Market News

The European Union has taken a major step forward in its bid to regulate the crypto assets world after its executive branch issued its most extensive proposals to date for supervising the growing sector. The measures suggested within the EU’s digital finance strategy include cryptocurrencies not presently included in general regulation as well as a number of so-called stablecoins. The aim is to not just reduce volatility in cryptocurrency trading or to provide more regulatory certainty for investors but also to reduce market fragmentation in Europe by ensuring that once a crypto trading company is approved in one EU state, it is free to operate in all other EU states. The Regulation on Markets in Crypto Assets or MiCA bill will provide definitions on what constitutes a crypto asset as well as various token subcategories. It will also lay down rules for digital asset custody and capital requirements as well as the relationship between token issuers and token holders. There are also measures to deal specifically with stablecoins following concerns raised by a number of finance ministers within the EU earlier this month. If the bill is passed it would make the EU one of the most regulated centres for crypto trading and digital assets. However, there is likely to be a lengthy legislative journey ahead. The bill must be debated by both the European Parliament as well the different national governments before it can be passed into law. Meanwhile the Commission has stated that it hopes to see the framework in place by 2024. The fact that any law must be implemented at a national level may prove to be a sticking point. The Commission has stated its preference for more regulatory harmonisation at an EU-wide level. But achieving harmonisation has proved difficult in the past and EU states have recently reduced a 2017 Commission proposal to bolster supervisory powers at an EU level in favour of maintaining power at a national level. Source (full article): Finextra

The Basel Committee’s oversight body, the Group of Central Bank Governors and Heads of Supervision (GHOS), has endorsed a set of measures to provide additional operational capacity for banks and supervisors to respond to the immediate financial stability priorities resulting from the impact of the coronavirus disease (Covid-19) on the global banking system. The measures endorsed by the GHOS comprise the following changes to the implementation timeline of the outstanding Basel III standards: These standards were finalised with the objective of complementing the initial set of Basel III standards. The revised timeline is therefore not expected to dilute the capital strength of the global banking system, but will provide banks and supervisors additional capacity to respond immediately and effectively to the impact of Covid-19. GHOS members unanimously reaffirmed their expectation of full, timely and consistent implementation of all Basel III standards based on this revised timeline. Current events demonstrate once again the importance of a resilient financial system, which these reforms will help further reinforce. Read the original article here. More information about the Basel Committee is available here.

Will Cathcart, Facebook’s global head, has announced WhatsApp Pay. WhatsApp Pay is a payments system that is going to make it easy to make payments through WhatsApp; it will be just as easy as sending a photo or file. You just simply link your bank account to your mobile number to  use the messaging application to transfer or receive money. The messaging app has over 400 million users in India and 1.5 billion globally, which is why its first launch will take place in India. Currently, WhatsApp has been permitted to test its small-value transactions by India’s National Payments Corporation. If tests go well, the UPI standardized payments provider could potentially roll out its features to other international markets. Sources: click here and here.

  It’s happening – the payments industry is going through a transformational once-in-a-generation type of shift. Financial institutions have been controlling the payments industry for quite a while – until 2014, when big investors poured more than $130 billion into technologies like Blockchain and mobile payments. With the investment, the relationship between banks, credit card companies and consumers have drastically changed. Traditionally, banks and credit card companies serve a consumer’s financial needs from A to Z. With the future disruptive payments shift businesses and consumers will interact with multiple companies, on different levels and in a technology-driven and more decentralized system. The current payments landscape is shifting and changing at a fast pace: companies are vertically integrating, consolidating or looking to add new technologies and products to boost existing portfolios, as seen in the table below:

According to a report published by Reuters, Facebook has been silently setting up a financial technology firm in Switzerland. The platform’s fintech firm is called Libra Networks, and it will solely focus on payments, investing, financing and other financial technology solutions. Details concerning the cryptocurrency platform have been released a few days ago. We will pinpoint the highlights for you. How it all started It was near the end of 2017 when David Marcus, Facebook executive, was thinking of ways to build the internet of money: a global digital currency for everyone. Especially for people that have mobile phones but no access to banking. That’s when Marcus came to his idea: why not let Facebook develop a platform with a global reach and massive user base? That’s how Libra, an open-sourced blockchain system, was born. Breaking down Libra Libra Networks or simply ‘’Libra’’ is an open sourced digital currency that is going to be launched in the first half of 2020. Libra is said to allow billions of users around the globe to make financial transactions online. According to Facebook, Libra is a ‘’global currency and financial infrastructure’’, meaning that it is built by a Facebook-created version of blockchain which also holds the technology encrypted bitcoins and cryptocurrencies. Who owns Libra? The maintenance of the Libra platform will be carried out  by a collective of companies called the Libra Association. Companies that are part of the association include Mastercard, PayPal and crypto exchange companies such as Coinbase and eBay but also financial and venture capital firms such as Thrive Capital and Andreessen Horowitz and startups Lyft and Uber. The described parties have contributed a minimum of $10m (£8m) to be part of the association. The foundation will be headquartered in Geneva and Facebook claims it will be independent from governments and the company itself. How does Libra work? Facebook is not fully enclosing details about the currency. What we do know, is that traditional payment providers such as Visa and MasterCard will play a key role in providing users with the necessary means to buy the currency. The fact that startup firms Uber and Lyft are early investors could imply or suggest that consumers will be able to pay for services using the Libra cryptocurrency. Once a consumer is able to get Libra, they can use it by downloading the digital wallet Calibra. Calibra will be available in Messenger, WhatsApp and as a standalone app. With Libra, users will be able to send money to each other. Apart from consumer-to-consumer transactions, Facebook also initiated that they want Libra to be used as a means of day-to-day transactions. Is Libra safe? There are a couple of concerns regarding the crypotcurrency and the fact that the app will be run by Facebook. The platform has said to implement necessary technologies to prevent fraud and money laundering the same way banks and credit card companies use verification and anti-fraud processes. Click here and here for the original articles.

