Blockchain – DFS 29

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Canadian securities authority launches sandbox programme

The Canadian Securities Authorities (CSA) – the national securities regulator – launched on 27 February a sandbox programme for blockchain start-ups with the aim of facilitating the use of innovative products, while ensuring the protection of investors. Crypto-currency or distributed ledger-based ventures are being targeted to participate in this initiative.

Bank of England joins Hyperledger project

Both the Federal Reserve Bank of Boston and the Bank of England announced on 28 February that they will join a group of over 100 financial institutions and start-ups in the Linux Foundation-led Hyperledger project, This project is an open source collaborative effort, which aims to advance cross-industry uptake of blockchain technology.

Robo Advice – DFS 29

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US regulators issue guidance for investment advisers using robo advice 

The US Securities and Exchange Commission (SEC) has issued its first set of guidance for robo advisers, emphasising the need for greater oversight of operations due to the lack of human interaction. The advice specifically points to the risk of cutting off the ability of clients to trade during periods of market stress, which could require human discretion. Additionally, the SEC indicated the importance of taking into consideration cybersecurity threats.

FinTech – DFS 29

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ECON Committee highlights need to balance innovation, consumer protection, and financial stability 

Discussion in the European Parliament (EP) on MEP Cora van Nieuwenhuizen’s report on FinTech saw MEPs call for a high level of ambition from the Commission in its FinTech Action Plan. Most were broadly welcoming of the cooperative nature of the work being carried out in this area, highlighting the need for cross-sectoral cooperation. However, several MEPs stated that this push to innovate should not be detrimental to financial stability; FinTech should not lead to deregulation, and that the report should note the different threats (as well as opportunities) posed by such technology.

Next steps: The deadline for amendments to the report falls on 7 March 2017, and they are due to be considered on 22 March 2017.

Bank for International Settlements sets out analytical framework for FinTech 

The Committee on Payments and Market Infrastructures (CPMI) – part of the Bank for International Settlements (BIS) – on 27 February issued a report intended to serve as a tool for central banks and other authorities in their review and analysis of Distributed Ledger Technology (DLT) in relation to payment, clearing, and settlement.

FinTech – IPF 12

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IOSCO and ESMA indicAte no action is currently needed in relation to FinTech in securities markets

The International Organization of Securities Commissions (IOSCO) has issued a report looking at the interaction between FinTech and the securities markets industry. The report highlights the potential for cross-border challenges to arise, given that a majority of technology firms operate globally, but that regulation remains very much local, and contained within national or regional borders. IN addition, the European Securities and Markets Authority (ESMA) has concluded – following a public consultation – that it would be premature to introduce new regulation on blockchain, as the technology is still evolving.

Brexit – IPF 12

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European Parliament issues a set of reports looking at the EU post-Brexit

On 16 February, the European Parliament (EP) plenary adopted three different reports on Possible evolutions of and adjustments to the current institutional set-up of the European Union (Guy Verhofstadt, ALDE, Belgium), Improving the functioning of the European Union building on the potential of the Lisbon Treaty (Mercedes Bresso, S&D, Italy and Elmar Brok, EPP, Germany) and on a Budgetary capacity for the Eurozone (Reimer Böge, EPP, Germany and Pervenche Berès, S&D, France). Prior to the vote, MEPs on 14 February held a joint debate on the future of the EU centred around these reports. Verhofstadt argued for a more efficient EU, the lessening of the role of the Commission and a reform of EU elections and Council. In addition, he called for the establishment of an EU fiscal union and a Finance Minister – two ideas with broad support in the EP. These initiatives however, as pointed out by Commission Vice-President Timmermans, would require Treaty change, which is not a priority in the current political environment. Moreover, Brok called for a greater use of  the Qualified Majority Voting (QMV) and highlighted the untapped potential of legislation and processes within the Lisbon Treaty. It appeared that the Commission would consider some of the recommendations made during the debate in view of its upcoming White Paper on the future of the EU.

Next step: The White Paper on the Future of Europe is expected on 14 March.

