In this Newsletter:

• Regulatory Developments
• Payment Market Developments
• Surveys and Reports

Regulatory Developments

Hong Kong: FSTB publishes consultation conclusions on virtual asset services providers licensing regime

On 21 May 2021, the Financial Services and the Treasury Bureau (FSTB) published conclusions to its November 2020 consultation on introducing a new licensing regime for virtual asset services providers. According to the conclusions, the new licensing regime will be introduced through an amendment of the existing Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO). The plan is for the amendment bill to be introduced into the Legislative Council in the 2021-22 legislative session.

Under the proposal, the business of operating a virtual asset (VA) exchange will be a “regulated activity” under the AMLO, and any person operating a VA exchange will be required to apply for a licence from the Securities and Futures Commission (SFC) as a VA services provider. The SFC will consult on the detailed regulatory requirements before the licensing regime begins.

“VA” will be broadly defined as a digital representation of value that (i) is expressed as a unit of account or a store of economic value; (ii) functions (or is intended to function) as a medium of exchange accepted by the public as payment for goods or services or for the discharge of a debt, or for investment purposes; and (iii) can be transferred, stored or traded electronically, but subject to certain carve outs, such as digital representations of fiat currencies and certain closed-loop, limited purpose items which are non-transferrable, non-exchangeable and non-fungible in nature, such as air miles, credit card rewards, gift cards, customer loyalty programmes and gaming coins.

Licensed VA services providers will be subject to AML/KYC requirements under the AMLO, and can only offer services to professional investors. The new regime also prohibits the active marketing of a regulated VA activity in Hong Kong or from outside of Hong Kong, to the public of Hong Kong.

We reported on the SFC’s announcement of plans for a new crypto regulatory regime for VA exchanges in the November 2020 edition of the Global Payments Newsletter.

Take a look at our Regulatory Heatmap for Retail Banking and Fintech in Asia Pacific for more on the regulatory frameworks in the retail banking and financial industry in Hong Kong.

Europe: European Commission publishes proposal for Regulation establishing European Digital Identity framework

In the context of the EU's Digital Compass Initiative, on 3 June 2021 the European Commission published a proposal for a Regulation to create an EU-wide framework for electronic identities that can be used anywhere in the EU to identify and authenticate the holder so that they can access public and private sector services. The holder will be able to control what data is communicated and how it is used. These changes will be made by amending the Electronic Identification Regulation (EU) 910/2014 (eIDAS).

In what the Commission considers will be an improvement on the current eIDAS framework, "digital wallets" will link to national digital identities that contain proof of personal attributes such as driving licences and bank accounts. These wallets will grant access to online services without the need to use private identification methods or share personal data unnecessarily, for example when opening a bank account.

The current eIDAS list of trust services will also be expanded to include three new qualified trust services, namely the provision of electronic archiving services, electronic ledgers and the management of remote electronic signature and seal creation devices.

The Commission has also published a Recommendation inviting member states to establish a common Toolbox of best practice technical architecture, standards and guidelines for implementing the European Digital Identity framework by September 2022, and to start preparatory work as soon as possible. The Commission aims to publish the Toolbox in October 2022. Once the technical framework has been agreed, it can be tested in pilot projects.

In addition, the Commission has published a press release and Q&As on the proposal.

India: Reserve bank confirms that cryptocurrencies are not outlawed in India for the moment

On 31 May 2021, the Reserve Bank of India issued a press release confirming that transactions using virtual/crypto currencies are not currently outlawed. The bank noticed that certain media reports referenced an April 2018 circular which disallowed trades in digital currencies. However, as the bank explained, that circular was set aside by an order of the Indian Supreme Court in 2020.

Although the press release offers some clarity on the current status of cryptocurrencies, a bill setting out the legal framework for cryptocurrencies in India is still awaited. Several media outlets have reported that the bill could potentially ban trading, or even holding, cryptoassets.

For further details on India’s potential cryptocurrency ban, see the February 2021 edition of the Global Payments Newsletter.

El Salvador: Bitcoin to be adopted as legal tender in world first

On 5 June 2021, El Salvador president Nayib Bukele announced at the Miami Bitcoin conference that he would propose legislation to classify Bitcoin as legal tender. The speech is not publicly available but various news reports cover its contents. On 8 June, the Legislative Assembly of El Salvador voted to approve the President’s proposal, meaning that Bitcoin will become legal tender alongside the USD.

The move is aimed at generating jobs and improving financial inclusion for Salvadorans who do not have access to traditional bank accounts. In a series of tweets from his Twitter account, the El Salvador president made the case that El Salvador could increase its GDP by 25% if 1% of Bitcoin is invested in the country. He hopes that this will provide “a space where some of the leading innovators can reimagine the future of finance, potentially helping billions around the world”.

