Financial Services Risk and Regulation · the Hong Kong Academy of Finance (AoF), released a...
12
Financial Services Risk and Regulation Regulatory updates newsletter May 2020
Transcript of Financial Services Risk and Regulation · the Hong Kong Academy of Finance (AoF), released a...
Financial Services Risk and Regulation
Regulatory updates newsletter
May 2020
Regulatory Updates Newsletter — May 2020 PwC · 2
Introduction Regulatory
developments on
Green and
Sustainable Finance
Concurrent SFC-HKMA
thematic review of
spread charges and
other practices
HKMA Consultation on
Implementation of
Mandatory Reference
Checking Scheme
HKMA report on review
of self-assessments on
Bank Culture
SFC circular to licensed corporations
on management of cybersecurity
risks associated with remote office
arrangements
LIBOR Reform
Updates
Other
Regulatory
Updates
Glossary
Content Dashboard
Regulatory Updates Page Number Banking Asset Management Insurance
Regulatory developments on Green and
Sustainable Finance4
Concurrent SFC-HKMA thematic review of spread
charges and other practices5
HKMA Consultation on implementation of
Mandatory Reference Checking Scheme6
HKMA report on review of self-assessments on
Bank Culture7
SFC circular to licensed corporations on
management of cybersecurity risks associated with
remote office arrangements
8
LIBOR Reform Updates 9-10
Other Regulatory Updates:
Basel Committee publishes stocktake report on
climate-related financial risk initiatives
FATF paper on COVID-19-related money
laundering and terrorist financing risks and policy
responses
The Hong Kong Academy of Finance (AoF)
publishes a report: “Fintech Adoption and
Innovation in the Hong Kong Banking Industry”
11
Emily Lam
Partner
+852 2289 1247
PwC HK FS Risk and
Regulation
Regulatory Updates Newsletter — May 2020 PwC · 3
As the financial services sector and regulators in Hong Kong
continue to give top priority to overcoming the challenges
posed by the pandemic, they are starting to move on and
looking ahead to grow business.
The outbreak has also led to opportunities. According to the
HKMA, the numerous online transactions have driven up
usage of the Faster Payment System (FPS) significantly by
60% in the previous quarter. Moreover, the HKMA Report on
Fintech Adoption and Innovation in the Hong Kong Banking
Industry found that more than 85% of the surveyed banks
have adopted, or planned to adopt, fintech solutions across all
types of financial services.
In addition, the Insurance Authority (IA) granted authorisation
to the fourth virtual insurer in Hong Kong. The new virtual
insurer will focus on medical, term life and critical illness
insurance products targeting youngsters and underserved
market segments.
For this edition of our monthly regulatory newsletter, we
highlight the following updates:
• The HKMA issued a circular on 13 May 2020 to announce
its intention to implement its “Common Assessment
Framework on Green and Sustainable Banking”.
• The SFC and the HKMA announced that they will
commence a concurrent thematic review in the second half
of this year to assess intermediaries’ spread charges and
other practices as well as their compliance with
requirements governing the disclosure of trading capacity
and monetary benefits under the Code of Conduct.
• The HKMA issued a consultation paper on implementation
of Mandatory Reference Checking Scheme to be adopted
by AIs on the employment of specified positions with a
view to addressing the “Rolling bad apples” phenomenon.
• On 22 May, the HKMA issued a report to share the key
observations from their review of the bank culture self-
assessments submitted by the AIs as part of the first phase
exercise.
• The SFC issued a circular to licensed corporations on
management of cybersecurity risks associated with remote
office arrangements to set out examples of controls and
procedures to assist in the protection of LCs’ internal
networks and data.
• LIBOR Reform Updates: The Bank of England (“BOE”) has
delayed LIBOR-linked collateral penalties as part of the
reform updates. Further ARRC's has issued a
supplemental consolidation on spread adjustments, and
the results of the consultation on swaptions..