Tax – IPF 12

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European Parliament hearing focuses on Know Your Customer requirements

On 9 February, the Committee of Inquiry into Money Laundering, Tax Avoidance and Tax Evasion (PANA) held part two of their hearings examining “The role of lawyers, accountants and bankers in Panama Papers.” The hearing highlighted that the ‘know your customer’ (KYC) due diligence check processes were not strong enough, with experts arguing that the outsourcing of this process allowed for the falsification of documents and criminal activity. This was brought to the fore-front of the hearing which focused heavily on the role of bankers in the money laundering and ‘tax evasion’. The hearing further examined what measures had been taken by German banks and authorities as well as by Nordea Bank – heavily implicated in the Panama Papers – to ensure these practices were being mitigated. Of note, Benedikt Strunz – an Investigative Journalist and member of the Panama Papers team – importantly made the differentiation that whilst banks are not always accomplices in criminal activity, they are always part of the ‘washing process’ of illicit money. Moreover, particular focus was given to Berenberg Bank, which due to its reputable status surprised many in Germany when its ties with Mossack Fonseca came to light.

Next steps: The PANA committee will travel to Malta, Luxembourg and the United States in the near future. The next PANA hearing is scheduled for 6 March.

AMLD – IPF 12

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European Supervisory Authorities outline their positions on the AMLD IV review

On 20 February, the European Supervisory Authorities (ESAs) published a joint opinion on the risks of money laundering and terrorist financing affecting the financial sector, as part of their work under the fourth Anti-Money Laundering Directive (AMDL IV).  In their opinion, ESAs conclude that there are several factors that, if not addressed, risk diminishing the robustness of Europe’s AML and counter-terrorist financing defences. In particular they call attention to the lack of awareness by firms to the level of risk they are exposed to, and their inefficient implementation of customer due diligence policies and procedures. Furthermore, the Article 29 Working Party (consisting of the 28 National Data Protection Authorities) sent a letter to the Commission’s Directorate-General for Financial Stability, Financial Services and Capital Markets Union (DG FISMA) on the same day highlighting its concerns on the data protection implications under the proposal to review AMLD IV. The letter follows the negative opinion by the European Data Protection Supervisor (EDPS), earlier in February, and expresses “deep concern” regarding the proposal to publish a central Registry with universal access, along with the discretionary powers given to Financial Intelligence Units (FIUs) to request information from obliged entities, without the need of having reported previously any suspicious transactions.

Payments – IPF 12

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EBA issues final Technical Standards foreseen under PSD II

The European Banking Authority (EBA) on 23 February submitted to the Commission the final draft Regulatory Technical Standards (RTS) on Strong Customer Authentication (SCA) and common and secure communication under the Payment Services Directive (PSD II). The main changes introduced relate to: i) the common interface, with the final text maintaining the obligation for the banks to offer at least one interface for account payment services and payment initiate services; and where ‘screen scrapping’ or ‘direct access’, will no longer be allowed once the transition period under PSD II has elapsed and the RTS apply; ii)  two new exemptions on SCA, one based on “transaction risk analysis” and another for payments at “unattended terminals” for transport or parking fares; iii) increased thresholds for SCA from €10 to €30 on remote payment transactions and; iv)  removal of any references to ISO 27001 and other specific, technological characteristics. Separately, the EBA published an Opinion disagreeing with the Commission’s proposal to amend the draft final RTS on the separation of payment card schemes and processing entities under the Interchange Fee Regulation (IFR). The EBA regrets that the Commission’s decision is based on the assumption that all card schemes and processing entities are, or should be treated as if they were, legally and structurally separated.

Next steps: The Commission now has 3 months to endorse or propose amendments to the final PSD II RTS (by 23 May). The scrutiny period for the European Parliament and Council to endorse or reject the Commission’s decision on IFR runs until 5 March, with the possibility to be extended for another 3 months.

DE – DFS 28

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Ireland pushes for EU Court of Justice ruling on Facebook data transfers

Ireland’s Data Protection Commissioner has launched a bid to refer Facebook’s data transfer mechanism to the EU’s Court of Justice, possibility placing the transfer of data across the Atlantic under renewed legal scrutiny. The Commissioner is seeking to determine the validity of Facebook’s “model contracts.”

BC – DFS 28

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Commission seeks to foster blockchain

European Commission Vice-President Ansip – in response to a written parliamentary question – has stated the Commission is planning to grow its support for blockchain projects through the expansion of existing projects, and to work more closely with the European Parliament on future blockchain events. In addition, the Commission has announced that a Blockhain conference will take place in May.

Congress sets out to better inform lawmakers on blockchain

Lawmakers in the US have agreed to launch a bipartisan Congressional blockchain Caucus dedicated to “the advancement of sound public policy toward blockchain-based technologies and digital currencies.” The Caucus will seek to help inform policymakers decisions, and to make smart regulatory decisions regarding issues arising out of blockchain technologies.