There have been rumors that Facebook is creating its own digital coin in reaction to the $1.7 billion investment fund Telegram raised for its own cryptocurrency project. Together with Messenger, Whatsapp and Instagram, Facebook’s reach amounts to a total of 2.7 billion users. If Facebook decides to create its own digital coin and payments environment, it could potentially become the largest central bank in the world. Facebook entering the world of online banking and payments could have far reaching consequences for credit card companies such as Visa and MasterCard. The transaction process as we currently know it, is pretty simple: we can pay without carrying around cash. On the back-end, either Visa or Mastercard settle the transactions made with any bank. However, if Facebook would enter the market with its own digital currency, things could change a great deal. Instead of a credit card, users get a Facebook mobile wallet with coins to make online payments. These Facebook coins could completely transform e-commerce in terms of making payments even easier. Users will be able to directly make online purchases (or sell items) in a wide range of apps that have already integrated a Facebook user sign-in. There will be no need for third parties, typing in your credit card credentials or PayPal account details. Online shopping will become a two-step process in Facebook apps. The two-step payment environment via Facebook will only take a matter of time – the payments game is about to change drastically. Click here for the original article.

Adyen has launched a new alternative service for card transactions under the Payment Service Directive (PSD2). Similar to the current process, the offering requires banks to create APIs for approved third parties in order to initiate payments on the consumer’s side. The platform’s latest service is going to launch in the UK, while there is a chance other European markets will also follow the trend. The solution works similar to current online banking methods: customers select the payment type at the checkout, after which they are redirected to their bank’s online banking environment to confirm the payment. The specific banking environment then puts forward the customer’s preferred method of authentication (i.e. Face ID, Touch ID) enabling direct authorization between the shopper and the merchant, while Adyen handles the payment flow as a recognized third party. The Open Banking offering makes Adyen the first provider to offer multiple payment options in a secure environment. Shortly after the roll-out in the UK market, other parties have shown great interest in the solution and are preparing a roll-out of the offering. Click here for the original article.

In order to prevent money laundering and terrorism financing, Dutch Financial Authorities have decided to plan a licensing scheme for crypto exchanges. This decision stems from a report that was published by the nation’s central bank, De Nederlandsche Bank (DNB), and the AFM which is the Dutch Authority for the Financial Markets. The report concludes that cryptocurrencies carry high financial crime risks and that they, therefore, need licensed solution providers. Both DNB as the AFM prefer a licensing regime over a registration system because it allows a pre-market entry assessment that informs the parties involved if they comply with the AMLD5 rules, while a registration regime only allows a limited assessment. In the report, both Dutch financial parties have also concluded that the EU regulatory framework for corporate funding should be altered to enable a blockchain-based development of small-and-medium-sized enterprises (SMEs). Apart from that, the report also mentions reconciling the national definition of security, aiming to bring new forms of corporate funding in European legislation, such as initial coin offerings (ICOs) and security token offerings (STOs). Click here for the original article.

On Monday January 14th, 2019 the Group Central Bank Governors and Heads of Superivison (GHOS) have endorsed a couple of revisions to the market risk framework and the Committee’s strategic priorities and work programme for 2019. Revisions to the market risk frameworkThe revisions apply to the design and calibration of the market risk framework. Changes include: An introduction of a simplified standardised approach for banks with small or non-complex trading portfolios; A clarification of the exposure scopes which are subject to market risk capital requirements; A revision of the treatment of foreign exchange risk in order to enhance the risk sensitivity of the standardised approach; A review of the assessment process to determine whether a bank’s internal risk management models appropriately reflect the risks of individual trading desks; and A revision of risk factor requirements for internal modeling The above revisions were concluded from the Committee’s quantitative impact analyses. The revised framework is estimated to result in a weighted average increase of about 22% in contrast to the 2016 framework (weighted average increase of approximately 40%). The updated market risk framework is set to be effective as of January 1st, 2022, which is concurrent with the implementation of the Basel III reforms (endorsed by GHOS in 2017). Revisions to the 2019 work programmeAnother endorsement by GHOS applies to the Committee’s strategic priorities and work programme for 2019. The work programme focuses around four key areas including (1) the finalization of ongoing policy reforms, (2) the evaluation of the impact of post-crisis reforms and emerging risks, (3) the promotion of strong supervision and (4) ensuring full and consistent implementation to the post-crisis reforms. The main focus lies on evaluating the post-crisis reforms and to assess new emerging vulnerabilities in the banking system. Click here to read the original article.  

On October 17th, 2018, the global provider of secure financial messaging services (SWIFT) has published a white paper on the evolution of the European payments landscape. The paper discusses how change in wholesale and retail payments across the world is on its way and that it has set a clear path for financial market infrastructure renewal in Europe, and more specifically the Eurosystem. Taken into account regulations such as PSD2, a period of radical transformations are rapidly making its way to spread across Europe. The paper also elaborates on change drivers in the payments sector on both global and European levels, as it also outlines challenges and opportunities for incumbents in terms of digitisation, technology and strict regulators. The official press release on the payments transformation in Europe can be found here.