United Kingdom: PSR publishes consultation on its proposed Strategy

On 9 June 2021, the Payment Systems Regulator (PSR) published a consultation (CP21/7) on its proposed 5-year Strategy, together with a related webpage and factsheet.

The 4 strategic priorities in the draft Strategy are to:

1. Ensure users have continued access to the payment services they rely upon and support effective choice of alternative payment options;
2. Ensure users are sufficiently protected when using the UK's payment systems, now and in the future;
3. Promote competition in markets and protect users where that competition is not sufficient, including a) between payment systems within the UK and b) in the markets supported by them; and
4. Ensure the renewal and future governance of the UK's interbank payment systems supports innovation and competition in payments.

Some key actions that the PSR will take to deliver these priorities include:

• Promoting competition between payment systems so that, for example, in future people may choose to use interbank payments (rather than card or cash) to buy their groceries;
• Continuing to protect access to cash for those that rely on it;
• Making sure that, as interbank payments develop (as in the example above), so do the consumer protections associated with them;
• Supporting developments to Pay.UK’s governance of the interbank rules so it has greater ability to enforce compliance with its rules and make changes that improve outcomes;
• Understanding and taking account of the perspective of vulnerable consumer groups towards new ways of paying and the choices available to them; and
• Ensuring that regulatory approaches are aligned between regulators, and the division of responsibilities is clear.

The PSR acknowledges that its focus may need to change in the future, depending on new developments or where it sees evidence of harm to people or businesses, including where competition isn’t working well in a particular area.

The PSR will be holding two stakeholder webinars to gather more feedback on its proposed Strategy on Wednesday 23 June and Wednesday 30 June (registration deadline 21 June).

The deadline for written comments on the consultation is 5pm on 10 September 2021. The PSR aims to publish its final Strategy by the end of 2021.

Europe: EBA publishes final revised Guidelines on major incident reporting under PSD2

On 10 June 2021, the EBA published final revised Guidelines on major incident reporting under PSD2. Take a look at our November 2020 Engage article on the EBA's consultation on the draft revised Guidelines here.

The revised Guidelines introduce changes to some of the original classification criteria in relation to major incident reporting and introduce a new criterion on the breach of security of network or information systems. The new criterion focuses on malicious actions that have compromised network or information systems related to the provision of payment services and it would allow the reporting of additional security incidents that would be of interest to supervisors.

In light of the consultation feedback, the EBA has introduced changes to the final revised Guidelines, including the following:

• Changing the new classification criterion from ‘Breach of security measures’ to ‘Breach of security of network or information systems’. According to the EBA, this is the most substantive change and is aimed, among other things, at narrowing down the scope of the criterion, avoiding any overlap with other classification criteria and providing a more tangible criterion that does not require complex assessment and implementation.
• Clarification of:
  • the process and timeline for classification of major incidents;
  • the meaning of the term 'duration of an incident'; and
  • other aspects of the Guidelines, mainly in the instructions on how to fill out the incident reporting template.

The EBA acknowledges the ongoing work on the EU Commission’s proposal for an EU regulatory framework on digital operational resilience (DORA), which contains, among other things, a proposal to harmonise and streamline the reporting of ICT-related incidents, not only for payment services but across the entire EU finance sector. Depending on the outcome of the DORA negotiations, the EBA Guidelines may eventually be repealed and replaced with the DORA Regulation, which is currently estimated to apply from 2024 or later.

The Guidelines will be translated into the official EU languages and published on the EBA website. The deadline for competent authorities to report on whether they comply with the Guidelines will be two months after the publication of the translations. The revised Guidelines will apply from 1 January 2022.

In accordance with the FCA's approach to ESA Guidelines and Recommendations after the end of the post-Brexit transition period, UK firms should expect to be told by the FCA if they need to comply with these revised Guidelines.

United Kingdom: BoE publishes discussion paper on new forms of digital money and summary of responses to CBDC discussion paper

On 7 June 2021, the Bank of England (BoE) published a discussion paper on its ideas for a digital money regulatory regime, which - among other things - builds on HM Treasury's January 2021 consultation paper on the UK's regulatory approach to cryptoassets and stablecoins.

The discussion paper sets out the BoE’s emerging thoughts on new forms of digital money, which include both systemic stablecoins and a UK CBDC.

The BoE believes that, to be effective, privately owned stablecoins require the same level of public confidence as commercial bank money. To meet this expectation, the BoE’s proposed regulatory model would require stablecoins to promise, credibly and consistently, to be fully interchangeable with existing forms of money. In other words, they must be anchored to real assets.

