Transcript
Speaker: Welcome to HSBC Global Viewpoint, the podcast series that brings together business leaders and industry experts to explore the latest global insights, trends, and opportunities.
Speaker: Make sure you're subscribed to stay up to date with new episodes.
Speaker: Thanks for listening.
Speaker: And now onto today's show.
Speaker: Welcome to the latest in a RegTalks podcast series.
Speaker: We are featuring a variety of different topics that are currently trending in regulation.
Speaker: And we now discuss global regulatory developments to watch in 2023.
Speaker: Introducing the topic is HSBC Security Services Senior Product Manager for Trustee and Fiduciary and Regulation, Vary Sandeman.
Speaker: Vary, over to you.
Speaker: Thanks, Gabriella.
Speaker: Now, as our listeners may be aware, HSBC Security Services have issued a comprehensive paper entitled Global Regulatory and Tax Developments to Watch in 2023.
Speaker: Whilst we will cover tax development separately, I wanted to explore some of the key headline regulatory themes and do a short dive into two of these, ESG and digital.
Speaker: I'm therefore delighted to welcome along some of my colleagues to discuss this further.
Speaker: Paul Ellis, Global Product Head for ESG Regulation, Tax and Trusty and Fiduciary, Ganesh Vallakhati, Director of Product Management for Regulation, and Jennifer Lowe, Senior Product Manager for Regulation.
Speaker: Paul, coming to you first, could you talk us through some of the main regulatory developments that we should be watching as we move through 2023, please?
Speaker: Certainly, Vary.
Speaker: I think a significant area of focus will continue to be on ESG or sustainability focused regulation.
Speaker: In recent years, regulators have been busy developing specific measures that encourage financial services to play a key enabling role to achieve the sustainability targets set by policymakers.
Speaker: The implications are increasingly far reaching for our asset owner, asset manager and other bank clients.
Speaker: Pre and post trade investment processes will need to be elevated.
Speaker: Product management is a particular focus if firms label their products as sustainable, while product and entity sustainability disclosures will be a material undertaking, particularly as it applies to reliably measuring ESG credentials of investments and supply chains.
Speaker: Secondly, digital.
Speaker: There are many policymaker initiatives designed to increase the adoption of digital technologies within financial services.
Speaker: and safe implementation of technology is expected to bring better outcomes for financial product consumers in the form of cost, accuracy and broader product choice as just some examples of those better outcomes.
Speaker: Central bank digital currencies are a promising example of digital innovation, offering good outcomes to financial markets.
Speaker: However, new technologies bring new risks to be contemplated within the regulatory perimeter.
Speaker: and effective digital and operational risk management came sharply back into focus during the pandemic and significant recent market events are likely to reinforce policy maker attention in this area.
Speaker: I would highlight cybersecurity, resilience in supply chains and cloud data storage as areas of priority.
Speaker: Thirdly, we should not forget policy maker intentions to build back better after the pandemic and to encourage increased long-term savings by citizens.
Speaker: Various initiatives are now well underway to drive private sector investment into long-term and diversified asset classes.
Speaker: For example, it will be interesting to monitor developments within the UK's new long-term asset fund.
Speaker: The FCA authorised the first LTAF in March 2023, and further enhancements are expected this year to broaden its distribution to retail investors.
Speaker: The EU is similarly progressing improvements to its long-term investments offering in the form of the LTAF,
Speaker: And finally, in Asia, regulators continue to innovate product structures designed to enable and increase investor access to diversified investments.
Speaker: Thanks very much, Paul.
Speaker: There's obviously some really important developments to look out for then on the regulatory front.
Speaker: And just focusing on some of these themes now, firstly, Jen, what are you looking for on ESG in 2023?
Speaker: Thanks, Farrie.
Speaker: As Paul alluded to, although we've seen a substantial book of ESG or sustainability focused regulations really coming into place over the past few years, there will still be very much to look out for in 2023.
Speaker: So taking a look at the EU first, the SFDR's regulatory technical standards or SFDR level two, those came into effect at the start of January.
Speaker: And this means that fund providers now need to supply detailed sustainability related disclosures at product level and complete mandatory reporting templates.
Speaker: In parallel to this, although disclosures will bring greater transparency, enabling investors to better assess
Speaker: the sustainability credentials of assets, EU regulators are increasingly concerned about greenwashing.
Speaker: And therefore, we're really likely to see heightened scrutiny by regulators and specific anti-greenwashing measures following on from the ESIS call for evidence on greenwashing last year and the two separate consultations on the ESG ratings market and on guidelines for sustainable fund naming.
Speaker: In the UK, we'll be following the consultation of final rule proposals for the new sustainability disclosure requirements, which are expected by the end of June.
Speaker: Now this will be a major component of UK's plans to tackle greenwashing.
Speaker: Also on the UK's watchlist is the green taxonomy.
Speaker: This is still currently under development and is expected to include disclosures that are intended to help investors understand and compare
Speaker: the environmental performance of investment products.
Speaker: Looking to the US, ESG's disclosures will be a major focus this year, as the SEC really continues to push for greater disclosures amidst the ongoing political debates about the financial materiality of ESG risk.
