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  • Financial Stability Board’s letter addresses financial topics for upcoming G20 meeting

    Fintech

    On February 20, the Financial Stability Board (FSB) released a letter from its Chair, Klaas Knot, to the G20 Finance Ministers and Central Bank Governors ahead of the February 28-29 G20 meeting, setting up the agenda for maintaining global financial stability. The FSB is an organization made up of senior financial officials from G20 countries as well as international financial organizations including the International Monetary Fund, the World Bank, and the European Central Bank. The letter addressed financial system vulnerabilities, including the takeaways from the March 2023 banking crisis, nonbank financial intermediation (NBFI), digitalization of finance, climate change effects, and cross-border payment efficiency.

    On the first topic, the letter highlighted lessons wrought by the March 2023 banking crisis; the FSB advocated the need for public-sector backstop funding mechanisms, and more analytical work on interest rate and liquidity risk to explore vulnerabilities. On NBFI, the letter noted a structural vulnerability in asset management as the “potential mismatch between the liquidity of fund investments and daily redemption of fund units in open-ended funds[.]” On digital innovation, the letter urges the G20 to closely monitor any risks to financial stability, including crypto, tokens, and artificial intelligence. On climate change, the FSB plans to further analyze climate-related financial risks to financial stability. Last, on cross-border payments, the G20 Cross-border Payments Roadmap goal is to make cross-border payments “faster, cheaper, and more transparent and inclusive” while keeping their integrity and maintaining the “safety of the system.” The letter noted that FSB has collaborated with AML experts in both the public and private sectors to “increase the efficiency of payments systems and further enhance their integrity and safety.”

     

    Fintech Financial Stability Board G20 Of Interest to Non-US Persons Cross Border Activities Climate-Related Financial Risks

  • FSB finalizes crypto framework

    Federal Issues

    On July 17, the Financial Stability Board (FSB) released its global regulatory framework for promoting comprehensive, international consistency of regulatory and supervisory approaches for crypto-asset activities and stablecoins, while also supporting responsible innovations potentially brought by technological changes. Based on the principle of “same activity, same risk, same regulation,” FSB’s framework consists of two distinct sets of recommendations. The first set of recommendations focuses on regulating, supervising, and overseeing crypto-asset activities and markets at a high level. The recommendations establish a global regulatory baseline for promoting a framework that is technology-neutral and focuses on underlying activities and risks (FSB notes that some jurisdictions may choose to take more restrictive regulatory measures). The second set provides revised high-level recommendations specifically for the regulation, supervision, and oversight of “global stablecoin” arrangements. The recommendations also seek to promote consistent and effective regulation, supervision and oversight of global stablecoin arrangements across jurisdictions to address potential financial stability risks posed at both the domestic and international level, while further “supporting responsible innovation and providing sufficient flexibility for jurisdictions to implement domestic approaches.”

    The final recommendations “take account of lessons from events of the past year in crypto-asset markets, as well as feedback received during the public consultation of the FSB’s proposals,” the announcement said, noting that central bank digital currencies are not subject to these recommendations. The FSB and sectoral standard-setting bodies (SSBs) will continue to coordinate work to promote the development of a comprehensive and coherent global regulatory framework that is appropriate for the risks associated with crypto-asset market activities, including providing more detailed guidance through SSBs and monitoring and public reporting.

    Federal Issues Digital Assets Financial Stability Board Supervision Cryptocurrency CBDC Of Interest to Non-US Persons Fintech

  • FSB: Greater convergence needed in cyber-incident reporting

    Privacy, Cyber Risk & Data Security

    On April 13, the Financial Stability Board (FSB) released a series of recommendations for achieving “greater convergence” in cyber-incident reporting (CIR). Issued at the request of the G-20, the final report draws from FSB’s body of work on cybersecurity, as well as its engagement with external stakeholders. In order to promote greater convergence in CIR, the report focuses on three components: (i) recommendations for addressing the issues identified as impediments to achieving greater harmonization in cyber incident reporting; (ii) an updated and enhanced cyber lexicon to include new CIR terms and encourage the use of “common language”; and (iii) a common, flexible format for incident reporting exchange (FIRE) that would allow a range of adoption choices and include the most relevant data elements for financial authorities.

    The report presents 16 recommendations for addressing issues associated with the collection of cyber incident information from financial institutions, including the importance of establishing clearly defined objectives for incident reporting (and practical measures for sharing such information), aligning CIR regimes on a cross-border/cross-sectoral basis to reduce fragmentation and improve interoperability, and adopting common data requirements and standardized reporting formats. The report observes that financial institutions operating across multiple jurisdictions and sectors often face operational challenges due to the current process of having to report cyber incidents to multiple authorities. FSB states it will continue to work on a concept for a common format for FIRE to enable authorities to collect information from financial institutions in a more consistent manner. “Financial authorities and institutions can choose to adopt these recommendations as appropriate and relevant, consistent with their legal and regulatory framework,” FSB states in the report.

    Privacy, Cyber Risk & Data Security Financial Stability Board Of Interest to Non-US Persons

  • FSB outlines steps to promote convergence in cyber incident reporting

    Privacy, Cyber Risk & Data Security

    On October 17, the Financial Stability Board (FSB) released a series of recommendations for promoting convergence in cyber incident reporting (CIR). Recognizing that a “one-size-fits-all approach” is neither feasible nor preferable, FSB noted that financial authorities and financial institutions may choose to adopt the report’s recommendations as appropriate and necessary, consistent with their legal and regulatory frameworks. Among other things, the recommendations call on financial authorities to (i) establish and maintain clearly defined incident reporting objectives and explore ways to align their CIR regimes with other relevant authorities; (ii) adopt common reporting formats and develop standardized formats for exchanging incident reporting information; (iii) review the effectiveness of their CIR processes and address impediments to cross-border information sharing; (iv) engage regularly with financial institutions to foster mutual understanding of the benefits of CIR and provide guidance on effective CIR communication; and (v) implement secure forms of incident information handling to protect sensitive information. Additionally, financial authorities and institutions should collaboratively implement measures for sharing information related to cyber events and vulnerabilities in order to “combat situational uncertainty” and “pool knowledge in collective defense of the financial sector.” Financial institutions should also continuously identify and address any gaps in their CIR capabilities.

    Privacy, Cyber Risk & Data Security Agency Rule-Making & Guidance Financial Stability Board Of Interest to Non-US Persons

  • FSB requests feedback on data frameworks affecting cross-border payments

    Privacy, Cyber Risk & Data Security

    Recently, the Financial Stability Board (FSB) issued a survey requesting stakeholder feedback on “how existing national and regional data frameworks interact with and affect the functioning, regulation and supervision of cross-border payment arrangements,” in addition to feedback on issues concerning the cross-border use of these data frameworks by national authorities and the private sector. Data frameworks within the survey’s scope include those concerning data access; data privacy, security, or storage; requirements for data retention; and multilateral or bilateral trade agreements covering the use and sharing of data across borders. Among other things, the survey seeks information on (i) ways data-specific national and regional data frameworks affect the costs and speed of delivering payments, as well as access and transparency; (ii) potential barriers to cross-border data use; (iii) areas of improvement for overcoming barriers in data frameworks; (iv) whether one jurisdiction’s data framework can impact the provision or supervision of cross-border payments services offered in other jurisdictions; and (v) whether there are particular payment corridors (especially related to emerging markets) that face specific challenges related to data frameworks. The survey also requests information on the implementation of international standards from the FSB and other standard-setting bodies, “if not included as part of formal, domestic data frameworks,” and “[o]ther international efforts, arrangements, or agreements that jurisdictions may implement in their domestic data frameworks or that may affect cross-border data flows.” The survey will close on January 14, 2022.

    Privacy/Cyber Risk & Data Security Financial Stability Board Of Interest to Non-US Persons Payments

  • Financial Stability Board calls for uniformity in cyber-breach reporting

    Privacy, Cyber Risk & Data Security

    On October 19, the Financial Stability Board (FSB) released a report calling for a convergence in the reporting of cyber incidents given the digitalization of financial services and the growing use of third-party service providers. According to FSB’s report, Cyber Incident Reporting: Existing Approaches and Next Steps for Broader Convergence, financial institutions operating across borders or sectors are subjected to multiple reporting requirements for one cyber incident. Pointing out that “fragmentation exists across sectors and jurisdictions in the scope of what should be reported for a cyber incident; methodologies to measure severity and impact of an incident; timeframes for reporting cyber incidents; and how cyber incident information is used,” FSB cautioned that the lack of a common method for reporting cyber incidents “could undermine a financial institution's response and recovery actions.” FSB also warned that the dissemination of “heterogeneous information” concerning a cyber incident “underscores a need to address constraints in information-sharing among financial authorities and financial institutions.” Harmonizing regulatory reporting would promote financial stability by ensuring there is a common method for monitoring cyberattacks in the sector, supporting effective supervision of cyber-risks at financial institutions, and helping authorities share information between jurisdictions. FSB stated it plans to create a detailed plan by the end of the year to (i) develop best practices for authorities to consider when developing their cyber incident reporting regime; (ii) identify key types of information that should be shared across the financial sector; and (iii) create a common terminology for cyber-incident reporting.

