecoins” issued by the HKMA last year, the ongoing engagement exercises with stakeholders, local market conditions and needs, and applicable international standards. Its salient features are as follows: 

• introducing a new piece of legislation to implement a licensing regime requiring all FRS issuers that meet certain conditions (Note 2) to be licensed by the Monetary Authority (MA); 
• requiring that FRS can only be offered by specified licensed entities (Note 3), and only FRS licensed by the MA can be offered to retail investors; 
• prohibiting the advertising of:FRS issuance by unlicensed entities; or non-specified licensed entities’ offering of FRS; 
• providing the necessary powers for the authorities to adjust the parameters of in-scope stablecoins and activities having regard to the rapid VA market development; and 
• providing a transitional arrangement to facilitate the implementation of the regulatory regime. 

Consultation Paper on Draft Insurance (Exemption to Appointment of Actuary) Rules, Draft Insurance (Maintenance of Assets in Hong Kong) Rules, Draft Insurance (Marine Insurers and Captive Insurers) Rules and Draft Insurance (Lloyd’s) Rules: Deadline 9 February 2024 

This paper is published by the Hong Kong Insurance Authority to consult on the draft rules to be made under section 129 of the Insurance Ordinance, namely the Insurance (Exemption to Appointment of Actuary) Rules, Insurance (Maintenance of Assets in Hong Kong) Rules, Insurance (Marine Insurers and Captive Insurers) Rules and Insurance (Lloyd’s) Rules. 

Disclosure of climate-related financial risks: Deadline 29 February 2024 

The Basel Committee on Banking Supervision has issued a public consultation paper on a Pillar 3 disclosure framework for climate-related financial risks. This forms part of its holistic approach to address climate-related financial risks to the global banking system. 

Digital fraud and banking: supervisory and financial stability implications: Deadline 16 February 2024 

This discussion paper provides a high-level assessment of the supervisory and financial stability implications of digital fraud for the global banking system. 

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