• Other regulatory updates section includes Basel
Committee publishes stocktake report on climate-related
financial risk initiatives; FATF paper on COVID-19-related
money laundering and terrorist financing risks and policy
responses; and The Hong Kong Academy of Finance (AoF)
publishes a report: “Fintech Adoption and Innovation in the
Hong Kong Banking Industry”.
We hope you find our summary of these regulatory updates
useful and we look forward to your feedback.
Emily Lam
FS Risk and Regulation Leader
+852 2289 1247
Introduction
Introduction Regulatory
developments on
Green and
Sustainable Finance
Concurrent SFC-HKMA
thematic review of
spread charges and
other practices
HKMA Consultation on
Implementation of
Mandatory Reference
Checking Scheme
HKMA report on review
of self-assessments on
Bank Culture
SFC circular to licensed corporations
on management of cybersecurity
risks associated with remote office
arrangements
LIBOR Reform
Updates
Other
Regulatory
Updates
Glossary
Regulatory Updates Newsletter — May 2020 PwC · 4
Regulatory Developments on Green and Sustainable Finance
HKMA circular on Common
Assessment Framework on Green and
Sustainable Banking
After consulting the industry on its
“Common Assessment Framework on
Green and Sustainable Banking” in
January 2020, the HKMA issued a circular
on 13 May 2020 to announce its intention
to implement the self-assessment on AIs.
The key highlight of certain key aspects of
the assessment framework are:
• Objective: The HKMA fully recognises
that AIs can be at different stages of
development in green and sustainable
banking. Through the assessment, the
HKMA intends to facilitate AIs in
reviewing readiness and preparedness
in addressing climate and
environmental risks, help AIs formulate
strategies and approaches, and inform
the design of supervisory expectation
and requirements under Phase II of the
regulator’s three-phased approach.
• Design: The framework will collect
information about the stage of
development with respect to climate
risks and environmental risks under six
key elements, including (i) governance,
(ii) corporate planning and tools, (iii)
risk management process, (iv) business
policies, products and services, (v)
performance and resources, and (vi)
disclosure and communication.
• Scope of AIs and timeline: Currently,
the HKMA intends to implement the
assessment on around 50 AIs based
predominantly on their asset sizes and
business activities. Selected AIs will
have 12 weeks to complete this initial
round of assessment.
Joint statement on the establishment of
the Green and Sustainable Finance
Cross-Agency Steering Group
The HKMA and the SFC initiated the
establishment of the Green and
Sustainable Finance Cross-Agency
Steering Group. Other members are the
Environment Bureau, the Financial
Services and the Treasury Bureau (FSTB),
Hong Kong Exchanges and Clearing
Limited (HKEX), the Insurance Authority
and the Mandatory Provident Fund
Schemes Authority (MPFA).
At its inaugural meeting held on 5 May
2020, the Steering Group agreed to
provide strategic direction, with a focus on
regulatory policy and market development,
to bolster Hong Kong’s position as a
leading green and sustainable finance
centre in Asia and globally. It will also
facilitate regional cooperation, including in
the Guangdong-Hong Kong-Macao
Greater Bay Area.
The Steering Group has set up two work
streams: to study and address cross-
sectoral regulatory issues, and to
coordinate cross-agency market
development efforts.
In addition, the BCBS has published a
report on its members' existing regulatory
and supervisory initiatives on climate-
related financial risks. Read more details
in the “Other Regulatory Updates” section.
Key Takeaways
AIs should take this opportunity to reflect
on their readiness and preparedness in
addressing climate and environmental
risks and embed them in their core
processes and operating model.
