Daily Dash: US Senator Queries Ratings Firms Over ESG Scoring

September 23, 2022
Republican senator calls on ratings firms to share ESG methodologies, Iran pilots a CBDC and Citi announces it is exiting the UK retail banking market.

US Senator Questions ESG Ratings Firms About Data Collection Practices

In letters sent to a dozen firms, US top Republican Senator Pat Toomey (R-PA) asks rating firms to provide information regarding their practices on calculating companies’ environmental, social, and governance (ESG) scores.

ESG investing and related services have grown significantly in recent years. 

According to Bloomberg, global ESG assets are projected to reach $50trn by 2025, accounting for one-third of total projected assets under management globally, Toomey notes. 

ESG rating firms “play a key role in this activity by evaluating the degree to which more than 10,000 companies meet certain qualitative standards. As a result, they have the ability to influence capital flows to many companies,” said the senator.

Toomey stressed that the information collected by ESG rating firms “often goes far beyond the extensive public disclosures” that companies are required to make under federal securities laws.

He asks the firms to share any non-proprietary methodologies they use to assign ESG ratings, including the specific E, S, and G factors that are measured and how those factors are weighed.

He also asks about the firms’ practices regarding how they determine the scope of industry sectors and reports intended to capture controversies faced by a company, such as pending litigation, negative press coverage, or shareholder resolutions.

The letter was sent to MSCI, ISS, Bloomberg, Sustainalytics, Moody’s, Carbon Disclosure Project, S&P Global, FTSE Russell, RepRisk, FactSet, Refinitiv, and Arabesque S-Ray.

Iran Launches Pilot Of CBDC Known As 'Crypto-Rial'

The Central Bank of Iran (CBI) has announced the launch of a pilot scheme to test its central bank digital currency (CBDC) known as the crypto-rial.

In a statement, the Iran Chamber of Commerce, Industries, Mines and Agriculture said the aim of the crypto-rial is to “turn banknotes into a programmable entity” with added security features.

“Crypto-rial has been designed in a way that it is easy to track and even if the data on a smartphone is hacked, the crypto-rial can be tracked,” the statement said.

However, a former deputy CBI governor, Ahmad Azizi, has expressed concern about the crypto-rial’s impact on the Iranian banking industry.

"Banking is a business of financial intermediation, and implementing large projects would weaken banks’ role in financial intermediation,” he said. “It would also impact their assets and lending power and ultimately multiply their losses."

Citi Winds Down UK Retail Operations

Citi has announced it is exiting the UK retail banking market and will now instead focus on wealth management. 

Shuttering down its UK retail bank, a single branch, would have no material financial impact on the company, the US institution said. 

Rather, the bank hopes that it will allow it to focus better on its wealthier clients. 

The bank has stated that the proposal would enable Citi to focus on clients requiring comprehensive advice on managing their wealth and would benefit from Citi's key strengths in private banking and investment services. 

“Clients of Citi's UK retail bank who meet this profile would be invited to make use of Citi's private banking services, where they would enjoy the benefits of a broader product range and more bespoke service, including transaction banking,” the bank said. 

Republican AGs Plead With Card Schemes For No Gun Code

A 24-strong coalition of right wing attorneys general have urged Mastercard, Visa and American Express not to go ahead with a Merchant Category Code (MCC) for gun stores. 

“The new code will not protect public safety,” argue the attorneys general, led by Tennessee and Montana’s Jonathan Skrmetti and Austin Knudsen.

“Categorising the constitutionally protected right to purchase firearms unfairly singles out law-abiding merchants and consumers alike.”

According to the lawmakers, efforts to track and monitor sales at gun stores would only result in “vague and misleading” information. “This categorisation would not recognise the difference, for example, between the purchase of a gun safe and a firearm.”

Moreover, it would not capture firearm purchases made at department stores, resulting in arbitrarily disparate treatment of “gun store” merchants and consumers, the republican attorneys general suggest. 

The card schemes’ move is in response to pressure from Democrat attorneys general and stems from a vote by the International Organization for Standardization (ISO), which voted to create an MCC for gun stores to use when processing credit and debit card transactions.

“The move was prompted by years of pressure from ideologues and accomplished via an application by the union-owned Amalgamated Bank,” the attorneys general write. 

They sign off the letter by warning the companies to “be advised that we will marshal the full scope of our lawful authority to protect our citizens and consumers from unlawful attempts to undermine their constitutional rights”.

“Please keep that in mind as you consider whether to proceed with adopting and implementing this Merchant Category Code.”

US Treasury Consults On Crypto Risks

The US Treasury has published a request for comment (RFC) seeking feedback from the public on the illicit finance and national security risks posed by digital assets.