    Privacy/Cyber Risk & Data Security Data Breach Financial Stability Board Third-Party

  • FSB addresses climate-related financial risks

    Federal Issues

    On July 7, the Financial Stability Board (FSB) released several reports addressing climate-related financial risks. The FSB Roadmap for Addressing Climate-Related Financial Risks noted that a growing number of international initiatives are underway that address financial risks resulting from climate change. “Effective risk management at the level of individual companies and financial market participants is a precondition for a resilient financial system,” the report stated, adding that the “interconnections between climate-related financial risks faced by different participants in the financial system reinforce the case for coordinated action.” Among other things, the FSB set out a roadmap that focuses on four interrelated areas: (i) firm-level disclosures that should be used as the basis for pricing and managing climate-related financial risks at the level of individual entities and market participants; (ii) consistent metrics and disclosure data that can “provide the raw material for the diagnosis of climate-related vulnerabilities”; (iii) an analysis of vulnerabilities to provide the groundwork for designing and applying regulatory and supervisory framework and tools; and (iv) the establishment of regulatory and supervisory practices and tools to allow authorities to effectively identify climate-related risks to financial stability. FSB also released the Report on Promoting Climate-Related Disclosures, following a survey of members which explored national and regional current or planned climate-related disclosures. FSB presented several high-level recommendations, including, among other things, that financial authorities use a framework based on recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD) across both non-financial corporates and financial institutions to propose a more consistent global approach. FSB issued another report entitled, The Availability of Data with Which to Monitor and Assess Climate-Related Risks to Financial Stability, that suggested various priorities to address climate-related data gaps “to improve the monitoring and assessment of climate-related risks to financial stability.”

    Additionally, Federal Reserve Board Vice Chair for Supervision, Randal K. Quarles, spoke before the Venice International Conference on Climate Change on July 11, in which he discussed the work of the TCFD and stressed the importance of improving data quality and addressing data gaps, as well as ultimately establishing "a basis of comprehensive, consistent, and comparable data for global monitoring and assessing climate-related financial risks."

    Federal Issues Financial Stability Board Climate-Related Financial Risks Disclosures Risk Management FSB Federal Reserve Bank Regulatory

  • FSB updates LIBOR transition roadmap

    Federal Issues

    On June 2, the Financial Stability Board released an updated version of the Global Transition Roadmap for LIBOR, which is intended to advise those with exposure to LIBOR benchmarks of some of the steps they should take now and over the remaining period to LIBOR cessation dates to successfully mitigate risks. As previously covered by InfoBytes, the Financial Stability Board released the roadmap last October to outline the steps financial firms and their clients should take “in order to ensure a smooth LIBOR transition” from now through 2021. According to the recent announcement, “transition away from LIBOR requires significant commitment and sustained effort from both financial and non-financial institutions across many LIBOR and non-LIBOR jurisdictions.” In addition to identifying actions that should already be complete, the roadmap details the following steps:

    • ISDA Fallback Protocol Effective Date. Firms should adhere to the International Swaps and Derivatives Association’s (ISDA) IBOR Fallback Protocol and IBOR Fallback Supplement, which were launched last October and took effect in January 2021 (covered by InfoBytes here).
    • By mid-2021. Firms should have identified which contracts can be amended and contact other parties to prepare for the use of alternative rates. Firms should also execute formalized plans to covert legacy LIBOR contracts to alternative rates.
    • By the end of 2021. All new business should be conducted in, or capable of switching immediately to, alternative rates.
    • By June 2023. Firms should “be prepared for all remaining USD LIBOR settings to cease.”

    Federal Issues LIBOR Financial Stability Board

  • FSB to address Covid-19 impact on global financial stability

    Federal Issues

    On November 15, the Financial Stability Board (FSB) published a letter from their Chair, Randal K. Quarles, ahead of the G20’s November summit. In the letter, Quarles explains that, while financial conditions are easing, global economic outlook remains uncertain. He also notes that the challenges posed by Covid-19 have not yet dissipated and that continued efforts are required to support financial resilience and to ensure a sustained flow of financing to the real economy. Finally, he states that, despite the pandemic, the FSB with support from G20 leaders must continue to press forward with priority reforms, such as developing more efficient cross-border payment services, addressing risks from stablecoins, assessing climate-related financial stability risks, strengthening cyber resilience, and facilitating a smooth transition away from LIBOR in order to strengthen the global financial system.

    Federal Issues Financial Stability Board Covid-19

  • FSB releases LIBOR transition roadmap

    Federal Issues

    On October 16, the Financial Stability Board released a “Global Transition Roadmap for LIBOR,” which details the steps financial firms and their clients should take “in order to ensure a smooth LIBOR transition” from now through 2021. In addition to identifying actions that should already be complete, the roadmap details the following steps:

    • ISDA Fallbacks Protocol Effective Date. Firms should adhere to the International Swaps and Derivatives Association’s (ISDA) IBOR Fallback Protocol and IBOR Fallback Supplement, which will be launched on October 23 and take effect on January 25, 2021 (covered by InfoBytes here).
    • By the end of 2020. Lenders should be able to offer non-LIBOR products to customers.
    • By mid-2021. Firms should have identified which contracts can be amended and make contact with other parties to prepare for the use of alternative rates. Firms should execute formalized plans to covert legacy LIBOR contracts to alternative rates. 
    • By the end of 2021. All new business should be conducted in, or capable of switching immediately to, alternative rates.

    For continuing InfoBytes coverage on the LIBOR transition see here.

    Federal Issues LIBOR Financial Stability Board

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