June 2020

Deutsche Bank’s regulatory experts across Cash Management, Securities Services, Trust & Agency Services and Trade Finance provide an update on regulatory changes under way and on the horizon


Globally, following several regulatory updates in recent years, the payments landscape has entered a phase where efforts focus on collective, but not necessarily legally mandated, initiatives. Driven primarily by industry bodies, central banks and other market infrastructure providers, these look to build upon the foundations laid by regulations such as the Revised Payment Services Directive (PSD2), the Funds Transfer Regulation and instant payments systems to bring greater speed, efficiency and security to payments services.


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Market infrastructures

Market infrastructures worldwide are being updated to meet evolving market and client demands. The European Central Bank (ECB) is currently uniting and centralising its instant payments, real-time gross settlement and securities settlement systems under the ‘TARGET Services’ banner, with the new, consolidated platform due to launch in November 2021.1 Meanwhile, the underlying infrastructures behind the US Fedwire and the Clearing House Automated Payment System, which clear dollar and sterling payments respectively, are also being modernised. More widely, the ongoing rollout of instant and real-time payment market infrastructures worldwide means that, as market infrastructures improve and become compatible with instant payments, they combine with innovative, client-driven solutions, such as request to pay.2


Digital currencies

Reports suggest that in early 2020, at least 18 central banks worldwide were developing digital currencies. The ECB Working Paper No. 2351, Tiered CBDC and the Financial System, suggests that central bank digital currencies (CBDCs) could offer value as a means of processing fast and efficient retail payments, particularly if cash usage continues to decline. However, it also examines the risk of structural disintermediation of banks and centralisation of the credit allocation process within the central bank, as well as the risk of facilitating systemic runs on banks in a crisis situation.3

On 21 January 2020, the ECB, with the Bank of Canada, the Bank of England, the Bank of Japan, the Sveriges Riksbank, the Swiss National Bank and the Bank for International Settlements (BIS), launched a group to assess the potential cases for CBDCs in home jurisdictions. The review includes CBDC use cases; economic, functional and technical design choices, including crossborder interoperability; and knowledge sharing on emerging technologies.4

The People’s Bank of China has, according to the Financial Times (12 February 2020), filed more than 80 patents related to plans to digitise the renminbi. These include “proposals related to the issuance and supply of a central bank digital currency, a system for interbank settlements that uses the currency, and the integration of digital currency wallets into existing retail bank accounts”.5

Facebook is reportedly rethinking plans for its Libra cryptocurrency. The social media giant’s initial targeted launch of late 2020 became questionable when Vodafone

announced its withdrawal from the project in January 2020, citing redirection of efforts towards its own mobile money payments service, M-Pesa, to promote financial inclusion.6 Libra also still faces regulatory obstacles from government agencies worldwide.


Strong Customer Authentication (SCA)

On 14 September 2019, firms authorised under PSD2 were subjected to new requirements for authenticating online payments based on SCA, as specified by the European Banking Authority (EBA) Regulatory Technical Standards. The standards will come into force by 31 December 2020 and will regulate the manner and degree of access to customer payment account data held at payment service providers.7


ISO 20022

The transition to the ISO 20022 messaging format reflects a payments landscape operating around the clock on a near-instant basis, and the industry’s aim to improve the richness and quality of data contained in payment messages. In February 2020, US clearing house Nacha announced that it is building an online platform, Phixius, based on ISO 20022 and incorporating blockchain technology to assist the exchange of payment-related information between companies.

ISO 20022, billed as the new global standard for payments messaging, introduces new data components enabling far richer information to be transmitted alongside the transaction compared with other formats. Benefits include greater transparency, fewer false positives, less manual intervention and better business controls, as well as helping to support faster end-to-end delivery.8

Ahead of the Eurosystem’s November 2021 ‘big bang’ deadline, which will see banks lose access to central bank money if they fail to transition smoothly, the majority of banks should now be well advanced with their implementation efforts.