Recommended Reading
HKMA circular on Common Assessment
Framework on Green and Sustainable
Banking
Joint statement on the establishment of the
Green and Sustainable Finance Cross-
Agency Steering Group
Environmental, Social and Governance
(ESG): An opportunity for banks
Environmental, Social and Governance
(ESG): An opportunity for asset managers
Environmental, Social and Governance
(ESG): An opportunity for private banks
Emily Lam
Partner
+852 2289 1247
Sammie Leung
Partner
+852 2289 3188
m
Yousuf Khan
Partner
+852 2289 1387
Introduction Regulatory
developments on
Green and
Sustainable Finance
Concurrent SFC-HKMA
thematic review of
spread charges and
other practices
HKMA Consultation on
Implementation of
Mandatory Reference
Checking Scheme
HKMA report on review
of self-assessments on
Bank Culture
SFC circular to licensed corporations
on management of cybersecurity
risks associated with remote office
arrangements
LIBOR Reform
Updates
Other
Regulatory
Updates
Glossary
Regulatory Updates Newsletter — May 2020 PwC · 5
Concurrent SFC-HKMA thematic review of spread charges and other
practices
The SFC and the HKMA will commence
a concurrent thematic review in the
second half of this year to assess
intermediaries’ spread charges and other
practices as well as their compliance with
requirements governing the disclosure of
trading capacity and monetary benefits
under the Code of Conduct.
The review will cover the selected
intermediaries’ policies, procedures,
systems and controls. The scope of the
review will also assess management
oversight of the distribution to clients of
non-exchange traded investment
products such as bonds and structured
products.
The concurrent thematic review aims to
ascertain whether:
i. charges may be in excess of the
spreads or fees disclosed in the
intermediaries’ standard documents
to clients, or as agreed with or
understood by the clients, or
ii. spreads may be increased after a
trade is executed and the price
improvement is retained without
agreement with or disclosure to
clients.
The review will also ascertain whether
intermediaries understand and properly
disclose the capacity in which they are
acting when conducting trades for clients.
The Code of Conduct provides that
intermediaries should act honestly, fairly,
and with due skill, care and diligence in
the best interests of their clients; and
make adequate disclosure of relevant
material information in their dealings with
their clients. In addition, intermediaries
should avoid conflicts of interest, and
when they cannot be avoided, ensure
that their clients are treated fairly.
To comply with these requirements,
intermediaries are expected to:
• put in place appropriate policies,
systems, controls and management
supervision over order handling and
spread charges;
• properly disclose price, fees,
monetary benefits received and
trading capacity to clients; and
• maintain adequate records (for
example, telephone recordings) to
ensure compliance with internal
policies and procedures as well as
with regulatory requirements, and to
enable reviews or investigations by
the intermediaries, their external
auditors and the regulators.
The findings of the concurrent thematic
review will form the basis for the SFC
and the HKMA’s assessment of
intermediaries’ compliance, and in the
event of a breach, take regulatory action.
The SFC and the HKMA will also share
the findings of the thematic review with
the industry and consider the need for
further guidance, where appropriate.
Key Takeaways
Intermediaries should consider the need
to perform targeted reviews of system
infrastructure, order handling and
disclosure processes, trading capacity
determination, client documentation and
training.
Recommended Reading
Circular: Concurrent SFC-HKMA
thematic review of spread charges and
other practices
Stand out for the right reasons: Pricing
and disclosure practices
Michael Footman
Partner
+852 2289 2747
com
Adams Chan
Partner
+852 2289 2966
Introduction Regulatory
developments on
Green and
Sustainable Finance
Concurrent SFC-HKMA
thematic review of
spread charges and
other practices
HKMA Consultation on
Implementation of
Mandatory Reference
Checking Scheme
HKMA report on review
of self-assessments on
Bank Culture
SFC circular to licensed corporations
on management of cybersecurity
risks associated with remote office
arrangements
LIBOR Reform
Updates
Other
Regulatory
Updates
Glossary
Regulatory Updates Newsletter — May 2020 PwC · 6
HKMA consultation on implementation of Mandatory Reference
Checking Scheme to address the “Rolling Bad Apples” phenomenon
This consultation paper outlines the
framework proposed by the HKMA for the
Mandatory Reference Checking Scheme to
be adopted by AIs on the employment of
specified positions with a view to
addressing the “Rolling bad apples” (“RBA”)
phenomenon, taking into account initial
comments from the banking industry.
