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French, Italian, Austrian Banks Most Exposed To Russia, EBA Finds
The European Banking Authority (EBA) has published a special feature of its risk dashboard, looking at the potential impact of the Russian invasion of Ukraine on the EU banking sector.
The dashboard indicates that the Russia-Ukraine war has a limited direct impact on EU banks and most of the direct asset exposures of European banks to Russia, Ukraine and Belarus are concentrated in a few countries.
In particular, French, Italian and Austrian banks reported the highest volume of exposure to Russian counterparts, while Austrian, French and Hungarian banks are the most exposed to the Ukrainian sector.
Total Russian and Ukrainian deposits are worth €82bn, about 70 percent of which belong to non-financial corporations and individuals, the figures show.
United States: TCH Raises RTP Transaction Limit to $1m
Interbank company The Clearing House (TCH) has become the latest instant payment operator to announce that it will increase the transaction value limit on its RTP network from $100,000 to $1m.
“Financial institutions and their customers have asked for the ability to send larger value RTP payments for a variety of payment needs, and we are responding,” said Jim Colassano, senior vice president of product development for The Clearing House.
“Financial institutions on the RTP network will be able to send RTP payments, up to $1 million, for business-to-business purchases, insurance payouts, real estate closing, and more.”
The announcement follows the increase of the Same-Day ACH transaction limit, which took place on March 18.
As instant payments evolve over time, participants are getting better at building up risk profiles and have a greater understanding of the risks involved. This allows them to gradually increase limits and expand use cases for their service.
In February, Pay.UK, the operator of the UK Faster Payments, took the same decision and increased the transaction limit on the instant payment network from £250,000 to £1m.
Eurozone customers can currently send transfers up to €100,000 in the SEPA Instant Credit Transfer scheme. The scheme, which launched in 2017, the same time as RTP, had previously raised its limit in 2020.
FedNow, a publicly-owned counterpart to RTP, which plans to launch in 2023, will cap instant payments at $500,000.
South Korea: New Crypto Travel Rule For Transfers
South Korea has introduced a new crypto travel rule that will result in high levels of surveillance for both senders and receivers of virtual assets.
The new rule, which came into effect on March 25, means that transfers of virtual assets of more than KRW1m ($820) will be subject to greater identification requirements.
When a transfer is made, virtual asset providers are obliged to “provide and store” identifying information about both the sender and the receiver.
The new rule, which falls under the Specific Financial Information Act of March 2021, is designed to prevent money laundering using virtual assets and virtual asset businesses.
It will mean that if the total transfer is worth KRW 1m or more, the virtual asset business must provide and store the names, numbers and addresses of the sender and receiver before the transfer is made.
Registration of customers who send virtual assets must be completed within three days of the data transfer request.
The virtual asset business that collects the information must store it for five years from the end of the “transaction relationship”, and failure to do so can result in a fine of up to KRW30m ($24,675).
Lesser penalties include official cautions and warnings, and corrective orders following inspection and supervisory activities.
Disciplinary action against executives and employees may also be taken.
The new travel rule applies only when transferring virtual assets between virtual asset providers.
The rule does not apply to the transfer of virtual assets to self-hosted personal wallets (i.e., for peer-to-peer transfers).
The rule also does not apply to overseas virtual asset businesses, as such a system is “not practically ready for implementation”, according to the Korean Financial Intelligence Unit.
However, the South Korean authorities note that the “risk of money laundering by overseas virtual asset operators is low”.
UK: Ron Kalifa To Head New Fintech Steering Committee
Subsequent to its recognition in last year’s Kalifa Review, the UK’s finance department has established the Centre for Finance, Innovation and Technology (CFIT).
In what will be a private sector-led organisation, the CFIT will be tasked with driving forward financial innovation in the UK. Bringing together experts from across the finance and technology sector, it will identify and address opportunities and barriers to growth for UK fintech.
The CFIT Steering Committee (SteerCo) will be chaired by Ron Kalifa OBE and its membership comprises a range of industry experts, including representatives nominated on behalf of the UK’s regional and national fintech hubs.
These include Innovate Finance and Tech Nation, as well as Fintech Scotland and Fintech Wales.
HM Treasury, the Financial Conduct Authority and the City of London Corporation are also represented.
The creation of the CFIT was a key recommendation of the 2021 Kalifa Review of UK fintech, which was commissioned as a way of seeking post-Brexit opportunities for the UK.
HM Treasury approved the project in the 2021 Spending Review, allocating £5m to fund its creation.
The SteerCo will meet monthly over the spring and summer of 2022 to develop a comprehensive proposition for the CFIT, the Treasury has said.
This will include making non-binding recommendations on key strategic points, as detailed in the attached terms of reference.
In particular, the SteerCo will be tasked with making proposals on the following points:
- CFIT’s short-term and long-term objectives.
- A business plan that will support CFIT in meeting those objectives.
- Long-term funding options for CFIT.
- An initial coalition for CFIT to focus on.
- Any digital or other infrastructure which CFIT might require to operate effectively.
These recommendations will then be considered by the permanent CFIT board and executive, once the CFIT is established.
Klarna CEO: Time For UK To Ditch ‘Rule-Based Regulation’ Inherited From Brussels
The head of one of Europe’s largest fintechs has urged the UK to ditch its financial regulations inherited from the EU, and forge its own path free of red tape.
Sebastian Siemiatkowski, CEO of Sweden-based open banking platform Klarna, said that post-Brexit Britain has an opportunity to ditch “rules-based regulation” for more dynamic “outcome-based regulation”.
“Unfortunately, I wasn't blown away by Brussels,” Siemiatkowski said, while speaking at the Innovate Finance Global Summit in London.
“I think know your customer and AML [anti-money laundering] is the worst regulation ever created. It is so prescriptive, it's poor. It doesn't serve this purpose.
“What I’ve seen in the UK which makes me very excited is this amazing momentum and drive to take away some of the bad practices of Brussels and Europe, and actually write outcome-based regulation that keeps in mind that the strongest force is the customer.”
Siemiatkowski added that he supports regulations that “let the industry innovate, otherwise what you're doing is reducing mobility for customers, and protecting the profitability of the banks as they are”.
In the UK, Klarna is best known for its buy now, pay later (BNPL) service, which allows shoppers to pay for items over a period of 90 days.
In February this year, the UK’s Financial Conduct Authority (FCA) ordered Klarna and other BNPL providers to change their terms on consumer protection grounds.
Even though the type of BNPL agreements offered by these firms are not yet regulated, the FCA was able to use the Consumer Rights Act to assess the fairness and transparency of their terms, and impose the changes.
Coinbase CEO Labels New EU Crypto Legislation ‘Anti-Privacy’, ‘Anti-Innovation’
The head of one of the world’s largest cryptocurrency exchanges has issued a scathing review of the latest proposed EU legislation on crypto transfer rules.
The legislation means that transfers of crypto-assets will be tracked and traced to prevent their use in money laundering, terrorist financing and other crimes.
But critics have said it casts the net too wide.
Brian Armstrong, CEO of Coinbase, described the legislation in a post on Twitter as “anti-innovation, anti-privacy, and anti-law enforcement".
“The latest draft by Parliament of the Transfer of Funds Regulation treats crypto, and every person who holds crypto, differently from fiat,” said Armstrong.
“Every crypto transaction (and not just those with a €1,000 threshold, as is the case with fiat) would be ‘travel rule eligible’.
“This means before you can send or receive crypto from a self-hosted wallet, Coinbase will be required to collect, store, and verify information on the other party, which is not our customer, before the transfer is allowed.
“Moreover, any time you receive €1,000 or more in crypto from a self-hosted wallet, Coinbase will be required to report you to the authorities. This applies even if there is no indication of suspicious activity.”
Armstrong went on to say that the new legislation is the equivalent of the EU asking banks to report as suspicious any individuals who spend more than €1,000 on any purchase.
“How could the bank even comply? The banks would push back. That’s what we are doing now,” he said.
“This eviscerates all of the EU’s work to be a global leader in privacy law and policy. It also disproportionately punishes crypto holders and erodes their individual rights in deeply concerning ways. It's bad policy.”
Armstrong ended his tweet thread by asking readers to contact members of the European Parliament (MEPs) to lobby for the legislation to be dropped.
On March 31, MEPs from both the Committee on Economic and Monetary Affairs (ECON) and the Committee on Civil Liberties (LIBE) adopted their position on the draft legislation strengthening EU rules against money laundering and terrorist financing.
The vote passed with 93 votes for, 14 against and 14 abstentions.
Kenya: Central Bank Governor Warns CBDC Could Lead To Financial Exclusion
The governor of the Central Bank of Kenya (CBK) has cautioned that the country may not be ready for a CBDC, due to its lack of smartphone penetration.
In an interview with Kenya’s NTV in March, Governor Patrick Njoroge said that introducing a CBDC prematurely could exacerbate financial exclusion in Kenya.
“The CBDC will have a minimum viable technology requirement, and it may be a 4G technology environment,” he said.
“More than half of the phones used in Kenya are feature phones, so in effect, you could actually be pushing away people, and this is something we need to be careful about.”
Earlier, while speaking at the Bank for International Settlements (BIS) Innovation Summit, Njoroge made similar comments, noting that Kenya has more pressing technological issues to tackle before it is CBDC-ready.
“Let’s not look at CBDCs as the silver bullet for all the problems that we have. On the contrary, let’s deal with the problems directly,” he said.
For example, smartphone penetration is disproportionately low among women in Kenya, which Njoroge said could further exclude women from financial services if a CBDC was adopted.
“That problem will still remain: you can’t solve it with a CBDC,” he said. “And in effect, if you move into that world [of CBDCs], that problem will become much more acute.”
Unlike some of Kenya's neighbours, the CBK does not see CBDCs as a tool to increase financial inclusion.
To a large extent, this is due to the success of Kenya’s M-Pesa mobile payments system, which has ensured that almost every adult in Kenya can send and receive money electronically via PIN-secured SMS text messages.
An accelerated CBDC rollout could lead to “diminishing returns” in terms of overall financial inclusion, Njoroge warned.
His comments come just one month after the publication of a CBK discussion paper on CBDCs.
To follow up on the paper, the CBK has set a deadline of May 20 for stakeholders to provide feedback on whether or not the central bank should move ahead and develop a CBDC.
