FinTech Global FS Regulatory Round-up – w/e 23 September 2022

The FCA has published Consultation note 22/18 Guidance on the trading area’s perimeter (CP22/18). CP22/18 is part of the Wholesale Markets Review, which the FCA is conducting with HM Treasury (HMT). CP22/18 seeks to clarify the FCA’s definition of a multilateral system and how this applies to different types of arrangements in the financial markets. The proposed guidance covers a number of areas, including: investment-based crowdfunding firms operating primary market platforms; notice boards; technology providers; portfolio managers operating internal matching systems; blocking of trading places; and more. Furthermore, while making no specific proposals at this stage, the FCA is also seeking views on whether the trading venue regime could be made more proportionate for smaller firms.

Feedback is requested by 11 November 2022; The FCA expects to publish a policy statement in Q2 2023. [22 Sep 2022]

The HKMA has released a position paper titled “e-HKD: Charting the next steps” to set out its policy stance and next steps on retail central bank digital currency (CBDC), i.e. e-HKD.

As part of its “Fintech 2025” strategy to future-proof Hong Kong in terms of CBDC readiness (see our previous update), the HKMA has explored the possibility of issuing e-HKD in Hong Kong and conducted two rounds of market consultation, a on high-level technical design and the other on key policy and design issues (see our previous update). Respondents generally supported the e-HKD initiative, but pointed out the need to further examine issues such as privacy, legal considerations and use cases.

Considering the findings of the study and the feedback received, the HKMA plans to take the following steps to pave the way for the implementation of e-HKD:

• Laying the technology and legal basis for the implementation of e-HKD – HKMA will formulate a plan for the development of the wholesale layer of the two-tier e-HKD system. It will also identify and examine areas to prepare legislative changes, with a view to enabling the issuance of a digital form of fiat currency with legal tender status in Hong Kong.
• Taking deep dives into use cases as well as application, implementation and design issues – This will run parallel to the above. HKMA will carry out a series of pilots in close collaboration with various stakeholders to gain actual experience.
• Launch of e-HKD – The HKMA will consolidate the results of the above steps for more thorough implementation planning, and will set the timeline for the launch of e-HKD. The timing will depend on the progress in the steps above, as well as the pace of relevant local and international market development. [20 Sep 2022]

The Financial Services and Treasury Bureau (FSTB), SFC and Invest Hong Kong hosted two meetings with security token offering (STO) industry representatives on 14 and 16 September 2022 to promote the development of STOs in Hong Kong.

Joseph Chan, Under-Secretary for Financial Services and the Ministry of Finance, reiterated the government’s commitment to support the healthy growth of fintech, including STOs, in Hong Kong that meet the relevant regulatory and compliance requirements, particularly related to investor protection and money laundering and terrorist financing risks .

Elizabeth Wong, Director of Licensing and Head of the Fintech Unit at the SFC, expressed the SFC’s support for the virtual asset industry, particularly in the use of distributed ledger technology in security offerings that can bring efficiency, transparency and lower costs. She clarified questions and market misconceptions related to a range of topics from STOs to the SFC’s regulatory principles, and encouraged firms interested in STOs to discuss their proposals with the Fintech Unit of the SFC. [19 Sep 2022]

MAS and the International Financial Services Centers Authority (IFSCA) of India have signed a FinTech Cooperation Agreement to facilitate regulatory cooperation and partnership in FinTech.