Payments – DFS 28

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EBA opinion at odds with Commission on IFR

The European Banking Authority (EBA) has published its opinion, disagreeing with the Commission’s decision to partially endorse and introduce amendments to the Final Regulatory Technical Standards (RTS) on the separation of payment card schemes and processing entities under the Interchange Fee Regulation (IFR), based on the assumption that all card schemes and processing entities are, or should be treated as if they were, legally and structurally separated.

EBA consults on guidlines for infringemenets under PSD II

The EBA has published a public consultation on the draft Guidelines on procedures for complaints of alleged infringements of the PSD2, the Guidelines set out the process of complaints that payment service users and other interested parties can submit to competent authorities about alleged infringements.

UK competition authority publishes order on banking APIs

The Competition and Markets Authority (CMA) has now issued its final order on how two new open banking standards will have to be developed by the UK nine biggest banks by 13 January 2018 (the transposition deadline for PSD II). The standards shall include a new ‘read-only data standard’ and a ‘read/write data standard’ and RBS, Lloyds, Barclays, HSBC, Santander, Nationwide, Danske, Bank of Ireland and Allied Irish Bank are in charge of the implementation.

BD – DFS27

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EU supervisors launch discussion on BIg Data in financial services

On 19 February the European Supervisory Authorities (ESAs) launched a joint Discussion Paper on the Use of Big Data by Financial Institutions. The reasoning being that as the ESAs have witnessed the increased use of Big Data across the banking, insurance and securities sectors, they seek to assess the potential benefits and risks related to the use of Big Data by financial institutions. Additionally, the paper  lays out a possible roadmap for the “evolution of the market,” where Big Data technologies could change the way in which financial services are provided and be a key determinant  of competitive advantage in the future.

Next steps: Comments will be accepted until 17 March 2017.

Pymnts – DFS27

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US payments task force reports on instant payments

On 26 January the Fast Payments Task Force – a US Central Bank Working Group –  published a report stating that digital currencies and distributed ledgers could have a considerable impact on how US businesses and citizens carry out payments. Later this year, a second report will be released on recommendations for improving the US payments ecosystem. It remains unclear whether this report will include digital currency related recommendations.

CF – DFS27

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ECN calls on its members to input into the EU’s crowdfunding review

The European Crowdfunding Network, in cooperation with DG FISMA and its partners, is looking to collaborate with senior executives of European crowdfunding platforms to provide feedback for the mid-term review of the Capital Market Union (CMU) on obstacles related to cross-border crowdfunding for both lending and securities. An open survey will be launched to all lending crowdfunding platforms and EU securities, which also feeds in to the Commission’s review of the CMU.

DE – DFS 27

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EIOPA Chair outlines the impact of FinTech in relation to the insurance sector

On 25 January the Chairman (Gabriel Bernandino) of the European Insurance and Occupational Pensions Authority (EIOPA) gave a speech on the challenges and opportunities arising out of the Digital Era for the European insurance industry. Mr Bernandino first address the implications of digitalisation for the insurance sector, placing particular focus on  consumer protection and highlights EIOPA’s work on the implementation of the Insurance Distribution Directive (IDD), stressing the need for “stronger and more effective supervision of intermediaries” across the EU. Second, calls for stronger supervisory convergence with the aim to create a common European supervisory culture and a more consumer-centric culture within the governance requirements of Solvency II.

Mario Draghi outlines the role of digitalisation in the EU’s financial ecosystem

On 31 January Mario Draghi – President of the ECB – gave a speech on the future of Europe’s digital integrated market. Mr Draghi noted the need for complete financial integration in the wake of the financial crisis and highlighted the EU’s work on the Banking Union and Capital Markets Union. Additionally, stating that it is essential for new technologies to be explored in order to ensure the future market infrastructure is innovative as well as “safe and resilient.” Lastly, points out the risks that come with digitalisation as regards cybercrime, and the need for regulators to improve the cyber resilience of the Eurosystem.

VC – DFS27

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European Commission proposes limiting digital currency transactions

The European Commission, more specifically the Directorate General for Economic and Financial Affairs (DG ECFIN), released on 23 January an Impact Assessment indicating that restrictions on cash transaction payments might also affect digital currencies such as bitcoin.