The filing was made pursuant to President Joe Biden’s executive order on digital assets, which also resulted in three payments-related policy reports last week to address the future of money and payment systems, consumer and investor protection and illicit finance risks.

“As we work to implement the Illicit Finance Action Plan, hold bad actors accountable and identify potential gaps in existing enforcement, we look forward to receiving the public’s input on this urgent work,” said Brian Nelson, undersecretary of the Treasury for Terrorism and Financial Intelligence.

In the RFC, the Treasury asks the public about the effectiveness of existing regulations to mitigate risks associated with digital assets and about risks related to non-fungible tokens (NFTs), decentralised finance (DeFi) and peer-to-peer payment technologies, among others.

Comments could be submitted until November 3.

Saudi Arabia To Prioritise Fintech Links With India, Will Include RuPay, UPI

Saudi Arabia and India have agreed to prioritise fintech partnerships between the two countries, including through the launch of RuPay and the Unified Payments Interface (UPI) in Saudi Arabia.

UPI is India’s instant payments system, while RuPay is India’s multinational card payment network. Both are owned by the National Payments Corporation of India (NPCI), an arm of the Reserve Bank of India (RBI).

The agreement was announced earlier this week following a visit to Saudi Arabia by Piyush Goyal, India’s minister of commerce and industry.

The two countries also discussed the feasibility of “institutionalising” payments for bilateral trade in riyals and rupees, similar to the rupee-rouble settlement system that India is pursuing with Russia.

Saudi Arabia is India’s fourth-largest trading partner and second-largest supplier of crude oil. In 2019, the two countries signed a strategic partnership that committed Saudi Arabia to making $100bn worth of investments in India by 2030.

Brussels' Concern Prompts Pivo To Pull Out Of Payments Merger

Concerns raised by the European Commission have resulted in a merger between MobilePay, Vipps, and Pivo losing the latter. 

Last year, the mobile payments apps, which are all bank-owned, announced their merger plans, which would have created a single payments app and customer base of 11m. 

However, the European Commission’s Directorate-General for Competition (DG Comp) has shot down the merger, meaning that Pivo, which is owned by Finnish financial institution OP Financial, will no longer be part of the business. 

Parties still involved have not given up hope, however, and say that the merger is still the right decision. 

“The new company, Vipps MobilePay, will invest considerably in growth and development in Finland even though Pivo is no longer part of the merger,” said MobilePay chief executive Claus Bunkenborg. 

The new company, Vipps MobilePay, will now be 27.8 percent owned by Danske Bank and 72.2 percent owned by the Norwegian banks involved, with Vipps having been developed by De Nederlandsche Bank (DNB) originally. 

The prospective company, however, is still subject to merger clearance from DG Comp. 

“Both Danske Bank and the Norwegian banks behind Vipps would have preferred the merger, as planned, to include OP Financial Group and Pivo, but we respect the commission’s concerns and now hope for a swift approval,” said Christian Bornfeld, head of personal customers at Danske Bank. 

MAS And IFSCA Sign Fintech Cooperation Agreement

The Monetary Authority of Singapore (MAS) and India’s International Financial Services Centres Authority (IFSCA) have signed a fintech cooperation agreement that it is hoped will spur regulatory collaboration and partnership in the fintech space. 

“This agreement is a watershed moment that ushers in a FinTech Bridge to serve as a launch pad for Indian fintechs to Singapore and landing pad for Singapore fintechs to India, leveraging the Regulatory Sandboxes,” said Joseph Joshy, chief technology officer at IFSCA. “The possibility of global collaboration on suitable use cases through a Global Regulatory Sandbox is an exciting opportunity for the fintech ecosystem."

The MAS and IFSCA have said that the new agreement will leverage existing regulatory sandboxes in their respective jurisdictions to support experimentation of technology innovations. 

This includes the referral of companies to each other's regulatory sandboxes and hopes to enable innovative cross-border experiments in both jurisdictions. 

The agreement will also see the MAS and IFSCA begin to share non-supervisory related information and developments on innovation in financial products and services, facilitate discussions on emerging fintech issues and participate in joint innovation projects.

Meanwhile, the two authorities have said that they will evaluate the suitability of use cases which could benefit from collaboration across multiple jurisdictions, and invite relevant jurisdictions to participate in a global regulatory sandbox.

“The cross-border testing of use cases between Singapore and India will pave the way for operationalising a broader collaboration framework for fintech use cases involving multiple jurisdictions,” commented Sopnendu Mohanty, chief fintech officer at the MAS. 

Two Turkish Banks Suspend Russia's Mir Payment System After US Sanctions Threat

Isbank and DenizBank have suspended their use of Russia’s Mir card payments system due to new sanctions applied by the US Treasury.