Speaker: Last year, the SEC made proposals to enhance the disclosure rules for sustainable funds, and will be awaiting the decision on that.
Speaker: So moving over to Asia, we're likely to see further regulatory guidelines or rules being proposed as more jurisdictions focus on disclosure frameworks to improve transparency and really mitigate against some of the greenwashing risks.
Speaker: A few key ones to watch this year are China's environmental disclosure standards for listed companies that is currently under development.
Speaker: Also in Australia, there is a consultation ongoing on disclosure requirements for climate related financial risk.
Speaker: And we look forward to what will come from the guidelines on reporting and disclosures issued last year by Singapore and Hong Kong respectively, as firms are gearing themselves up to be ready for those.
Speaker: And finally, in the MENAC region, the demand for ESG disclosures is growing.
Speaker: An increasing number of listed companies under pressure from investors seeking better ESG data
Speaker: are voluntarily providing ESG disclosures.
Speaker: And this may perhaps shift the dial towards mandatory and standardized disclosures further down the road.
Speaker: So to sum up, Vahri, I think there will still be very much to look out for in the ESG reg space in 2023.
Speaker: Thanks very much, Jen.
Speaker: It certainly sends a busy ESG regulatory runway ahead.
Speaker: And Ganesh, when it comes to digital, I'm aware there are some significant developments in the EU this year with DORA, the Digital Operational Resilience Act, and MICA, the Markets and Cryptoassets Regulation, which I'm covering in separate podcasts.
Speaker: And in the UK, they're also consulting on their regulatory framework for crypto assets, so there will be more to look out for in that space over the course of the year.
Speaker: But when it comes to Asia though, Ganesh, what digital regulatory developments will you be watching in 2023?
Speaker: Well, very recent headline grabbing events from extreme movements in the cryptocurrency market to issues concerning FTX, these have illustrated the growing need for both clarity and regulation around digital assets.
Speaker: The underlying technology itself holds immense potential for the financial sector and whether it is CBDCs, stablecoins, tokenized assets and DeFi, they're all new asset types with interesting use cases.
Speaker: At the same time, however, the spike in interest in these crypto assets over the last two years and indeed the volatility that we have seen last year and earlier this year has clearly lent more urgency
Speaker: for regulators to balance considerations of an emerging asset class and also understand the risks posed by them.
Speaker: In Asia, we have seen regulators actually adopting different approaches.
Speaker: Some have outright banned crypto assets while being positive on stablecoins.
Speaker: Others are willing to have a look at the use cases and are going ahead with regulation.
Speaker: In Hong Kong first, for example, on the back of developments in the last quarter of 2022, when the SFC allowed ETFs tracking both Bitcoin and Ether via futures, the HKMA published its conclusions in Jan earlier this year, covering a discussion paper on crypto assets and stablecoins.
Speaker: It plans to, in its own words, quote, put in place an agile and risk-based regime for regulating certain financial activities that are related to stablecoins, unquote, and is targeting implementation in late this year, early next year.
Speaker: In February, earlier this year, again, SFC issued a consultation paper on the proposed regulatory requirements for virtual asset trading platform operators.
Speaker: As part of this, interestingly, the SFC proposes to allow all types of investors, including retail investors, to access trading services provided by licensed virtual asset trading platform operators.
Speaker: In the other fund hub, Singapore, they have also been very active in the digital asset space.
Speaker: MAS continues its collaboration with the financial industry to explore the economic potential and use cases for asset tokenization.
Speaker: via Project Guardian, which was announced again in June last year.
Speaker: And this year we will also see the outcome of the consultation paper on the proposed regulatory approach for stablecoin related activities.
Speaker: And finally, as Paul mentioned, the regulation around operational and cyber resilience continues to be given focus.
Speaker: In Hong Kong, for example, the HKMA has finalized a new supervisory policy manual that sets out its approach and supervisory expectations around operational resilience as well.
Speaker: Thank you Ganesh.
Speaker: And let me thank you all Paul, Ganesh and Jen for joining me today to discuss global regulatory developments to watch in 2023 and also to give us a flavour of the paper.
Speaker: It's been really helpful to get the global picture of direction of travel for regulation, which we will continue to watch closely, of course.
Speaker: We hope clients will find the paper equally interesting.
Speaker: And if there are any questions on this, please do follow up with your HSBC representative.
Speaker: Gabriella, I'll hand back over to you.
Speaker: Thank you.
Speaker: Thank you so much, Vary, Paul, Ganesh and Jren.
Speaker: We've got a big group today, but we also had a lot to discuss and there's a lot of updates, I feel, in the regulatory space.
Speaker: So great listening to you, everybody.
Speaker: I would like to thank you for listening to this edition in our series of RegTalk podcasts.
Speaker: We hope that you enjoyed learning more about global regulatory developments to watch in 2023.
Speaker: Stay tuned for more from our podcasts as we explore more trends in the coming weeks.
Speaker: Thank you for joining us at HSBC Global Viewpoint.
Speaker: We hope you enjoyed the discussion.
Speaker: Make sure you're subscribed to stay up to date with new episodes.