Given the risks of digital money, the BoE is also considering implementing arrangements that allow the financial system to assess the impact of new forms of digital money after they launch, and to adjust the regulatory framework accordingly. It will consult on any specific regulatory framework that would apply to stablecoins.

Responses to the discussion paper should be submitted by 7 September 2021.

A summary of responses to the BoE’s March 2020 discussion paper on central bank digital currencies (CBDC) has also been published. The BoE has identified five core principles from the responses that will guide its future exploration of CBDC:

• Financial inclusion should be a prominent consideration in the design of any CBDC;
• A competitive CBDC ecosystem with a diverse set of participants will support innovation and offer the best chance to deliver the benefits of CBDC;
• In assessing the case for CBDC, due recognition should be given to the value of other payments innovations, and their ability to deliver the benefits the BoE seeks;
• CBDC should seek to protect users’ privacy; and
• While CBDC should ‘do no harm’ to the BoE’s ability to deliver monetary and financial stability, opportunities to better meet the BoE’s policy objectives should also be considered in CBDC exploration.

United Kingdom: FCA extends TRR for existing cryptoasset businesses

On 3 June 2021, the FCA announced that it is extending the end date of the Temporary Registrations Regime (TRR) for existing cryptoasset businesses from 9 July 2021 to 31 March 2022.

The TRR allows existing cryptoasset firms that applied for registration before 16 December 2020, and whose applications are still being assessed, to continue trading. The FCA previously found that a significant number of cryptoasset firms were not AML compliant, resulting in an extended deadline to allow firms to remedy this issue.

The FCA considers cryptoassets to be very high risk, speculative investments, and warns consumers that if they invest in cryptoassets, they should be prepared to lose all of their money. The press release also mentions that it is unlikely that consumers will have access to the Financial Ombudsman Service (FOS) or Financial Services Compensation Scheme (FSCS), irrespective of whether a firm has temporary or full registration.

United Kingdom: PRA publishes 2021/22 Business Plan

On 24 May 2021, the PRA published its 2021/22 Business Plan, which sets out the workplan for each of the PRA’s strategic goals, together with an overview of the PRA’s budget for the period 1 March 2021 – 28 February 2022.

The Business Plan involves a wide range of goals, including taking forward a number of the Kalifa Review topics:

• the PRA will continue to contribute to the BoE’s work on fintech, including on payment systems, digital currencies, and international work on prudential banking treatments;
• the PRA will also work with the BoE to develop a prudential framework for stablecoins and cryptocurrencies, and continues its commitment to further develop a RegTech strategy, as set out in its response to the Future of Finance report;
• the PRA will be “using specialist reviews to deliver a more risk-based approach to non-systemic firms”;
• it will also conduct further analysis on the complexity of the PRA Rulebook for banks and building societies, to identify aspects that could be simplified; and
• will continue to gather supervisory intelligence and insights on trends and risks across the financial sector to inform wider international initiatives.

United Kingdom and United States: US-UK financial regulatory working group issues joint statement

On 24 May 2021, the US-UK financial regulatory working group published a joint statement from its fourth meeting, held on 20 May 2021. Participants provided updates on their respective financial regulatory agendas, with the US outlining its administration’s priorities, and the UK discussing its future approach to financial regulation.

The joint statement summarises the meeting, which focused on the financial sector implications of the UK’s withdrawal from the EU, the importance of preserving the global asset management industry’s portfolio management delegation model, and continuing cooperative efforts to promote the free flow of cross-border financial services data crucial for effective financial sector regulation and supervision.

Participants to the 20 May 2021 meeting included senior staff from the US Department of the Treasury and HM Treasury, and from the US and UK independent regulatory agencies such as the BoE, FCA, and the Securities and Exchange Commission.

Sweden: Central bank brings in external participants for latest phase of CBDC pilot

On 28 May 2021, Sweden’s central bank Sveriges Riskbank announced that it was starting a new phase in its Central Bank Digital Currency (CBDC) pilot. The next phase involves testing the e-krona pilot with external participants, the first of which are Handelsbanken and TietoEVRY.

Efforts to develop a prototype e-krona began in 2017, when the project team consulted with several national and international agents to hear their views on an e-krona, reviewed proposals for suitable technology, and examined the relevant legal issues. Since 2020, the Sverige Riskbank has been trialling the e-krona in a controlled test environment.

The Sverige Riskbank hopes that involving external actors as participants in the test environment will make it possible to evaluate the integration between the participants’ existing systems and the technical platform for the e-krona pilot.

For further information on Sweden’s CBDC pilot, please see this webpage. A consultation is also currently underway regarding the Swedish government’s role in the payment market and whether a CBDC is needed.