The agreement will promote the following:

• Regulatory Sandbox Collaboration – MAS and IFSCA will leverage existing regulatory sandboxes in their respective jurisdictions to support the experimentation of technology innovations. This includes referring companies to each other’s regulatory sandboxes and enables innovative cross-border experiments in both jurisdictions. The agreement will also allow MAS and IFSCA to assess the suitability of use cases that could benefit from cross-jurisdictional collaboration, and invite relevant jurisdictions to participate in a Global Regulatory Sandbox.
• Information sharing – MAS and IFSCA will share non-regulatory information and developments on innovation in financial products and services, facilitate discussions on emerging FinTech issues and participate in joint innovation projects. [18 Sep 2022]

The Bank of Thailand (BoT) has published the opening remarks delivered by Siritida Panomwon Na Ayudhya, Assistant Governor, Payment System Policy and Financial Technology Group at the TB-CERT Cybersecurity Annual Conference 2022 Seminar: Next chapter – Building trust and cooperation. The Assistant Central Bank Governor noted the important role that cooperation within the financial sector, and with national and international organisations, can play in reducing the risk of successful cyber attacks and digital fraud. [22 Sep 2022]

The Reserve Bank of India (RBI) has published the remarks delivered by Shri Shaktikanta Das, Governor, at the Global Fintech Festival in Mumbai. In an address entitled, Fintech as a force multiplier, The RBI governor noted the “rapid progress in the financial sector” and the “exponential growth of technology enablers in India”. He outlined various recent innovations and developments in the Indian financial sector and charted the way forward for FinTech in India – identifying both challenges and opportunities. [20 Sep 2022]

The SEC has issued a cease-and-desist order against a software development company and its CEO for unregistered offerings and sales of crypto-asset securities from April 2018 to July 2018. The SEC also accused a crypto influencer of failing to disclose compensation he received from the company for public promotion of his tokens and for failing to file a registration statement with the SEC for tokens that he resold. The company and its CEO agreed to settle and to pay more than $35 million to a fund for distribution to injured investors. According to the SEC’s order, the company and its CEO raised $30 million from 4,000 investors in the United States and abroad by offering and selling crypto-asset securities to raise money to further develop the company’s “no-code” software platform. According to the order, the company told the investors that the tokens would increase in value. The order also finds that the tokens, as offered and sold, were securities, were not registered with the SEC and were not eligible for registration exemptions. The SEC’s order finds that the company violated the offering registration provisions of Sections 5(a) and 5(c) of the Securities Act of 1933. Without admitting or denying the SEC’s findings, the company agreed to destroy its remaining tokens, request the removal of its tokens from trading platforms , and publish the SEC’s order on its website and social media channels. The company’s CEO, without admitting or denying the SEC’s findings, agreed to refrain from participating in offerings of crypto-asset securities for a period of five years. The SEC orders the company to pay $30 million in disgorgement, $4,624,754 in prejudgment interest and a $500,000 civil penalty. The SEC’s order imposes a civil penalty of $250,000 against the company’s CEO.

The SEC’s complaint against the crypto influencer alleges that he purchased $5 million of the company’s tokens and promoted the tokens on various social media platforms from approx. May 2018 to July 2018. The influencer allegedly failed to disclose that the company had agreed to give him a 30 percent bonus on the tokens he purchased, as compensation for his promotional efforts. The influencer also allegedly organized an investment pool of at least 50 individuals to whom he offered and sold tokens, despite not registering the offering with the SEC as required by federal securities laws and despite the lack of an applicable exemption from registration. The SEC’s complaint charges the influencer with violating the offering registration provisions of Section 5(a) and (c) of the Securities Act and with violating Section 17(b) of the Act, and seeks injunctive relief, disgorgement plus prejudgment interest and civil penalties. . [19 Sep 2022]

The US Treasury Department has issued a Request for Comment (RFC) to solicit feedback on the illicit financial and national security risks posed by digital assets. The filing is pursuant to President Biden’s executive order, Ensure responsible development of digital assetsand the subsequent one Action plan for illegal finance released by the Ministry of Finance last week.

The RFC is open for comments through November 3, 2022. [19 Sep 2022]

The US Treasury Department published three reports pursuant to Sections 4, 5 and 7 of President Biden’s Executive Order 14067, Ensure responsible development of digital assets. The reports address the future of money and payment systems, consumer and investor protection and illicit financial risks: