Asia Pacific Financial Services Regulatory Updates, Quarter Two 2023

Regulatory developments relating to financial crime were prominent in Q2 2023. Three authorities in Hong Kong SAR updated their respective guidelines on Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT). Major updates relate to (i) politically exposed persons (PEPs), (ii) digital identification system and (iii) beneficial owner in relation to a trust. Financial institutions are expected to further strengthen their risk-based approach to AML/CFT. In Vietnam, the Decree related to the law on AML, which covers, for instance, AML risk assessment, criteria for the determination of beneficial owners and details on high-value and complex transactions, was issued and became effective. AML/CFT-related regulations are also being updated in Indonesia, Japan, Philippines, Singapore and New Zealand. In Australia, the regulator announced the development of two national risk assessments relating to AML/CFT-related risks, which is expected to support the effective implementation of the Financial Action Task Force (FATF) standards.

Data and technology is another area on which financial regulators have focused throughout Q2 2023. The Bank of Japan (BOJ) published a report summarising the results from a recently completed proof of concept (Phase II) on potential use cases and technical feasibility of central bank digital currency (CBDC), with the BOJ announcing its intention to set up a CBDC forum as one of its next actions.

Other virtual asset-related regulations have been in place. South Korea has approved the Act on the protection of virtual asset users that stipulate requirements for virtual asset service providers to comply with. Hong Kong SAR has finalised its regulation on provision of services to retail investors by virtual asset trading platforms (VATPs) that requires VATPs to have safeguards for customer protection in place. There were some developments associated with IT system/digital operational resilience in this quarter. In Malaysia, a policy paper on risk management in technology has been updated, under which financial institutions are encouraged to enhance their IT system/digital risk management, including cloud risk management.

In Australia, the corporate regulator, ASIC, is inviting regulated entities to assess their cyber resilience by completing an online self-assessment survey. The survey will be one of the largest of this nature to be conducted, and ASIC aims to publish a report later this year with key insights, areas of action, and better practices. Supervisors are working on artificial intelligence (AI), too. Singapore has started multiple initiatives related to AI, which includes partnership with a private sector company to advance capabilities in generative AI technologies. On the risk management side, South Korea has developed guidelines on the use of AI in the financial sector with the aim of improving credibility of the use of AI in the sector.

Climate change and sustainability continues to be an area of focus throughout the Asia Pacific region. Australia issued a second consultation document on climate-related financial disclosures, following the finalisation of the International Sustainability Standards Board’s (ISSB) new global sustainability standards, IFRS S1 and IFRS S2. In Hong Kong SAR, the Hong Kong Monetary Authority (HKMA) issued new guidelines for the second-round of climate risk stress testing. The updated guidelines enhance the testing framework to support comprehensive assessment of financial institutions’ exposures to climate risks. Financial institutions will be encouraged to strengthen their climate risk management capabilities, including climate scenario analysis, accordingly. The Stock Exchange of Hong Kong also issued a consultation paper on climate-related disclosures that, once finalised, will require listed companies to disclose such information on a mandatory basis. In Singapore, the Monetary Authority of Singapore (MAS) launched its finance for net zero action plan aiming at, for instance, promoting consistency, comparability and reliability of climate data and fostering climate resilient financial sector.

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