South Africa: Reserve bank starts research into retail focused CBDC

On 25 May 2021, the South African Reserve Bank (SARB) published a press release announcing its intention to investigate the feasibility, desirability and appropriateness of a South African CBDC. The proposed CBDC will be retail focused, which the SARB defines as a digital form of cash aimed at providing the best attributes of both cash and electronic payments.

The SARB made clear that any CBDC would be complementary to, not a replacement for, cash. The study will focus on the issuance of a domestic CBDC that can be used by consumers in South Africa for general retail purposes. The feasibility study will include practical experimentation across different emerging technology platforms and is expected to conclude in 2022.

South Korea: Central bank to launch CBDC pilot from August to December 2021

On 24 May 2021, it was reported that South Korea’s central bank is seeking a partner through an open bidding process to research the practicalities of launching a central bank digital currency (CBDC) in a test environment.

The pilot will run from August to December 2021, with the possibility of extending into a second phase in 2022. The test platform will contain simulations of commercial banks and retail outlets and the trials will include payment via mobile phones, fund transferring and making deposits.

The South Korean CBDC pilot is one of many similar projects that have arisen around the globe, some of which have been covered in previous editions of the Global Payments Newsletter.

Bahrain: Central bank to begin CBDC trials

On 11 May 2021, the Central Bank of Bahrain (CBB) announced that it has partnered with Bank ABC and JP Morgan on a CBDC pilot to introduce an instantaneous cross-border payment solution.

The commercial applications of the payment solution include cross-border payments in multiple currencies, foreign currency exchange, and blockchain integration. At the moment, the collaboration will involve Bank ABC and JP Morgan transferring funds from the Kingdom of Bahrain in USD for payments from buyers to suppliers. As the CBDC pilot progresses, it is hoped that the collaboration will also extend to the prototype digital currency. The CBB aims to use JP Morgan’s blockchain platform Onyx for instantaneous CBDC payments.

United Kingdom: PSR consults on phase 2 of Confirmation of Payee

On 21 May 2021, the Payment Systems Regulator (PSR) launched consultation CP21/6 on phase 2 of the Confirmation of Payee service. Confirmation of Payee aims to prevent certain types of scams and misdirected payments from happening by checking the name of the payee against the account details given by the payer.

Phase 1 of Confirmation of Payee involved banks and other financial institutions signing up to Specific Direction 10 (SD10), which directed the UK’s six largest banking groups to introduce Confirmation of Payee for Faster Payments and CHAPS transactions. So far, implementation has been widespread, most exempted accounts have now implemented the service and a number of non-directed payment service providers (PSPs) have joined the service voluntarily.

In phase 2, PSPs with unique sort codes will be enabled to participate in the service through a dedicated ‘Confirmation of Payee only’ role profile in the Open Banking Directory. It will also allow PSPs using secondary reference data (SRD) to participate. The consultation invites views on:

• the impact and progress of Confirmation of Payee so far;
• the progress, dependencies and expected costs and benefits of phase 2;
• whether certain types of accounts using SRD to direct payments to their customers, such as accounts in building societies and credit card accounts, should be excluded from the scope of phase 2; and
• how Confirmation of Payee messaging works and how it could be enhanced.

The consultation closes on 30 June 2021.

United Kingdom: FCA further extends deadline for implementing SCA under PSRs 2017

On 20 May 2021, the FCA announced that it was extending the deadline for implementing strong customer authentication (SCA) for e-commerce transactions to 14 March 2022. The original deadline was 14 September 2021.

The FCA justified the extension on account of its desire to ensure minimal disruption to merchants and consumers, and to recognise ongoing challenges facing the industry. A previous six-month extension had been granted to mitigate delays and challenges caused by the COVID-19 pandemic.

Europe: ESMA calls for evidence on digital finance

On 25 May 2021, ESMA launched a call for evidence on the role of digitalisation in the financial sector. In particular, ESMA is seeking views on:

• more fragmented or non-integrated value chains arising as a result of the growing reliance by financial firms on third parties for the delivery of their services and the entry of technology companies into financial services;
• platforms and bundling various financial services, and the extent to which this phenomenon introduces new risks and/or creates regulatory and supervisory challenges; and
• groups combining different activities, namely mixed activity groups providing both financial and non-financial services.

ESMA will integrate the information received through the call for evidence when drafting its technical advice to the European Commission on the European Commission’s proposed digital finance package.

The call for evidence closes on 1 August 2021.

United Kingdom: FSB consults on quantitative targets for enhancing cross-border payments

On 31 May 2021, the Financial Stability Board (FSB) published a consultation on quantitative targets for addressing the challenges of cross-border payments. The consultation identifies four main challenges posed by cross-border payments, namely cost, speed, transparency and access.

For each of the four challenges, the FSB proposes different quantitative targets based on whether the cross-border payments are wholesale, retail (e.g. B2B, P2P, or a combination) or remittances. The proposed targets include:

• for retail cross-border payments, the global average cost should be no more than 1%, with no corridors with costs higher than 3% by the end of 2027;
• for wholesale payments, the large majority (e.g. 75%) of cross-border payments should be within one hour of payment initiation by the end of 2027;
• for remittances, more than 90% of individuals, including those without bank accounts, who wish to send or receive remittances should have access to a cross-border electronic remittances solution by the end of 2027; and
• all payment service providers to provide at a minimum a defined list of information concerning cross-border payments to payers and payees, including total transaction costs, time to deliver funds, funds tracking and terms of service.

Participants are invited to share their views on the above targets or to propose new targets. The consultation closes on 16 July 2021.

United Kingdom: FCA publishes Dear CEO letter to e-money firms on FSCS protection

On 18 May 2021, the FCA sent a Dear CEO letter to e-money firms on ensuring that customers understand how their money is protected. The FCA expressed concern that e-money firms compare their services to traditional bank accounts but do not adequately disclose the differences in protections between e-money accounts and bank accounts.

In particular, the FCA is worried that e-money firms do not make it sufficiently clear that the Financial Services Compensation Scheme (FSCS) does not apply. To remedy this, the FCA is asking e-money firms to write to their customers within six weeks of the date of the letter to remind them of how their money is protected through safeguarding and that FSCS protection does not apply. The FCA is also asking e-money firms to review their financial promotions and to draw the Dear CEO letter to the attention of their Board.

For further information, see the FCA’s July 2020 portfolio strategy letter and finalised guidance regarding safeguarding for payment services and e-money firms.

United States: US Treasury seeks reporting of cryptocurrency transfers

On 20 May 2021, the US Treasury published the American Families Plan Tax Compliance Agenda. The report describes President Biden’s tax compliance initiatives that seek to close the “tax gap”—the difference between taxes owed to the government and actually paid.

Among others, the Compliance Agenda proposes a new reporting regime that would cover foreign financial institutions and cryptoasset exchanges and custodians. The Treasury considers that cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion. It is worth noting that the IRS has identified cryptocurrency transactions as an enforcement priority and recently included cryptocurrency reporting on the individual tax return.

Under the proposed reporting regime, businesses that receive cryptoassets with a fair market value of more than USD 10,000 would have to report these assets for tax purposes, as they would with cash transactions.

United Kingdom: PRA speech on countering cyber risks

On 25 May 2021, the PRA published a speech given by its Deputy CEO, Lyndon Nelson, at the City & Financial 8th Operational Resilience and Cyber Security Summit, addressing the PRA’s strategy to counter cyber risks.

In the speech, Mr Nelson discussed the key issues relating to cyber security, including testing and an emphasis on prevention, and shared his hopes for what will be achieved by the time the next Cyber Security Summit takes place in 2027. In particular, Mr Nelson hopes that operational resilience will be strengthened and that firms aim to be a hard target for cyberattacks but are equally prepared and have tested their ability to recover their important critical business services within reasonable timeframes.

The speech also touched on the PRA’s plans for a cyber stress test to address firms’ operational resilience. The next cyber stress test will be in 2022 and will involve a scenario where data integrity has been compromised within the end to end retail payments chain.

Europe: European Commissioner speech on AML/TF action plan reforms

On 17 May 2021, European Commissioner Mairead McGuinness delivered a speech at the AML Intelligence Boardroom Series on combatting anti-money laundering (AML) and terrorist financing (TF) at the European level.

The European Commission is proposing more harmonised AML/TF rules and a new AML Authority to ensure supervision at the EU level. To achieve increased harmonisation, rules for the private sector will be laid down in a directly-applicable EU regulation. Already existing legislation such as the AML Directive will be enhanced, with more detailed rules being introduced for Customer Due Diligence and beneficial ownership. In particular, the European Commission is seeking to set an EU-wide upper limit for cash purchases of EUR 10,000.

The European Commission will also review the list of sectors covered by AML/TF rules and the first step will be to align it with the latest Financial Action Task Force (FATF) standards and cover all types of Virtual Asset Service Providers as Obliged Entities.

France: ACPR publishes annual report 2020

On 28 May 2021, the French Prudential Supervision and Resolution Authority (ACPR) published its annual report for 2020. Chapter four of the report is dedicated to AML/TF and concerns:

• the impact of the COVID-19 crisis on the adaptation of the AML/TF systems;
• the AML/TF objectives for 2021;
• the strengthening of cooperation with other EU supervisory authorities;
• the finalisation of the implementation of the Fifth AML/TF Directive; and
• the extension of the AML/TF regime to digital asset service providers.

United Kingdom: FCA speech on rise in scams and their threat to a legitimate financial services industry

On 18 May 2021, FCA Executive Director Mark Steward delivered a speech at the City & Financial Global – FCA Investigations & Enforcement Summit on the rise in scams in the financial services industry.

Among other issues, the FCA highlighted that investors remain highly vulnerable to too-good-to-be-true investment proposals, even in respect of websites where there is no investment proposition, such as sites that exist to harvest personal information from financially vulnerable consumers, in all likelihood for sale to other scammers, potentially for use in push payment frauds.

The FCA acknowledged that it has a substantial role to play in preventing harm to consumers from unauthorised activities and it has made improvements to address scams as they are happening, with 50 investigations currently open, involving 183 suspects. However, the FCA believes that firms should also be doing more to prevent harm and regulated firms who let down their guard, especially in assisting firms on the FCA’s Warning List, may well face action from the FCA for doing so.

United Kingdom: Thousands of retailers sign up to Which? cash acceptance pledge

On 13 May 2021, Which? launched a cash acceptance pledge encouraging retailers to promise that they will continue to accept cash as a payment method. Which? Expressed concern that the UK is heading towards a cashless society before it is ready, which threatens financial inclusion.

Thousands of retailers around the UK have signed up to the pledge. The list includes some of the largest UK retailers, such as Aldi, Asda, Co-Op, John Lewis and Waitrose. As of 13 May 2021, almost 4,500 stores in the UK had signed up, with a combined grocery market share of more than 30%.

Which? is also asking:

• the Payment Systems Regulatory (PSR) to take immediate steps to regulate the ATM interchange fee and stop the closure of free-to-use ATMs; and
• that the Government changes the law to guarantee that access to cash is protected for as long as it is necessary.

In February 2021, Which? successfully asked that the eight largest retail banks in the UK make public commitments to protect the cash network.

Europe: European Commission publishes speech on European financial integration and stability

On 27 May 2021, the European Commission published a speech by Commissioner Mairead McGuinness at the annual joint European Commission and European Central Bank conference 2021. The speech discusses the main risks to financial stability and the current European strategy to combat them.

A significant portion of the speech was dedicated to discussing the lessons learned from the COVID-19 pandemic. In particular, the European Commission’s 2020 financial stability and integration report did not take into account the possibility of a pandemic, which then defined the economic environment during 2020. In the future, the European Commission should make plans for similar scenarios.

The speech also touched on the financial integration risks associated with digitalisation. Using the public’s increasingly high expectations about being able to make instant payments as an example, the Commissioner explained that technological changes may pose challenges to retail investors and the existing investor protection rules may no longer be fit for purpose. To combat these risks, the EU must implement a bloc-wide framework to balance the perceived risks and benefits of digitalisation.

United States: Federal Reserve seeks views on proposed guidelines to regulate fintechs

On 5 May 2021, the Federal Reserve published a call for public comment on proposed guidelines to evaluate requests for accounts and payment services at Federal Reserve Banks. The proposed guidelines concern requests by fintechs and other “novel types of banking charters” to access the Federal Reserve’s payment systems.

The guidelines focus on risk management and mitigation, such as risks to the Reserve Banks, the payment system or the overall financial system. The goal is to create a more transparent and consistent process for financial institutions to gain access to the Federal Reserve’s payment systems, which have traditionally only been available to banks.

Although the guidelines would expand the Federal Reserve’s current scope, the Reserve Bank makes clear that it may decide to place additional risk management controls on non-bank institutions, such as real time monitoring of account balances.

Public comments will be accepted for 60 days from the date of publication in the Federal Register.

United Kingdom: FCA clarifies expectations on firms’ review of legacy outsourcing agreements

On 6 May 2021, the FCA updated its webpage on outsourcing and operational resilience to clarify its expectations regarding firms' obligations to review their legacy outsourcing arrangements for the purposes of complying with the EBA’s guidelines on outsourcing.

Under the guidelines, firms must review their existing critical or important outsourcing arrangements. The FCA confirmed that it expects firms to continue to comply with the guidelines despite the UK’s departure from the EU. However, firms are not expected to report on their progress towards meeting the 31 December 2021 timeline referred to in the guidelines. Where critical or important outsourcing arrangements have not been finalised by 31 March 2022, firms should inform the FCA.

Europe: SRB publishes blueprint for crisis management and deposit insurance framework review

On 18 May 2021, the Single Resolution Board (SRB) published a blueprint setting out key considerations for the European Commission’s review of its crisis management deposit insurance (CMDI) framework. The CDMI framework sets out the rules for handling bank failures while protecting depositors.

