Grand Regulatory News Update

A recent investigation by the Swedish Financial Supervisory Authority (FI) has revealed extensive flaws in the currency exchange industry's efforts to prevent money laundering and financing of terrorism. The industry poses a high risk for these illegal activities due to its cash-intensive nature and difficult-to-track transactions. As larger financial firms tighten their controls and cash usage declines, organized crime has shown increased interest in currency exchange services. The FI's scrutiny of five currency exchange companies has exposed recurring and extensive shortcomings in their compliance with anti-money laundering (AML) and counter-terrorist financing regulations. Consequently, the FI believes that rules for currency exchangers need to be tightened and has recommended that only authorized companies, such as banks and payment institutions, be allowed to provide currency exchange services.

AML Compliance issues in Currency Exchange Firms

The Swedish FI exposed significant flaws in the currency exchange industry’s anti-money laundering efforts. The cash-intensive nature of this sector is highly attractive to organized crime.

GrandAlessandro Micagni

The European Banking Authority (EBA) has recently conducted an assessment highlighting concerns over the ineffective management of money laundering and terrorist financing risks within EU payment firms. This assessment was carried out under Article 9a(5) of Regulation (EU) 1095/2010, which mandates the EBA to evaluate significant money laundering and terrorist financing (ML/TF) risks within the EU's financial sector. The EBA leveraged a variety of sources, including data from its anti-money laundering/counter terrorist financing (AML/CFT) database, EuReCA, and findings from its peer review on the authorisation of payment institutions under the revised Payment Services Directive (PSD2). The key findings revealed that payment institutions' risk management strategies were not always effective, and that some supervisors did not adjust their approach to reflect the level of ML/TF risks. The resulting report underscores the need for more robust implementation of existing EBA guidelines and changes to the EU legal framework to mitigate the sector’s exposure to ML/TF risks.

ML/TF Risks: EU Payment Firms

The EBA’s assessment flags concerns over ineffective management of money laundering and terrorist financing risks in EU payment firms. It reveals inadequate risk strategies and supervisors’ failure to adapt, emphasizing the need for stronger implementation of guidelines and legal changes.

GrandAlessandro Micagni

The Global Reporting Initiative (GRI) has welcomed the launch of the International Sustainability Standards Board's (ISSB) first two standards, S1 General and S2 Climate-related Disclosures. This is a significant milestone towards achieving a strengthened global corporate reporting system, where disclosure on impacts and sustainability-related risks and opportunities are on equal footing. Both GRI and the IFRS Foundation have committed to work together to ensure complementary and interoperable standards, recognizing the need for globally consistent sustainability data through corporate reporting that meets the information needs of all stakeholders. The next step in the GRI-ISSB collaboration will involve technical mapping of the two sets of standards, along with examples of how to use them together and a digital taxonomy to streamline reporting.

GRI on ISSB Sustainability Disclosure Standards

The GRI celebrated the ISSB’s release of S1 General and S2 Climate standards, key to balanced global corporate reporting. Both are committed to creating universally consistent sustainability data and plan to map their standards, provide usage examples, and establish a digital taxonomy.

GrandAlessandro Micagni

The Association for Financial Markets in Europe (AFME) has recently expressed its views on the European Commission's proposals regarding Financial Data Access (FIDA) and Payment Services (review of the Payments Services Directive (PSD) and the new Payment Services Regulation (PSR)). AFME envisions these proposals as an opportunity to access broader data sets, thus enhancing the operations of banks and fostering innovation in various sectors. The association also welcomes the possibility of "reasonable" compensation for data within FIDA, which is seen as a key to ensuring fair cost allocation and competition. However, AFME has emphasized the need for careful consideration of potential risks, such as data monopolies and exploitation, especially with the new data sharing obligations imposed on banks. To tackle these issues, AFME stresses the need for a level playing field, interoperability with existing frameworks, standardized practices across sectors, and fair compensation systems.

AFME: EU Financial Data Regulatory Compliance (PSD/PSR)

AFME supports the European Commission’s proposals on Financial Data Access (FIDA) and Payment Services. They see it as an opportunity for banks to access broader data sets, fostering innovation. AFME emphasizes fair cost allocation and highlights concerns about data monopolies and exploitation.

GrandAlessandro Micagni

The Institute of Chartered Accountants in England and Wales (ICAEW) has called for more clarity on the UK government's proposed artificial intelligence (AI) regulatory framework, following a consultation launched by the Department for Science, Innovation and Technology (DSIT) in May 2023. The consultation centres around a policy paper, ‘A proinnovation approach to AI regulation’ which promises a flexible regulatory regime for AI. The policy aims to drive growth, increase public trust in AI, and strengthen the UK’s global position in AI. However, ICAEW warns that the government's proposed strategy lacks detail, making it difficult for businesses and regulators to understand its practical implications. There are also concerns that the UK's approach differs significantly from that of the EU, which has more specific requirements. This variation could pose challenges for businesses that operate in both the EU and the UK, as they will need to comply with different regulatory standards. Despite these concerns, ICAEW acknowledges the helpful ideas in the paper, such as the provision of sandboxes for testing and adapting ideas.

EU/UK Regulatory Compliance Framework for AI

ICAEW calls for clarity on UK’s AI regulation. Government’s strategy lacks detail, differing from the EU’s approach. Businesses face challenges complying with varying standards. However, sandboxes for testing ideas are welcomed by ICAEW.

GrandAlessandro Micagni

In a major step towards a swift adoption, leaders of the Ministerial Council and the European Parliament have reached a political agreement on the key amendments to the European Commission's legislative proposal for implementing Basel III in the European Union (EU), also known as the 'EU Banking Package'. This is a crucial move, particularly with the intended application beginning in early 2025. It is now essential that unresolved technical issues are clarified before the upcoming summer break, as significant changes to regulatory requirements will require institutions and their service providers 18 months to implement following the publication of the legal texts in the Official Journal of the European Union, as stated by Daniel Quinten, a member of the Board of the Federal Association of German Cooperative Banks. The compromise has been welcomed by the German banking industry, believing it strikes a good balance between European peculiarities and the Basel Committee's guidelines. However, they also express regret that in some important areas, the banking package significantly falls short of initial expectations, especially regarding tightened requirements for commercial real estate financing, minor improvements in securitization regulations, and limited easing for small and medium-sized banks and savings banks.

Basel III: EU Regulatory Framework Implementation

Leaders of the Ministerial Council and European Parliament agree on key amendments to the EU Banking Package, aligning with Basel III implementation. German banking industry welcomes compromise but expresses concerns over relaxed regulations and limited relief for smaller banks.

GrandAlessandro Micagni

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