The RBA phenomenon refers to individuals
who engage in misconduct during their
employment in an institution but are able to
obtain subsequent employment elsewhere
without disclosing their earlier misconduct
to the new employer.
The HKMA has been exploring ways to
address this issue in the Hong Kong
banking sector, taking into account
relevant work by international bodies,
notably the Financial Stability Board
(“FSB”).
The HKMA has also initiated discussions
with AIs to gauge their views on the
subject through the Balanced and
Responsive Supervision (“BRS”) initiative.
Overseas authorities generally adopt two
different approaches in addressing the
RBA phenomenon, namely mandatory
reference checking (“MRC”) and use of a
centralised register (“CR”).
Taking into account AIs’ feedback and the
strengths and weaknesses of MRC and
CR schemes, the HKMA proposes that an
MRC scheme be implemented in Hong
Kong.
Key features of the proposed MRC
Scheme are:
• All AIs which are planning to enter into
a new employment relationship with a
prospective employee will be required
to approach all former and current
employers of the prospective employee
which are also AIs to conduct reference
checking.
• The MRC scheme will be implemented
in phases and the employees to be
covered include::
o Phase 1 will cover directors and
bank employees in senior
management positions, and
o Phase 2 will extend the coverage
to bank employees heading key
support functions, staff licensed to
carry out regulated activities under
the SFO, IO or MPFSO, and those
with client facing or sales
responsibilities such that any
misconduct (e.g. mis-selling or
misrepresentation of investment,
insurance and general banking
products and services) by them
would be identified.
• For the avoidance of doubt, the MRC
scheme will cover all employees
irrespective of their employment terms
(i.e. permanent, contract or other
temporary or time-limited employment
relationships) so long as they meet the
definition of one of the aforementioned
positions.
Key Takeaways
AIs are encouraged to provide their
feedback and perspectives on the
proposed MRC Scheme. Comments are to
be submitted to the HKMA by 7 August
2020.
Recommended Reading
Consultation Paper on Implementation of
Mandatory Reference Checking Scheme to
Address the “Rolling Bad Apples”
Phenomenon
Michael Footman
Partner
+852 2289 2747
com
Introduction Regulatory
developments on
Green and
Sustainable Finance
Concurrent SFC-HKMA
thematic review of
spread charges and
other practices
HKMA Consultation on
Implementation of
Mandatory Reference
Checking Scheme
HKMA report on review
of self-assessments on
Bank Culture
SFC circular to licensed corporations
on management of cybersecurity
risks associated with remote office
arrangements
LIBOR Reform
Updates
Other
Regulatory
Updates
Glossary
Regulatory Updates Newsletter — May 2020 PwC · 7
HKMA report on review of self-assessments on Bank Culture
22 May, the HKMA issued a report to
share the key observations of their review
of the self-assessments on bank culture
submitted by the 30 AIs selected for the
first phase of the self-assessment exercise.
The key highlights of the HKMA report are:
Range of Practices
• Based on the self-assessments, the
banks covered in the exercise have
implemented a range of culture
initiatives and made significant progress
in promoting sound bank culture over
the past two years.
• The HKMA has identified a range of
practices under each of the three pillars
– governance, incentive systems and
assessment and feedback mechanisms.
Common Themes
• Further work is needed to ensure that
incentive systems are designed to
promote sound culture and prevent
incidents of misconduct;
• Stronger links are required to connect
the Hong Kong operations with the
culture efforts of AIs’ headquarters or
upstream entities as well as their
downstream operations, as appropriate;
• Deeper analysis is expected to
benchmark themselves against the
findings from major overseas
misconduct incidents;
• More focus is needed to facilitate
relevant staff in undertaking the
continuous professional development
requirements under the Enhanced
Competency Framework or by other
professional bodies to complement the
effort of promoting sound culture;
• More effort is needed to tackle the key
challenge of performing culture
assessments in order to identify gaps
between their current state and the
desired culture;
• More work is needed in promoting an
environment which provides
“psychological safety” to encourage
staff to speak up without fear of adverse
consequences; and
• Sustained effort is required in driving
cultural changes and banks should be
mindful of “culture fatigue”.