The key issues considered in the blueprint include:

• in any reform of the CMDI framework in Europe, the priority must be completing the Banking Union;
• the SRB should act as the central authority with powers to manage all bank failures in the Banking Union, handling both the European Deposit Insurance Scheme (EDIS) and the Single Resolution Fund (SRF);
• an urgent priority of the CMDI should be to update the Banking Communication and align it with the BRRD and SRM Regulation; and
• in the long term, both resolution and liquidation powers would be combined at the Banking Union level.

United Kingdom: FOS publishes annual complaints data for 2020/21

On 25 May 2021, the FOS published its annual complaints data for the 2020/21 financial year. FOS investigated over 250,000 complaints during this period, a 58% increase from 2019/20 which is likely to have been fuelled by the COVID-19 pandemic.

Some of the trends in the 2020/21 complaints data include:

• around 40% of fraud and scams complaints concerned APP scams, which were upheld in a significant proportion. The FOS considers that if someone has been a victim of an APP fraud, firms’ starting point should be to reimburse them;
• although many banks signed up to the Lending Standards Board’s Contingent Reimbursement Model (CRM) code, it is still being applied inconsistently; and
• complaints about online banking and payment accounts increased 226%, highlighting the pandemic's impact on how consumers access and move their money.

For a comparison to previous years, see the 2019/20 complaints data analysis.

Europe: EBA publishes consultation on draft guidelines on cooperation and information exchange

On 27 May 2021, the EBA launched a consultation on draft guidelines on cooperation and information exchange between prudential supervisors, AML/TF supervisors and Financial Intelligence units (FIUs) under CRD IV.

Under Article 117(6) of CRD IV, prudential supervisors, AML/TF supervisors and FIUs must cooperate closely within their respective competences and provide each other with information relevant for their tasks. The draft guidelines aim to create a framework for these entities to better communicate with each other and across the EU single market.

The consultation is open until 27 August 2021.

Europe: JURI publishes draft report on proposed codified Regulation on cross-border payments

On 26 May 2021, the European Parliament’s Legal Affairs Committee (JURI) published a draft report on the European Commission’s proposal for a Regulation on cross-border payments in the EU to replace the existing Regulation 924/2009.

The proposed Regulation contains a straightforward codification of the existing texts without any substantial changes. As a result, the European Parliament accepted the European Commission’s proposal on first reading without modification and will consider it in plenary on 23 June 2021.

Payment Market Developments

United States: American Express introduces BNPL feature for plane tickets

On 17 May 2021, it was reported that American Express will launch a BNPL option enabling US customers to purchase plane tickets in instalments. The feature follows a survey which found that more than a third of Americans surveyed were looking for flexible payment options and it will be available on flights costing more than USD 100.

Singapore: HSBC launches multicurrency e-wallet for SMEs

On 18 May 2021, it was reported that HSBC has unveiled its first multicurrency digital wallet for SMEs. The service allows businesses to send and receive money in a number of currencies internationally, and to hold and manage those currencies in one account. It is fully integrated into HSBCnet.

United Kingdom: Tesco Bank partners with Ping Identity and ProofID on identity security

On 19 May 2021, it was announced that Tesco Bank has selected intelligent identity solutions Ping Identity and ProofID to enhance and simplify its identity security measures. The goal is to create a common identity provider with self-service features across Tesco Bank’s products, including banking, credit cards and general insurance. The new security measures will also contribute to Tesco Bank’s compliance with PSD2 requirements.

Egypt: National bank signs up to Ripple to speed up remittances with UAE

On 19 May 2021, it was announced that the National Bank of Egypt has partnered with Ripple and UAE-based financial services provider LuLu International Exchange to process remittances from the UAE to Egypt. Egypt ranks amongst the top five countries worldwide in terms of remittances received from overseas.

United Kingdom: NatWest enables customers to set daily bank transfer limits

On 24 May 2021, it was reported that NatWest would start allowing customers to set their own daily digital bank transfer limits with the aim of reducing loss caused by APP scams. Customers now have the option to make their daily transfer limit lower than GBP 5,000 or up to GBP 20,000. NatWest reported that 95% of its customers have never made a bank transfer larger than GBP 5,000.

Malawi: Standard Bank partners with Hello Paisa to ease flow of remittances

On 24 May 2021, it was reported that Malawi-based Standard Bank has partnered with South Africa-based remittances company Hello Paisa. Standard Bank customers will be able to use Hello Paisa branches across Malawi as collection points for money sent from South Africa, the UK, the UAE and Bahrain.

