CUBE RegNews:
September 7^th

SEC approves new fee model for market data surveillance system

The Securities and Exchange Commission (SEC) has approved an amendment to the National Market System (NMS) Plan governing the Consolidated Audit Trail (CAT). The amendment introduces a revised funding model known as the “Executed Share Model” and establishes a fee schedule for CAT fees for self-regulatory organizations participating in the CAT NMS Plan, in alignment with this new model. 

The Consolidated Audit Trail (CAT) is a crucial regulatory initiative in the United States that directly relates to financial services compliance and risk. The CAT was established by the SEC to enhance oversight and surveillance of the securities markets. Its primary purpose is to track and monitor all trading activity in the US equities and options markets. 

The approved amendment sets out a framework for plan participants to recover the costs related to the creation, development, and maintenance of the CAT. This framework includes the method for allocating CAT costs among participants and members of national securities exchanges or associations. 

Central banker calls for international regulator for digital finance

In a a speech at the Global FinTech Festival in Mumbai, Professor Joachim Wuermeling, Member of the Executive Board of the Deutsche Bundesbank, has called for a new international regulator to regulate FinTech.

Wurmeling’s speech considered the FinTech scene in his native Germany before looking at two broader issues: the challenges being faced in regulating digital finance and how to overcome the challenges. 

He identified the following challenges: 

• The diversity of FinTech companies in terms of business models, services, and technologies. 
• The internationalization of FinTech operations across multiple countries. 
• The need for flexible regulation to cover different aspects of the FinTech market. 
• The challenge posed by the fragmentation of the banking value chain and the emergence of new players like BigTech companies in traditional banking activities. 
• The introduction of crypto-assets and DeFi, which operate outside traditional regulatory frameworks. Noting the implementation of the recent European Markets in Crypto-Assets Regulation as a step in the right direction but adding that “in order to overcome this new challenge, we need a truly global approach to the regulation of crypto-assets and DeFi”. 

As for solutions, Wurmeling noted one key area: International cooperation. He highlighted the importance of exchanging data and information with other countries, monitoring international regulation, and participating in standard-setting committees like the Basel Committee on Banking Supervision. He also emphasized the need for a global approach to crypto-assets and DeFi regulation adding “The existing international bodies have their limits though. They have been set up for the traditional sectors of legislation like banks, insurance or securities and do not cover the new businesses in FinTech be it cloud, crypto – you name it. What is needed is an international body which takes a holistic view at the new world of digital finance and start to provide global standards – before all jurisdictions issue national ones.”

Summarizing the two key points, Wurmeling concluded: “regulating this sector poses an array of challenges to supervisors due to the novel dynamics both within and outside our regulatory sphere…with international cooperation and supervisory technology, we are employing both old and new strategies and tools to overcome these challenges.” 

EIOPA chair outlines broad themes in key speech

Petra Hielkema, chair of the European Insurance and Occupational Pensions Authority (EIOPA) presented her opening speech at the Global Insurance Supervision conference in Frankfurt on 6^th September 6 2023. Her speech addresses several critical issues and themes relevant to insurance supervision and the broader financial landscape. Summarizing some of the key themes from a very broad-ranging speech: 

• Transformation: Regarding the central theme of the conference, “Insurance supervision in a world of transformation” Hielkema recognized that transformation is a complex and multifaceted concept, reflecting changes in society, technology, geopolitics, and the macroeconomic environment.
• Supervision’s role: Hielkema emphasized that effective supervision is crucial as insurance is increasingly transcending jurisdictional boundaries. She highlighted the importance of discussions on different supervisory approaches in this evolving landscape. 
• Solvency II review: The speech discussed the ongoing review of Solvency II, the regulatory framework for insurance in Europe. Hielkema noted the need for proportionality, simplification for smaller insurers, and easing of capital requirements for long-term investments while maintaining caution in uncertain times. 
• Competitive regulatory framework: Hielkema stressed that Solvency II is a competitive regulatory framework that prioritizes policyholder protection and enables European insurers to operate globally. She also stressed the importance of fair pricing, credible risk assessment, and building trust. 
• Regulation and innovation: The speech touched on the rapid pace of regulatory changes driven by factors like technological developments and the transition to a greener economy. Hielkema also noted the importance of good regulation that balances innovation and consumer protection. 
• Climate change and insurance:  Hielkema highlighted the role of the insurance sector in mitigating macroeconomic losses after climate-related events and the importance of making coverage accessible and affordable. 
• Behavioral analysis: The speech referenced behavioral analysis conducted by EIOPA to understand why consumers are reluctant to consider insurance options for natural catastrophes. It identifies barriers like past negative experiences, misperceptions, and a lack of transparency. 
• Innovation and supervision: Hielkema addressed the challenges of regulating innovation while ensuring consumer protection and data privacy remains key. She highlighted the importance of cooperation among supervisors to keep up with the pace of digital transformation. 
• Global Cooperation: The speech concluded by stressing the significance of global cooperation, especially given the scale of ongoing transformation. Finally, Hielkema emphasized EIOPA’s commitment to cooperation with various international bodies and its support for Ukraine in challenging times. 

HKMA issues Dear CEO on talent development

The Hong Kong Monetary Authority (HKMA) has issued further guidance via its Dear CEO circulars on good practice for talent development. 

Noting that “The Supervisory Policy Manual (SPM) module on Competence and Ethical Behaviour” provides “guidance on measures that AIs are expected to adopt in assessing and maintaining the competence levels of their workforce” the circular outlines four areas it expects authorized firms to focus on: g (i) manpower planning; (ii) upskilling the workforce; (iii) reskilling the workforce; and (iv) recruiting talents. The circular then outlines the regulator’s good practice expectations in each of these areas. These include, amongst many others:

• Enhancing incentives to further promote learning 
• Fostering a learning culture 
• Leveraging on technologies and external training providers 
• Facilitating transition to new job roles 
• Recognition of professional qualifications when recruiting talents 

The HKMA guidelines provide useful workforce guidance for all regulated firms no matter their location.