Key Takeaways
• AIs that were not selected for the first
phase of the self-assessment exercise
are reminded that they are still
expected to reflect on their own culture
enhancement efforts, and take into
consideration the key observations
shared in this report.
• The HKMA intends to conduct focused
reviews with an aim to perform deep
dives into the incentive systems for
front office staff involved in the business
of distributing banking, investment
and/or insurance products in retail
banks.
• The HKMA have already commenced
culture dialogues with several AIs in
2019 and this engagement will continue
going forward. The HKMA will inform
AIs selected to take part of these details
individually.
Recommended Reading
HKMA Circular on the Report on Review of
Self-assessments on Bank Culture
Report on Review of Self-assessments on
Bank Culture
Michael Footman
Partner
+852 2289 2747
com
Introduction Regulatory
developments on
Green and
Sustainable Finance
Concurrent SFC-HKMA
thematic review of
spread charges and
other practices
HKMA Consultation on
Implementation of
Mandatory Reference
Checking Scheme
HKMA report on review
of self-assessments on
Bank Culture
SFC circular to licensed corporations
on management of cybersecurity
risks associated with remote office
arrangements
LIBOR Reform
Updates
Other
Regulatory
Updates
Glossary
Emily Lam
Partner
+852 2289 1247
Regulatory Updates Newsletter — May 2020 PwC · 8
SFC circular to licensed corporations on management of cybersecurity
risks associated with remote office arrangements
In light of the increased use of remote
office arrangements, the SFC issued this
circular to set out examples of controls
and procedures to assist in the protection
of LCs’ internal networks and data. LCs
should implement and maintain measures
which are deemed appropriate to the
situation and commensurate with the size
and complexity of their operations.
Remote access to internal network and
systems
• Implement multiple VPN servers for
additional protection
• Monitor, evaluate and implement
security patches or hotfixes released
by VPN software providers on a timely
basis
• Implement different levels of remote
access, such as by equipping
computers and mobile devices
supplied by LCs with greater
capabilities than employee-owned
devices
• Implement robust network
segmentation to segregate system
servers and databases, based on
criticality, to better protect more critical
and sensitive data, such as clients’
personal data.
Use of videoconferencing platforms
• Assess the security features of
videoconferencing platforms before
use;
• Require participant registration for
attendance in videoconferences;
• Use a random meeting ID, rather than
a personal meeting ID;
• Enable the password protection feature
on the videoconferencing platform;
• Lock the conference meeting once all
the participants have joined, as
appropriate;
• Use the latest version of the software
with the most up-to-date security
patches installed.
Other measures supporting remote
office arrangements
• System capabilities: Assess the
adequacy of, and enhance, existing
information technology infrastructures,
software (such as remote computer
devices, network bandwidth and
software licenses) and hardware (such
as notebook computers and mobile
devices) for the purpose of supporting
remote office arrangements.
• Surveillance and incident handling:
Implement monitoring and surveillance
mechanisms to detect unauthorised
access to internal networks and
systems, such as reviewing the list of
unauthorised access attempts and
detecting the use of unapproved
applications; and develop and maintain
an effective incident management and
reporting mechanism.
• Cybersecurity training and alerts:
Provide adequate cybersecurity
training to all internal system users and
issue appropriate reminders and alerts
to clients, and use of secure Wi-Fi
networks for accessing internal
networks and videoconferencing
platforms, on a regular basis.
Key Takeaways
The list above is not exhaustive. LCs
should implement and maintain measures
which are deemed appropriate to the
situation and commensurate with the size
and complexity of their operations.