VC – DFS 26

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ECB to keep tabs on how DBM may affect its mandate 

Yves Mersch, European Central Bank (ECB) Board Member, delivered a speech on 16 January in which he raised the notion of whether or not Digital Base Money (DBM) – digital currency issued by central banks – could affect the ECB’s ability to honour its mandate. Any materialisation of DBM – according to Mr Mersch – would have to be assessed against four principles: technological safety, efficiency, technological neutrality, and freedom of choice of means of payment for users. The ECB representative concluded by saying that even where efficiency gains are possible though the use of DBM, technological feasibility and cost considerations alone will not change the ECB’s mandate.

UAE Central Bank issues new regulatory framework for electronic payments 

On 1 January the Central Bank of The United Arab Emirates  issued a new regulatory framework stored values and electronic payment systems. It applies to corporations offering deposits and withdrawals to payment accounts, debit and credit services, peer-to-peer payments and remittances. The text however has a stipulation that indicates that all virtual currencies are prohibited for the before mentioned companies.

AML – DFS

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European Parliament indicates support for new AML framework 

On 12 January, a joint discussion took place between the Civil Liberties, Justice, and Home Affairs (LIBE) and Economic and Monetary Affairs (ECON) Committees, illustrating there strong levels ofsupport within the European Parliament f in regards the revision of the AMLD IV.  One of the key points aired by Members present during the debate on amendments  (here and here) to the EP’s draft position is the issue of ensuring public access to registers of beneficial ownership.

CWF – DFS 26

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EU institutions maintain a watching brief on crowdfunding

The European Parliament issued a briefing covering Crowdfunding in Europe 17 January, which confirms the stance of the European Commission in this debate, which “is that there is no strong case for EU level policy intervention” . This preceded the release of a mid-term review of the European Commission on its Capital Markets Union initiative on 20 January, stating that the institution is maintaining its dialogue with Member States and industry here as it looks to learn more about the market.

Digital Economy – DFS 25

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European agency to hold forum on privacy

The European Union Agency for Network and Information Security (ENISA) has announced that it will hold the Annual Privacy Forum (APF) on 7-8 June 2017 in Vienna. Ahead of this, the agency has made a call for papers that present original work on data protection and privacy themes.

European supervisor proposes digital format for financial reporting

The European Securities and Markets Authority (ESMA) published a feedback statement laying out the digital format issuers within the EU will be required to use to report company information. This is set to take effect as of 1 January 2020.

Big Data – DFS 25

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European Supervisory Authorities consult on the use of Big Data

The Joint Committee of European Supervisory Authorities (ESAs) launched a public consultation on a Discussion Paper 19 December examining the use of Big Data by Financial Institutions. Comments will be received until 17 March 2017.

Payments – DFS 25

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EBA consults on Major Incident Reporting under PSD II

The European Banking Association (EBA) opened a public consultation on 7 December in relation to the draft Guidelines on Major Incident Reporting under the Payment Services Directive (PSD II). The consultation runs until 7 March 2017.  

EBA publishes final draft RTS on passporting under PSD II

Following a consultation procedure that ran between December 2015 and March 2016, the European Banking Association (EBA) issued the final draft Regulatory Technical standards (RTS) on cooperation and exchange of information for passporting under the second iteration of the Payment Services Directive (PSD II). This draft sets out a framework for information exchange between competent authorities in order to facilitate cross-border provision.

EU cyber security agency reports on mobile payments

The EU Agency for Network and Information Security (ENISA) published a report on 19 December titled “Security of Mobile Payments and Digital Wallets”. With this publication, ENISA publishes good practices and recommendations for payment providers and financial institutions following an analysis of the security of mobile payments and digital wallets.

Digital Economy – DFS 19

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EDPS sees data-driven technologies as key to the future of the EU’s economic growth

On 23 September, the European Data Protection Supervisor (EDPS) released an opinion on the coherent enforcement of fundamental rights in the age of big data in follow-up to an earlier document published in 2004. According to the EDPS, data-driven technologies and services are important for economic growth, but the users of those services are generally unaware of the nature and extent of the ‘covert tracking’ that takes place. Consequently, it recommends the creation of a Digital Clearing House for enforcement in the EU digital sector, which would allow regulatory bodies to share information on a voluntary basis about possible abuses in the digital ecosystem.   

EU digital Commissioner outlines the cross-sectoral impact of big data usage

In addition, on 29 September, Commission Vice-President Ansip gave a speech entitled ‘Europe should not be afraid of data’ at the Digital Assembly 2016 in Bratislava. Referring specifically to the increasingly connected world – the Internet of Things (IoT) – he underlined its transformative potential. Referring to statistics that estimate more than 50 billion devices will be connected to the internet by 2020, Mr Ansip stated that this kind of growth would create unprecedented opportunities for industries, businesses, and people. Specifically in relation to the financial sector, he stated that it would become increasingly difficult to physically store data inside the borders of the Single Market.

