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The Bali Fintech Agenda- Part 3

In this article the TTSEC will continue its deliberations on the IMF Policy Paper – The Bali Fintech Agenda dated October 11, 2018 which identified key considerations for policymakers regarding implementation of Fintech policies. The IMF policy paper essentially provided a blueprint for successfully harnessing Fintech opportunities, by providing a framework for countries to assess their policy options and adapt them to their own circumstances. The following are six (6) out of the twelve (12) considerations along with a brief description on how the TTSEC will assist the local securities industry in complying with the requirements.

Safeguard the integrity of financial systems.

The TTSEC utilised guidance from the Financial Action Task Force (“FATF”) to identify, understand and assess the Money Laundering/Terrorist Financing (“ML/TF”) risks associated with Fintech. (Financial Action Task Force 2019) states that countries should consider virtual assets as “property,” “proceeds,” “funds”, “funds or other assets,” or other “corresponding value”. Countries should apply the relevant measures under the FATF recommendations to virtual assets and virtual asset service providers (“VASP”). VASPs should be required to be licensed or registered.

The TTSEC acknowledges the need to prevent ML/TF abuse of Fintech products such as virtual assets. Once Fintech providers have been assessed, the TTSEC will decide on the required registration categories and inform the Fintech providers of their specific ML/TF obligations. This will be supplemented by periodic risk-based compliance reviews to ensure Fintech providers are complying with ML/TF requirements.   

Where applicable, the TTSEC also encourages the use of RegTech.  RegTech is a contraction of the terms regulatory and technology, and it comprises the use of technology, particularly information technology, in the context of regulatory monitoring, reporting, and compliance (Douglas W. Arner, Janos Barberis & Ross P. Buckley 2017). The TTSEC acknowledges that there is a major opportunity for the use of RegTech to improve ML/TF compliance, however, there may be a need to amend the current legislation to allow electronic record keeping with regard to ML/TF obligations.

Modernize legal frameworks to provide an enabling legal landscape.

The overriding objective of the Securities Act 2012 (the “Act”) is “to provide protection to investors from unfair, improper or fraudulent practices; to foster fair and efficient securities markets and confidence in the securities industry in Trinidad and Tobago; and to reduce systemic risk.  To fulfil this objective, section 6 of the Act sets out the TTSEC’s main functions. Of particular note are sections 6(b), (c) and (d) which effectively mandate the TTSEC to oversee and supervise the securities industry and promote investor protection through registration and regulation of self-regulatory organisations, broker-dealers, registered representatives, underwriters, issuers and investment advisers.

Specifically, the requirement of section 6(c) which mandates the TTSEC to control and supervise the activities of the supervised entities with a view to maintaining proper standards of conduct and professionalism in the securities industry, may be applied to the application of all types of Fintech to the business processes of these registrants. For example, a registered broker-dealer may choose to adopt a Retail Trading and Investment Platform to facilitate trades on behalf of its clients, or a registered Investment Adviser may opt to use an automated advice tool because it believes the technology may assist in delivering better investment advice to its clients. In both scenarios, the TTSEC will be obligated to learn more about the technologies being used by its registrants how it impacts the clients and the securities industry as a whole, and what risk mitigating and disclosure tools should be applied.

Overall, the SA 2012 currently provides a sound legal framework for the securities industry of Trinidad and Tobago. All Fintech service providers will be reviewed to determine if the products or services being offered equates to a security or a security-related activity. The TTSEC’s definition of an investment contract[1] provides sufficient detail to determine if a product constitutes a security.  Where a Fintech product or service does not fit into the SA 2012 definition of an investment contract, consideration will be given to legislative amendments. A risk-based approach will be adopted in making these amendments which will be done on a case-by-case basis. The TTSEC intends to provide guidance and information regarding Fintech products/services to reduce the gaps and clarify ambiguities in its regulatory approach to Fintech.

Ensure the stability of domestic monetary and financial systems.

The Central Bank of Trinidad and Tobago (CBTT”) is responsible for fostering monetary and financial stability in the economy. Currently CBTT is committed to engaging with Fintech companies/providers to understand the possibilities and application to the domestic market. The CBTT has also indicated to the market, via statement dated November 15, 2018, that the Bank does not consider the establishment of a Central Bank digital currency a priority at this time but will continue to study developments in this area. 

Develop robust financial and data infrastructure to sustain Fintech benefits.

Strong standards of operational resilience help market participants and infrastructures to withstand and rapidly recover from disruptions, thus supporting confidence in the continuity of services and preserving the “safety and soundness” and the integrity of the financial system (International Monetary Fund & World Bank Group 2018).

The issue of cybersecurity in finance highlights the necessity of further regulatory focus and development. The digital transformation of finance has made the securities industry far more vulnerable, and as the industry continues to become more digitized, there is an increasing risk of attack, theft, and fraud from cybercriminals. The TTSEC intends to issue guidance/standards on cybersecurity for the securities industry to assist in maintaining the safety and soundness of the financial system and integrity of data.

When the TTSEC conducts compliance reviews of registrants, the quality of enterprise wide risk management frameworks is normally reviewed and recommendations for improvement are made where deficiencies are noted. The quality and robustness of business continuity and recovery plans (“BCP”) are also examined.

Encourage international cooperation and information-sharing.

International, regional and local collaboration will lead to greater harmonization of regulatory frameworks and facilitate the adoption of innovative technologies in financial services. From an international perspective, the TTSEC is a signatory to International Organization of Securities TTSECs (“IOCSO”) memorandum of understanding and a member of the IOSCO Initial Coin Offering (“ICO”) Consultation Network. Within the Caribbean, the TTSEC is also a member of the Caribbean Group of Securities Regulators (“CGSR”).

 Enhance collective surveillance of the international monetary and financial system.

In 2015, the TTSEC began the process of strengthening its data collection by implementing the Micro Macro Prudential Reporting Framework (“MMRF”). The data collected, through the MMRF, allows the TTSEC to analyse and evaluate the health, soundness, and potential vulnerabilities of the securities market, as it informs key micro and macro, prudential and financial soundness indicators, for all segments of the securities industry (securities, mutual funds, repos, etc.).