Recommended Reading
Circular to licensed corporations:
Management of cybersecurity risks
associated with remote office
arrangements
Carlyon Knight-Evans
Partner
+852 2289 2711
carlyon.knight-
Helen Li
Partner
+852 2289 2741
Introduction Regulatory
developments on
Green and
Sustainable Finance
Concurrent SFC-HKMA
thematic review of
spread charges and
other practices
HKMA Consultation on
Implementation of
Mandatory Reference
Checking Scheme
HKMA report on review
of self-assessments on
Bank Culture
SFC circular to licensed corporations
on management of cybersecurity
risks associated with remote office
arrangements
LIBOR Reform
Updates
Other
Regulatory
Updates
Glossary
Regulatory Updates Newsletter — May 2020 PwC · 9
BoE delays LIBOR-linked collateral
penalties
The Bank of England (BoE) delayed the
start date for increasing haircuts applied to
LIBOR-linked collateral by six months, until
April 1, 2021. At that time, banks using
LIBOR-linked collateral to borrow from the
BoE will see the value of that collateral
decrease by 10%, with these haircut add-
ons increasing to 40% on September 1,
2021 (originally October 1, 2020) and
100% on December 31, 2021 (unchanged).
Similarly, a majority of LIBOR-linked loans
and securities issued after April 1, 2021 will
be ineligible as collateral from that point
forward — rather than 1 October 2020, as
originally announced.
The delay in the application of the haircut
add-on has not, however, diminished the
importance of LIBOR transition on the UK’s
regulatory agenda. To the contrary, the
BoE’s Interim Financial Stability Report
cited recent market volatility as further
evidence that LIBOR is no longer fit for
purpose.
ARRC’s supplemental consultation on
spread adjustments
Following a consultation earlier this year,
the ARRC recommended a methodology
based on a historical median with a five-
year lookback period to account for the
difference in USD LIBOR and SOFR at the
time a fallback is triggered. Those
parameters are already in line with what
has been proposed by ISDA.
The supplemental consultation now
requests feedback on two additional issues:
First, the ARRC is asking market
participants whether the recommended
methodology should be used to calculate
different spread adjustments for different
types of fallback rates (forward-looking
term SOFR, a SOFR compound average in
arrears or in advance), or whether the
same spread adjustment value should be
calculated once (equal to ISDA’s spread
adjustment for SOFR compounded in
arrears) and applied to all different fallback
rates of the same tenor. Second, the
ARRC is seeking feedback on whether it
should align the timing of when a spread
adjustment is calculated in the case of a
pre-cessation event with that of ISDA, or
whether the adjustment should always be
calculated at the time that LIBOR is found
to be no longer representative.
Results of consultations on swaptions
Both the WG on Euro RFRs and the ARRC
published results of their respective
consultations on the treatment of swaptions
as part of the upcoming discounting and
Price Alignment Interest (PAI) switches for
cleared derivatives.
Responses to the WG on Euro RFR’s
consultation indicated that over two-thirds
of participants were in favour of voluntarily
exchanging compensation for legacy
swaptions. The final recommendations by
the WG are still outstanding.
The results to the ARRC’s consultation
were similar, except respondents indicated
a clear preference that compensation
would apply only to legacy swaptions
traded prior to March 30, 2020, the date on
which ISDA implemented a supplement
that allows counterparties entering into new
contracts to agree on a mechanism
compensating for the anticipated
discounting change in advance.