Winding down Libor

By the end of 2021, the UK’s Financial Conduct Authority (FCA) plans to phase out publication of the London Interbank Offered Rate (Libor) in favour of risk-free rates based on overnight transactions. This will have an impact on the value of millions of contracts, worth in excess of US$370trn.9

In January 2020, the Bank of England and the FCA announced their target to “cease issuance of cash products linked to sterling Libor by the end of Q3 2020”, to encourage the transition to alternatives such as the Sterling Overnight Index Average (SONIA).10 Priorities include pushing a further shift of volumes from Libor to SONIA in derivative markets; establishing a framework for the transition of legacy Libor products; and deciding how best to address Libor legacy contracts. The Financial Stability Board warns that “regulated firms should expect increasing scrutiny of their transition efforts as the end of 2021 approaches”.


Strengthening cybersecurity

The increasing speed and frequency of payment execution, which requires more robust cybersecurity measures, has seen SWIFT’s mandatory Customer Security Programme being periodically updated since its 2016 launch to leverage security controls, and to enhance security features and information-sharing initiatives to detect and prevent fraudulent activity. In 2018, the ECB launched the European Framework for Threat Intelligence-based Ethical Red Teaming – a tool for controlled cyber hacking to test the resilience of financial market entities.

In January 2020, the European Council (EC) endorsed the joint toolbox of mitigating measures agreed by EU member states to address security risks related to the rollout of 5G, the fifth generation of mobile networks. The toolbox commits EU member states to jointly move forward based on an objective assessment of identified risks and proportionate mitigating measures. The EC called for key measures to be put in place by 30 April 2020.11


"The payments landscape has entered a phase where efforts focus on collective, but not necessarily legally mandated, initiatives"


The European regulatory focus has been on harmonisation, transparency, asset safety and market discipline. Other markets are following this approach, although Asia is treading a slightly different path, looking to foster greater market integration and the use of new technologies to drive efficiencies across its diverse spectrum of currencies, jurisdictions, laws and regulations.


Post-trade harmonisation in the EU

The Eurosystem Collateral Management System (ECMS) – planned for go-live in November 2022 – provides a single system for managing collateral assets, and replaces central banks’ legacy systems.12 It aims to contribute to the integration objective of the European Capital Markets Union (CMU) – see page 29 – by reducing market fragmentation and allowing easy and efficient mobilisation of collateral.

Its success relies upon further standardisation, and the current proposal is for the ECMS to use ISO 20022 messaging for corporate actions. This has its advantages and disadvantages. Standardisation is normally seen as beneficial for all, although, in this case, it would impose mandatory changes upon some markets that will ultimately not connect to ECMS, such as the UK, Norway and Switzerland.

While market participants will need to dedicate IT budgets to meet and adapt to this change, it is not without its opportunities, especially those related to tri-party collateral management and corporate actions.


Shareholder Rights Directive (SRD) II

By early September 2020, SRD II is scheduled to become effective in EU member states.13 The Directive, which replaces the original SRD introduced in 2007, requires transposition into each EU member state’s national law, so could potentially involve up to 28 variations and interpretations. The national law transposition date was 10 June 2019. Although the differences might be minor, knock-on effects could be greater for any global institution undertaking cross-country and cross-central securities depository trading and portfolio management. SRD II aims to strengthen the position of shareholders and ensure that decisions are made for the long-term stability of a company. Its requirements impact on intermediaries, proxy advisers, institutional investors, asset managers and issuers.

Germany implemented the relevant SRD II changes into national law through an implementation act (called ARUG II), which came into effect on 1 January 2020. ARUG II amends the German Stock Corporation Act and the rules on director remuneration have been adapted to the two-tier board system in Germany, where companies have a management board and a supervisory board.


Changing tides in Asia

Following nearly three years of post-trade capital markets infrastructure upgrades in Asia, the majority of the region’s markets have now transitioned to a T+2 settlement cycle (except for the Philippines, which will move soon, and Vietnam, which is still to confirm when it will go to T+2).

This has been lauded as a significant achievement. The focus is now on greater efficiency and, specifically, the use of innovations such as distributed ledger technology (DLT) in capital markets. Singapore, Hong Kong and Thailand are leading the way in assessing how DLT can be used for trade allocation and matching, as well as for forging common data definitions and business processes.




There has been a shift from soft guidance – such as that issued by the BIS in early 2019 – to hard regulation, which could drive a major change in the industry’s perception of cryptoassets.

