Financial Regulation Updates – June 2024

Financial Regulation Updates – June 2024

The EBA welcomes the entry into force of the framework establishing the anti-money laundering and countering the financing of terrorism authority / EBA

On 26 June, 2024, The European Banking Authority (EBA) welcomes the entry into force of the new EU framework that will transform how Europe tackles money laundering and terrorist financing. The EBA is proud to be paving the way for the establishment of the new anti-money laundering and countering the financing of terrorism authority (AMLA) and is committed to facilitating a smooth transition, and making the EU a hostile place for financial crime.

Since 2020, the EBA has been leading, coordinating and monitoring the EU financial sector’s fight against money laundering (ML) and terrorist financing (TF). The new legislative framework marks a significant step forward in the EU’s fight against financial crime, with a harmonised and single AML/CFT rulebook, and the establishment of AMLA, a dedicated EU anti-money laundering authority.

The EBA will retain its AML/CFT powers and mandates until December 2025 to minimise disruption and provide continuity, and it will also continue working closely with AMLA going forward. In particular, after transferring the powers that are specific to AML/CFT to AMLA, the EBA will remain responsible for addressing ML/TF risk across its prudential remit.

Over the course of 2024 and in 2025, the EBA’s priorities in the area of AML/CFT will focus on the following aspects:

  1. a methodology for selecting financial institutions for direct EU-level AML/CFT supervision;
  2. a common risk assessment methodology;
  3. information necessary to carry out customer due diligence;
  4. criteria to determine the seriousness of a breach of AML/CFT provisions.

The EBA will be providing its advice to the Commission in October 2025.

For more Information: The EBA welcomes the entry into force of the framework establishing the anti-money laundering and countering the financing of terrorism authority

CFPB Launches Process to Recognize Open Banking Standards / CFBP

On 05 June 2024, the Consumer Financial Protection Bureau (CFPB) finalized a rule outlining the qualifications to become a recognized industry standard setting body, which can issue standards that companies can use to help them comply with the CFPB’s upcoming Personal Financial Data Rights Rule.

The new rule identifies the attributes that standard setters must demonstrate in order to be recognized by the CFPB. Consensus standards issued by recognized standard setters can help put the Personal Financial Data Rights rule into action and accelerate the financial system’s movement towards truly open banking.

To be recognized by the CFPB, the standard setters must apply to the CFPB and display the following attributes:

Openness: The CFPB will not recognize any standard-setting organization that is rigged in favor of any set of industry players. The process must be open to all interested parties, including public interest groups, app developers, and a broad range of financial firms with a stake in open banking.

Transparency: Procedures must be transparent to participants and publicly available.

Balanced decision-making: The decision-making power to set standards must be balanced across all interested parties, including consumer and other public interest groups. There must also be meaningful representation for large and small commercial entities. No single special interest can dominate the decision-making process.

Consensus: Standards development must proceed by consensus, though not necessarily unanimity. Comments and objections must be considered using fair and impartial processes.

Due process and appeals: The standard-setting body must use documented and publicly available policies and procedures, provide adequate notice of meetings, sufficient time to review drafts and prepare views and objections, access to views and objections of other participants, and a fair and impartial process for resolving conflicting views. An appeals process is also available for the impartial handling of procedural appeals.

For more Information: CFPB Launches Process to Recognize Open Banking Standards | Consumer Financial Protection Bureau (consumerfinance.gov)

FCA keeps trading apps under review over gaming concerns / FCA

In an online experiment with over 9,000 consumers, the FCA found that digital engagement practices (DEPs) used by trading apps, such as push notifications and prize draws, can increase trading frequency and risk taking.

Key findings:

  1. Push notifications and points & prize draw increased the number of trades made, by 11% and 12% respectively.
  2. Push notifications and points & prize draw increased the proportion of trades that were in risky investments by 8% and 6% respectively.
  3. Those with low financial literacy increased their trading by more than those with high financial literacy in the presence of flashing prices and trader leaderboards.
  4. Women increased their trading frequency by more than men when push notifications and points & prize draw were introduced.
  5. Younger participants (18-34) increased their end-of-trading portfolio riskiness by more than older participants (35+) across all DEPs (except flashing prices). 
  6. In the research, low financial literacy was defined as giving 1 or fewer correct answers in response to the ‘Big Three’ financial literacy, which ask about the effect of compound interest and inflation as well as the importance of investment diversification. 

In 2022 the FCA warned against game-like design features in trading apps. In the first four months of 2021, 1.15 million accounts were opened across four trading app firms.
In the last three years, at just four trading app firms, more than 2.47 million accounts have been created across the UK (based on MiFID reporting data).
In May 2024, the FCA brought charges against nine individuals in relation to an unauthorised foreign exchange trading scheme promoted on social media.

For more Information: FCA keeps trading apps under review over gaming concerns | FCA

High-Risk Jurisdictions subject to a Call for Action – June 2024/ FATF

High-risk jurisdictions have significant strategic deficiencies in their regimes to counter money laundering, terrorist financing, and financing of proliferation. For all countries identified as high-risk, the FATF calls on all members and urges all jurisdictions to apply enhanced due diligence, and, in the most serious cases, countries are called upon to apply countermeasures to protect the international financial system from the money laundering, terrorist financing, and proliferation financing (ML/TF/PF) risks emanating from the country. This list is often externally referred to as the “black list”. Since February 2020, only Iran once reported in January 2024 with no material changes in the status of its action plan.

Given heightened proliferation financing risks, the FATF reiterates its call to apply countermeasures on these high-risk jurisdictions.

For more information: High-Risk Jurisdictions subject to a Call for Action – June 2024

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