LIBOR Reform Updates (1/2)
Ilka Vazquez
Partner
+852 2289 6565 [email protected]
Amy Yeung
Partner
+852 2289 [email protected]
Ian Farrar
Partner
+852 2289 [email protected]
Introduction Regulatory
developments on
Green and
Sustainable Finance
Concurrent SFC-HKMA
thematic review of
spread charges and
other practices
HKMA Consultation on
Implementation of
Mandatory Reference
Checking Scheme
HKMA report on review
of self-assessments on
Bank Culture
SFC circular to licensed corporations
on management of cybersecurity
risks associated with remote office
arrangements
LIBOR Reform
Updates
Other
Regulatory
Updates
Glossary
Regulatory Updates Newsletter — May 2020 PwC · 10
Key Takeaways
BoE delays LIBOR-linked collateral penalties:. As
such, the BoE’s announcement does not represent an
additional delay in LIBOR transition timelines, as much
as a realignment of the application of haircut add-ons
with other target dates. Impacted firms should
continue to reduce their reliance on LIBOR-linked
collateral this year in order to avoid disruptions to their
funding structure in the coming year. As existing
LIBOR assets will have decreasing value as collateral
for BoE funding, liquidity and pricing will likely be
impacted as well.
ARRC’s supplemental consultation on spread
adjustments: ISDA’s recently published summary of
responses to its second consultation on pre-cessation
triggers likely provides a glimpse into how market
participants will respond to ARRC’s consultation, as
the desire for consistency across products was a
frequent mention to ISDA’s consultation. As a result,
we would expect the majority of market participants to
opt for aligning ARRC’s spread adjustment
methodology with that proposed by ISDA to the
greatest extent possible.
Results of consultations on swaptions - As the
behaviour of each party to a contract may be affected
by whether it would be a payer or receiver of
compensation — combined with the lack of a legally
binding mandate — the level of adoption of the
ARRC’s recommendation is likely to be limited. At this
point, timely outreach to counterparties should be a
priority for all market participants. The sooner firms
can obtain clarity on their contractual partners’
willingness to amend contracts and exchange
compensation, the quicker they can devise a path of
action to address cases in which a counterparty may
look to take advantage of a value transfer in its favour.
Recommended Reading
LIBOR Transition Market Update
LIBOR Reform Updates (2/2)
Ilka Vazquez
Partner
+852 2289 6565 [email protected]
Amy Yeung
Partner
+852 2289 [email protected]
Ian Farrar
Partner
+852 2289 [email protected]
Introduction Regulatory
developments on
Green and
Sustainable Finance
Concurrent SFC-HKMA
thematic review of
spread charges and
other practices
HKMA Consultation on
Implementation of
Mandatory Reference
Checking Scheme
HKMA report on review
of self-assessments on
Bank Culture
SFC circular to licensed corporations
on management of cybersecurity
risks associated with remote office
arrangements
LIBOR Reform
Updates
Other
Regulatory
Updates
Glossary
PwC · 11
Basel Committee publishes report on climate-
related financial risk initiatives
This is the first report by the Committee's high-level
Task Force on Climate-related Financial Risks (TFCR).
The stocktake report suggests that:
• the majority of Basel Committee members consider it
appropriate to address climate-related financial risks
within their existing regulatory and supervisory
frameworks;
• an overwhelmingly large share of members have
conducted research related to the measurement of
climate-related financial risks, while a number of
members identified operational challenges in
assessing climate-related financial risks such as data
availability, methodological challenges, and
difficulties in mapping of transmission channels. A
majority of the members have raised risk awareness
with banks through different channels, and many
banks are disclosing information related to climate-
related financial risks to some extent; and
• approximately two-fifths of members have issued, or
are in process of issuing, more principles-based
guidance regarding climate-related financial risks.
However, the majority of members have not factored,
or have not yet considered factoring, the mitigation of
such risks into the prudential capital framework.
FATF paper on COVID-19-related money laundering
and terrorist financing risks and policy responses
Using information provided to the members of the FATF
Global Network on 7 and 23 April 2020, the paper
identifies challenges, good practices and policy
responses to new money laundering and terrorist
financing threats and vulnerabilities arising from the
COVID-19 crisis.
AML/CFT policy responses can help support the swift
and effective implementation of measures to respond to
COVID-19, while managing new risks and
vulnerabilities. Examples of such responses provided in
the paper include:
• Domestic coordination to assess the impact of
COVID-19 on AML/CFT risks and systems;
• Strengthened communication with the private sector;
• Encouraging the full use of a risk-based approach to
customer due diligence;
• Supporting electronic and digital payment options.