International: Revolut builds embedded finance marketplace

On 2 June 2021, it was reported that Revolut has built a new financial services marketplace to house apps embedded within Revolut’s features. The first third party app to join the marketplace is Clear Books, which has embedded Revolut’s payments creation functionality directly into its accounting and payroll software. This allows Revolut Business users to manage Clear Books bills and employees’ payroll directly through Revolut.

India: Wise enters Indian remittances market

On 2 June 2021, it was reported that money transfer firm Wise (formerly TransferWise) has opened an office in Mumbai, gaining access to India’s USD 18b remittances market. Transfers to Indian rupees were first made available in 2013, but the new service offering will now also enable Indian customers to send and receive payments to 44 countries worldwide.

United States: BNY Mellon launches e-bill solution

On 26 May 2021, it was announced that BNY Mellon, a global investment company, has launched an e-bill and payment solution enabling US businesses to send digital bills to their consumer clients in real time and receive instant payment via the consumers' preferred online and mobile banking channels.

South Korea: Buses in Gyeonggi-do province will trial contactless fare payments

On 2 June 2021, it was reported that passengers travelling on three bus routes in the Gyeonggi-do province will be able to test a contactless, Bluetooth fare payment system. To use the service, passengers first install a ‘tagless pay’ app on their smartphone and register a pre or post paid transit card that is charged automatically for their fare payments.

United States: Paysafe partners with SimplyPayMe to streamline SME payments

On 2 June 2021, it was reported that payments platform Paysafe has partnered with payments technology provider SimplyPayMe for streamlined payment processing of in-person and online credit and debit card payments, or even direct payments, for small and medium enterprises (SMEs).

International: Revolut launches discount-finder browser extension

On 11 May 2021, it was reported that Revolut has launched Revolut Shopper Chrome, a browser extension that automatically applies discount codes at online stores. Payments can be made using Revolut’s single or multiple use virtual cards. Some users can also receive cashback into their Revolut account.

Pakistan: TAG Innovation to become Pakistan’s first digital bank

On 4 June 2021, it was reported that Pakistan-based fintech firm TAG Innovation plans to become Pakistan’s first digital retail bank. Dubbed a “financial super app”, the new solution will initially target groups that do not have unrestricted access to traditional bank accounts, such as women and youths. The company also plans to expand its operations in Saudi Arabia by the end of 2021.

Surveys and Reports

United Kingdom: TheCityUK report on cryptoassets and DLT

On 25 May 2021, TheCityUK published a report on cryptoassets and DLT in the UK, with the goal of devising a regulatory approach to new technologies by finding the appropriate balance between encouraging innovation, providing regulatory clarity and ensuring risk mitigation. TheCityUK is an industry-led body representing UK-based financial and related professional services.

The report proposes policy recommendations and changes to the regulation of cryptoassets in the UK. It also lays out the basic principles of “tokens”, or cryptoassets, to showcase how and why they do not always fit neatly within the parameters of the existing regulatory regimes.

The key recommendations from the report are:

• the UK should act quickly to set high standards in cryptoassets and DLT regulation, while recognising that not all uses of DLT need to be regulated;
• the specific features and risks associated with novel technologies and use cases should not be overlooked;
• industry engagement should be maintained, as it is crucial to achieve a proportionate and risk-based approach; and
• legislators and regulators should recognise the transformative potential of stablecoins and CBDCs.

Germany: Bitkom Research digital literacy survey results

On 27 May 2021, Bitkom Research published the results of a digital literacy survey conducted on behalf of the Digital for All initiative. The survey assessed participants’ familiarity with digital vocabulary such as ‘cryptocurrency’, ‘blockchain’, ‘cookies’ and ‘artificial intelligence’.

Overall, the survey found that over half of participants could not explain terms like ‘cryptocurrency’ and ‘blockchain’.

However, the study shows an improvement in Germany’s digital literacy compared to the results of a similar survey from 2020. The proportion of those who have never heard of some terms has decreased for ten of the thirteen keywords. The term ‘blockchain’, for example, was still 60% unknown in 2020, compared to 52% in 2021.

Global: P20 report on payee scams

On 10 May 2021, P20 published a report on the increase in payee (or APP) scams during the COVID-19 pandemic. The report highlights the increasing number of payee scams, such as romance, purchase and investment scams across the globe, and calls on the industry to work collaboratively to combat these issues.

Some of the report’s key findings include:

• payee scams are currently a preferred method for fraudsters and have steadily increased during the COVID-19 pandemic;
• to adequately address this problem, banks and payment system operators need to match the level of sophistication, collaboration and communication exhibited by the fraudsters;
• industry participants should develop a holistic approach to analysing transactions that combines behavioural analytics and financial analysis of both the remitter and the beneficiary; and

governments and regulators should understand, define and publicise the problem, and create standard definitions to enable measurement of the problem.