Last week, the US Treasury designated two new entities and 22 individuals as part of its sanctions efforts against Russia’s military action in Ukraine.

Among those newly designated was Vladimir Valerievich Komlev, CEO of NSPK, the entity owned by Russia’s central bank that operates the Mir card payment network.

As noted by the Treasury, it intends to crack down on sanctions evasion facilitated by Russia’s “expanded use” of the NSPK and Mir card payment network internationally.  

However, in the past two weeks, Egypt, Cuba, Angola, Myanmar, Nicaragua and Sri Lanka have all said they are negotiating an entry to the Mir network.

Thailand Warns Of Licensing Deadline For Digital Asset Businesses

Thailand’s Securities and Exchange Commission (SEC) has reminded digital asset businesses that they must apply for a new type of business licence by October 11.

The new licensing rules apply to “digital asset depository service providers”, and are designed to reduce fraud and increase the security of customers’ crypto-assets when held on their behalf.

The law came into effect on July 13 this year, and gave existing digital asset businesses a 90-day window to apply for the new licence. New digital asset businesses, if eligible, must also apply.

White House Releases First-Of-Its-Kind Framework For Digital Assets

The framework, which follows President Joe Biden’s executive order on digital assets and subsequent agency collaboration, is intended to ensure that the US plays a leading role in the innovation and governance of the digital assets ecosystem both within the country and on the global scene.

The administration encourages the Federal Reserve to continue its research and experimentation regarding a US central bank digital currency (CBDC) and says it will set up an interagency working group to support this effort.

The framework also includes a comprehensive action plan with priority steps to mitigate key risks of cryptocurrencies, such as money laundering and financing for terrorism, and propose critical measures to protect consumers, investors and businesses.

The administration urges regulators to scale up their investigations into digital asset market misconduct, double down on their enforcement efforts and strengthen interagency coordination.

CFPB Working On BNPL Guidance As Usage Surges

The Consumer Financial Protection Bureau (CFPB) has published a report concluding that buy now, pay later (BNPL) products have experienced rapid growth in the US and announcing that the agency is working to ensure BNPL firms adhere to regulations.

“Buy Now, Pay Later is a rapidly growing type of loan that serves as a close substitute for credit cards,” said CFPB director Rohit Chopra. “We will be working to ensure that borrowers have similar protections, regardless of whether they use a credit card or a Buy Now, Pay Later loan.”

Based on data submitted by Affirm, Afterpay, Klarna, PayPal and Zip, the report shows that last year the five largest BNPL firms originated 180m loans worth more than $24bn.

Although BNPL was a niche financial offering a couple of years ago that was heavily concentrated in apparel and beauty, it has now branched out to other industries such as travel, pet care, groceries and gas.

The CFPB will work to identify potential interpretive guidance or rules and to ensure BNPL firms are subjected to appropriate supervisory examinations.

The agency will also issue guidance related to the data surveillance practices that BNPL lenders should seek to avoid.

Indonesia Launches New Probe Into Google For In-App Payments 'Monopoly'

Indonesia has become the latest country to investigate Google for its “monopolistic” in-app payments policy.

In a statement, the Indonesia Competition Commission (ICC) said it will look into whether Google committed antitrust violations by forcing its own in-app billing system on Android users, while excluding third-party providers.

“The commission suspects that Google has abused its dominant position, conducted conditional sales and discriminatory practices in the distribution of digital applications in Indonesia,” said the ICC.

As reported by VIXIO earlier this month, Indonesia was one of the markets selected by Google to take part in a major pilot of user choice billing.

This allows Android app developers to install third-party billing systems and when used to pay for goods or services within the app, developers will save 4 percentage points on Google’s usual commission fees.

Danske Bank Hit By €1.8m Fine Due To Anti-Money Laundering Failures

Denmark’s largest bank has been issued a €1.8m fine by the Central Bank of Ireland (CBI) for three breaches of the country’s anti-money laundering (AML) and counter-terrorist financing laws.

According to the CBI, all three breaches took place between 2010 and 2019, and all stemmed from the bank’s failure to ensure that its automated transaction monitoring system was correctly monitoring its Irish subsidiary.

In 2015, the CBI said that Danske Bank became aware that its transaction monitoring system was wrongly filtering out certain customer transactions. 

However, the bank failed to notify its Irish subsidiary and did not take action until four years later.

Between 2015 and 2019, the CBI estimates that almost 350,000 transactions processed by the Irish subsidiary were not monitored for money laundering or terrorist financing risk.

This represents 1 in 40 of all transactions processed by the Irish subsidiary during that period.

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