Greg Kilminster
Head of Product - Content
DFSA issues client assets consultation
The Dubai Financial Services Authority has issued Consultation paper 160, Updates to the Client Assets Regime.
The proposals in this paper are intended to provide more clarity on what the DFSA requires from: (i) Authorised Firms that fall within the scope of the Client Assets regime; and (ii) Registered Auditors that prepare Client Asset Auditor’s Reports.
The consultation notes that: “During our supervisory process, we have observed that there are some aspects of the Client Assets regime that are not well understood by Authorised Firms, and some aspects are poorly complied with. To improve overall comprehension and compliance with the Client Assets Rules, we have reviewed the regime to assess and identify areas where we can provide more clarity and emphasis”.
The proposals in the consultation paper aim to:
- Provide clear guidelines for authorised firms on handling and controlling client assets.
- Increase protections in specific areas where needed.
- Introduce requirements for crisis preparedness related to client assets.
- Ensure regulations are appropriate to the risks involved in the activities of authorised firms.
Key proposed changes include:
Client asset control:
- Expand situations where authorised firms control client assets under COB Rule 6.11.4(d).
- Clarify requirements for firms that only control client assets under this rule.
Fund property exclusion:
- Specify that investments and crypto tokens classified as fund property are not considered client investments or client crypto tokens, similar to money as fund property.
Crisis preparedness pack:
- Require firms to maintain a client asset crisis preparedness pack for prompt asset identification and return during crises.
Auditor assessment:
- Clarify the aspects registered auditors should evaluate in client assets auditor’s reports.
Third party agent suitability:
- Convert third party agent suitability criteria from guidance to formal rules and expand some criteria.
Client money acknowledgment timing:
- Change the timing for receiving written acknowledgments for client money accounts from third party agents.
Improved client money disclosure:
- Require detailed disclosures about client money held with third party agents.
- Mandate additional information on insolvency regimes in third party agent jurisdictions upon client request.
- Require disclosure before clients transfer money to the firm.
Reconciliation and reporting:
- Require more frequent reconciliations of client assets.
- Ensure client assets are recorded and reconciled based on settlement dates.
- Clarify the frequency and technological aspects of client reporting.
Flexibility and naming:
- Provide more flexibility in naming client accounts.
Custody arrangements:
- Clarify requirements when an authorised firm is arranging custody.
Comments are requested on the proposals by 20 October 2024.
Click here to read the full RegInsight on CUBE’s RegPlatform
HKMA issues VB review conclusions and consultation
The Hong Kong Monetary Authority (HKMA) has published a report evaluating the operations of virtual banks (VBs) and their impact on the Hong Kong banking system. Additionally, the HKMA has started a consultation regarding the proposal to change the name ‘Virtual Bank’ to better reflect those activities.
Some context
The HKMA introduced VBs as a key initiative in transforming Hong Kong's banking sector into the smart banking era in September 2017. In the first half of 2019, the HKMA granted licenses to eight VBs, which officially launched their services in 2020.
With the normalisation of the market in 2023 and all eight VBs having operated for several years, the HKMA deemed it appropriate to review VB operations in 2024 to assess their impact.
The review covered the following key areas:
- Performance and operation of VBs in fulfilling policy objectives related to fintech promotion, innovation, customer experiences, and financial inclusion.
- Market acceptance, business performance, and financial performance of virtual banks.
- User response in personal and small and medium-sized enterprise (SME) segments compared to traditional banking products and wealth management services.
Key takeaways
Key findings of the review
- The launch of VBs in Hong Kong has positively contributed to fintech adoption and innovation in the banking sector.
- Since their official launch in 2020, VBs have experienced increasing market acceptance, as evidenced by significant growth in the number of depositors, customer deposits, loans, and advances.
- The COVID-19 pandemic in early 2020 led to delays in the launch of business activities for virtual banks, impacting promotion activities, customer acquisition, and new product launches.
- VBs offer a variety of personal banking services, such as savings and time deposits, local fund transfers, personal loans, payment card services, and foreign exchange, with the ability to open accounts remotely.
- Since 2022, some VBs have expanded into securities and/or insurance intermediary businesses, broadening their service offerings to include the sale and distribution of collective investment schemes, life insurance, general insurance, and stock trading services.
According to the HKMA and based on the results, VBs are well-positioned for continued growth, and there is no strong justification to introduce more VBs into the market at this time.
Consultation
The HKMA has launched the consultation based on various factors, including:
- The term 'Virtual', meaning 'done using computer technology over the Internet, and not involving people physically going somewhere', does not accurately represent these banks' technological advancement and banking model.
- While market acceptance of VBs has increased over the past few years, the HKMA has, from time to time, received inquiries about the business nature and regulations.
- Existing nomenclature may not be clear enough, especially for those less tech-savvy or familiar with the local banking industry.
In light of the above, the HKMA considers that the existing name "Virtual Bank" is no longer an accurate representation and, therefore, consideration should be given to renaming.
The HKMA is considering various alternative terms to 'Virtual', such as 'Internet', 'Online', 'Network', 'Cyber' and 'Digital'.
Next steps
The deadline for feedback on the consultation is 5 September 2024.
Click here to read the full RegInsight on CUBE’s RegPlatform
ASIC proposes to extend the operation of three legislative instruments
The Australian Securities and Investments Commission (ASIC) is seeking feedback on a proposal to extend the operation of three legislative instruments for an additional five years. ASIC considers that these instruments, set to expire in October 2024, are functioning effectively and efficiently.
The legislative instruments in question are:
- Class Order [CO 14/923], which amends the Corporations Act to introduce section 912G, imposing specific record-keeping requirements for AFS licensees and their representatives when providing personal advice to retail clients.
- ASIC Instrument 2021/716, which amends the Corporations Act to exclude specific forms of non-compliance from being considered 'significant' breaches of core obligations that AFS licensees and credit licensees must report. The instrument also extends the reporting period for certain breaches related to earlier reported breaches.
- ASIC Instrument 2021/801, which modifies the law to specify other Commonwealth legislation as a core obligation under the National Credit Act. Credit licensees are required to report significant breaches of core obligations under the National Credit Act.
The deadline for feedback is 4 September 2024.
Click here to read the full RegInsight on CUBE’s RegPlatform