In November 2019, the German legislator made changes to the German Banking Act – as part of the implementation of the fifth Anti-Money Laundering Directive (AMLD5), which now qualifies cryptoassets as financial instruments – requiring a licence for trading cryptoassets and offering custody of cryptoassets as a service for others.

This is playing out similarly in Singapore, where the new Payment Services Act, which came into force in January 2020, expands the scope of the Monetary Authority of Singapore to include cryptoassets – or what it refers to as “digital payment token services”.



Some of the headline regulatory issues of the past few years are moving towards a relatively settled state as we move forward in 2020. Know your customer, anti-money laundering (AML) and Brexit all have some way to go before the dust fully settles, but the major impacts now appear to have been absorbed and the focus is shifting from compliance to effectiveness of execution. On the regulatory capital side, however, both Basel IV (see page 31) and IFRS 9/non-performing loans (NPLs) are set to have a more significant impact – though banks hope for some smoothening refinements.



The UK left the EU on 31 January 2020. The current rules on trade, travel and business for the UK and EU will continue to apply during the transition period agreed in the EU-UK Withdrawal Agreement, during which the UK is no longer a member of the EU but continues to be subject to EU rules and remains a member of the single market and customs union. New rules will take effect from 1 January 2021.


Greater loss provisions required under IFRS 9/NPLs

Banks are still adjusting to IFRS 9, the amended accounting standard for banks, which changes the requirements for viewing and managing loss exposures. IFRS 9 requires that banks hold provisions much earlier for NPLs, rather than booking them after the loss has occurred, as the previous standard allowed.14

The impacts of this may still not be felt for some time, since the according NPL regulation, which came in under CRR II in 2019, requires banks to hold provisions or, in case they do not have enough, extra capital, two years after the default. From 2022 onwards, the picture will become clearer.

One area of contention is that the NPL regulation also requires provisions for loans covered by an export credit agency (ECA), where banks will need to book additional provisions or hold extra capital seven years after the loan defaulted. Despite these loans being covered by ECAs – meaning payment is guaranteed even in the case of default – from year eight after default, a bank would have to cover the losses by 100%.



Securitisation Regulation – one year on

The EU Securitisation Regulation came into force on 17 January 2018 and applied generally from 1 January 2019, with certain measures relating to the new disclosure and reporting requirements delayed. The final disclosure templates of Article 7 of the regulation have still not been released at the time of publication, but they are expected to come into effect shortly. The provisions impose a direct regulatory obligation of compliance on EU-established originators, sponsors and securitisation special purpose entities. During this transitional period, Deutsche Bank has been working closely with the industry to advocate and establish ongoing dialogue with the European Securities and Markets Authority, in order to provide further clarity on the new requirements and ensure greater harmonisation of standardised loan level information and investor reporting data.

The securitisation regime also expands the due diligence requirements for EU investors when investing into a securitisation. Both EU and non-EU companies will need to be aware of these requirements if the transaction is likely to be placed with European-regulated investors. The next watching brief is the introduction of the new regulatory framework on securitisation repositories, which is expected to take place by Q4 2020.


Capital Markets Union

The CMU, an EU initiative in development since 2015, aims to deepen and further integrate the capital markets of member states and includes diversifying business sources of funding and improving the quality and quantity of funding accessible to SMEs.15

Although it was originally due for completion at the end of 2019, the full scope and remit of the CMU is still unclear. The UK’s departure from the EU has complicated matters by putting Europe’s major hub of non-bank capital outside the EU’s regulatory scope. The EC, the body for the bloc’s member states, has suggested that the European Commission consider developing a European non-financial reporting standard as one of several proposals it is advocating for the next stage of the CMU project.

Ultimately, it is hoped that the CMU will lead to more cohesive legal governance, with greater alignment between countries on issues such as regulation and insolvency.

With thanks to Deutsche Bank’s regulatory experts:

  • Cash Management: Christian Westerhaus, Paula Roels
  • Securities Services: Boon Hiong-Chan, Emma Johnson and Britta Woernle
  • Trade Finance: Monika Jacob-Schnitzius, Alexandra Winkler
  • Trust & Agency Services: Rochelle Hsu




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