Virtual Currencies – DFS 19

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British government launches distributed ledger technology competition 

The British government has launched a new competition in the Financial Technology (FinTech) space, focusing specifically on distributed ledger technology (DLT). The goal is to explore the ways in which DLT could underpin new products, processes, and services in the financial sector amongst others. The government underlines that the UK has a strong research base, which provides a solid foundation for the identification and development of new capabilities and technologies. Supported by Innovate UK’s Emerging and Enabling Technologies programme, the quantum technology, cyber security, and internet of things are just three of the main areas in which input is being sought.

Next steps: Registration for the competition ends on 30 November.  

Switzerland tests possible applications of distributed ledger technology to securities markets

Financial infrastructure provider Six Securities Services and blockchain start-up Digital Asset Holding have launched a partnership to build a roadmap how blockchain technology can be implemented across the entire securities life-cycle. The aim of the project is to demonstrate how distributed, encrypted, straight-through processing tools are developed and incorporated into existing securities transaction flows. This is one of the more recent projects examining the possible application of blockchain technology to securities markets,

Bank of Thailand launches its own regulatory sandbox for FinTech start-ups 

Continuing with a recent global trend aimed at promoting the development of FinTech, the Bank of Thailand has announced that it will open applications for its own regulatory sandbox early next year. Following similar announcements from the UK’s Financial Conduct Authority (FCA) amongst others, this project marks a move from the bank to encourage product development and experimentation. A second key aim is to ensure that regulators, banks, and other operators share information relating to the possible impact of existing regulation, which could potentially lead the easing of certain regulations if they are found to block innovation.

Next steps: The Bank of Thailand is holding an online public consultation on the regulatory sandbox until 15 October.  

China’s financial firms urge regulators to help Blockchain mature 

At the second annual Global Blockchain Summit, which took place from 23-24 September, China’s major financial institutions discussed their views on the emergence of blockchain technology and its potential impact. Using this platform, they outlined a cautious approach, particularly concerning governance and oversight. Although the institutions were seemingly welcoming of the opportunities on offer from financial innovation, they called for further studies to be conducted in order to help mature this nascent technology. 

FinTech – DFS 19

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British government launches distributed ledger technology competition 

The British government has launched a new competition in the Financial Technology (FinTech) space, focusing specifically on distributed ledger technology (DLT). The goal is to explore the ways in which DLT could underpin new products, processes, and services in the financial sector amongst others. The government underlines that the UK has a strong research base, which provides a solid foundation for the identification and development of new capabilities and technologies. Supported by Innovate UK’s Emerging and Enabling Technologies programme, the quantum technology, cyber security, and internet of things are just three of the main areas in which input is being sought.

Next steps: Registration for the competition ends on 30 November.  

Switzerland tests possible applications of distributed ledger technology to securities markets

Financial infrastructure provider Six Securities Services and blockchain start-up Digital Asset Holding have launched a partnership to build a roadmap how blockchain technology can be implemented across the entire securities life-cycle. The aim of the project is to demonstrate how distributed, encrypted, straight-through processing tools are developed and incorporated into existing securities transaction flows. This is one of the more recent projects examining the possible application of blockchain technology to securities markets,

Bank of Thailand launches its own regulatory sandbox for FinTech start-ups 

Continuing with a recent global trend aimed at promoting the development of FinTech, the Bank of Thailand has announced that it will open applications for its own regulatory sandbox early next year. Following similar announcements from the UK’s Financial Conduct Authority (FCA) amongst others, this project marks a move from the bank to encourage product development and experimentation. A second key aim is to ensure that regulators, banks, and other operators share information relating to the possible impact of existing regulation, which could potentially lead the easing of certain regulations if they are found to block innovation.

Next steps: The Bank of Thailand is holding an online public consultation on the regulatory sandbox until 15 October.  

China’s financial firms urge regulators to help Blockchain mature 

At the second annual Global Blockchain Summit, which took place from 23-24 September, China’s major financial institutions discussed their views on the emergence of blockchain technology and its potential impact. Using this platform, they outlined a cautious approach, particularly concerning governance and oversight. Although the institutions were seemingly welcoming of the opportunities on offer from financial innovation, they called for further studies to be conducted in order to help mature this nascent technology.  

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