The Hong Kong Academy of Finance (AoF)
publishes a report: “Fintech Adoption and
Innovation in the Hong Kong Banking Industry”
The Hong Kong Institute for Monetary and Financial
Research (HKIMR), the research arm and subsidiary of
the Hong Kong Academy of Finance (AoF), released a
report, titled “Fintech Adoption and Innovation in the
Hong Kong Banking Industry”. The report is based on
an industry-wide survey carried out by the HKMA
Market Research Division.
Key findings of the report are:
• The survey results indicate that Fintech is viewed as
a complement and enabling technology by the Hong
Kong banking industry.
• 86% of banks have adopted or plan to adopt Fintech
solutions across all types of financial services.
• Innovations relating to “mobile banking”, “open
banking (APIs)”, “machine learning and predictive
analytics”, “customer identification and
authentication” and “cloud computing” have been
commonly applied by over 40% to up to two thirds of
the incumbent banks.
• A higher percentage of the incumbent banks see
Fintech as presenting opportunities across all
financial services in the next five years (ranging from
50% to 77%) compared to now (ranging from 35% to
56%).
• Difficulties in ensuring information security, data
privacy and protection, difficulties in retaining and
attracting talents, domestic as well as international
regulation related to Fintech evolution, and banks’
legacy IT systems are considered as key challenges
in Fintech adoption by most banks.
• Most incumbent banks (73% of the respondents)
consider the “better bank scenario”, where banks
digitise and modernise themselves to retain the
customer relationship and core banking services, as
highly possible.
Regulatory Updates Newsletter — May 2020
Other Regulatory Updates
Introduction Regulatory
developments on
Green and
Sustainable Finance
Concurrent SFC-HKMA
thematic review of
spread charges and
other practices
HKMA Consultation on
Implementation of
Mandatory Reference
Checking Scheme
HKMA report on review
of self-assessments on
Bank Culture
SFC circular to licensed corporations
on management of cybersecurity
risks associated with remote office
arrangements
LIBOR Reform
Updates
Other Regulatory
Updates
Glossary
PwC · 12Regulatory Updates Newsletter — May 2020
Glossary
AI Authorised Institutions IFRS International Financial Reporting Standard
AML Anti-Money Laundering IOSCO International Organization of Securities Commission
BC Basel Committee IR-1 Interest Rate Risk Management
BCBS Basel Committee on Banking Supervision IRR Interest Rate Risk
CFT Counter-Financing of Terrorism IRRBB Interest Rate Risk in the Banking Book
CG-1 Corporate Governance of Locally Incorporated Authorized Institutions LC Licensed Corporation
FATF Financial Action Task Force LIBOR The London Inter-bank Offered Rate
FinTech Financial Technology MAS Monetary Authority of Singapore
FMCC Fund Manager Code of Conduct MRF Mutual Recognition of Funds
FI Financial Institutions MoU Memorandum of Understanding
FSB Financial Stability Board RO Responsible Officer
HKMA The Hong Kong Monetary Authority RE-1 Recovery Planning
IA The Insurance Authority SFC The Securities and Futures Commission
IAF Internal Audit Function SFO Securities and Futures Ordinance
IC-1 Risk Management Framework SPM Supervisory Policy Manual
IC-2 Internal Audit Function
ICO Initial Coin Offering
Introduction Regulatory
developments on
Green and
Sustainable Finance
Concurrent SFC-HKMA
thematic review of
spread charges and
other practices
HKMA Consultation on
Implementation of
Mandatory Reference
Checking Scheme
HKMA report on review
of self-assessments on
Bank Culture
SFC circular to licensed corporations
on management of cybersecurity
risks associated with remote office
arrangements
LIBOR Reform
Updates
Other
Regulatory
Updates
Glossary
