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TerraUSD’s fall shakes confidence in stablecoins – Industry roundup: 12 May

Stablecoin TerraUSD’s de-pegging sparks alarm

Holders of one of the world's biggest stablecoins – TerraUSD, aka UST – are anxiously awaiting news on its future and that of sister cryptocurrency luna after recent trading sessions saw the asset lose its peg to the US dollar and fall sharply.

The de-pegging and drop have sparked alarm across the crypto community; the token is supposed to always trade at US$1 but this week has traded as low as US$0.26. UST’s decline has spurred backers led by Do Kwon – the founder of South Korean firm Terraform Labs, which powers the Terra blockchain -- to issue US$1.5 billion in loans denominated in both UST and Bitcoin to help support the stablecoin.

Known as an algorithmic stablecoin, UST employs a complex system of minting and burning tokens to adjust supply and stabilise prices. Its price has crumbled under the pressure of a recent sell-off in cryptocurrencies recently, resulting in further alarm in the market.

UST was the world’s third biggest stablecoin until its de-peg from the dollar last weekend. It works slightly differently from tether and Circle’s USD Coin, the two biggest stablecoins, which are both backed by liquid assets and relies on its ties to the luna cryptocurrency to maintain its value.

Holders could exchange UST for luna and make a small profit and vice versa when the price moved above $1, with the so-called arbitrage intended to keep UST steady.

The system appears broken down in recent days as cracks have started to show in crypto assets, during a period of heavy selling across the financial markets generally.

Commenting on developments, Marcus Sotiriou, analyst at the UK-based digital asset broker GlobalBlock said: “The impact of this event on the wider market is very significant. Soon we will find out which decentralised finance (DeFi) projects had their treasuries in anchor or UST, hence resulting in prominent protocols going under.

“There is extreme fear across the crypto market, as Bitcoin has bounced off $30k - a key, psychological level. In addition to ongoing macro headwinds, there is now a fundamental risk to the crypto industry as the UST stablecoin has de-pegged from $1. This resulted in extreme panic, as investors feared the Luna Foundation Guard selling their reserves including 80,000 Bitcoin. Data from Glassnode shows that 80,000 Bitcoin has been removed to exchanges, showing that LFG have been selling their Bitcoin in order to raise funds to push the price of UST back up.”

Much now depends on the details of any rescue plan, which Do Kwon said earlier this week was close to being announced, with some analysts warning that both UST and luna are caught in a “death spiral” that could see confidence in the stablecoin evaporate completely.

Bryn Solomon of crypto trading firm Mgnr.io commented: “At this stage, I don't think these firms will have the risk appetite to support it. Algorithmic stables are a confidence game. Once confidence is lost, it’s game over.”

AFP expands to the Middle East and Africa

The US Association for Financial Professionals (AFP) has announced the launch of its newly formed AFP Middle East and Africa (MEA) Treasury Advisory Council. It said the objective of the Council is to provide thought leadership, expertise and advocacy for the treasury and finance community for the Middle East and Africa region.

The AFP, which is headquartered close to Washington DC in Bethesda, Maryland, added: “The Council is composed of corporate treasury professionals and thought leaders who are members of AFP and are interested in advancing the treasury profession within the MEA region.”

Members of the AFP MEA Treasury Advisory Council include:

  • Rania Afifi, Associate Director Treasury, Misr Italia Properties, Egypt
  • Mohammed Saud Al-Eid, Cash Operation Manager, Maaden, Saudi Arabia
  • Gulrez Ali Sayed, Treasurer & Financial Risk Management, Saudi Cargo, Saudi Arabia
  • Ahmad Al Jukka, Treasury Manager, Ras al Khaimah Stat. Gov., UAE
  • Hisham Abouldahab, Group Corporate Treasurer, Almansour Automotive, Egypt
  • Mideva Lumire, Head of Treasury, Unilever Tea Kenya, Kenya
  • Ahmed Makhlouf, CFO, General Motors, Egypt
  • Emad Galal Elmesalami, Group Finance and Treasury Director, Saudi Chemical Company Holding, Saudi Arabia
  • Mina Nasif, Chief Visionary Officer, Beacon FinTrain, Egypt
  • Mohamed Seddeak, Treasury and Corporate Finance Head, Nahdi Medical Co., Saudi Arabia
  • Nihan Yılmazer, Regional Treasury & Finance Manager, TAV Construction, UAE/Turkey

The AFP’s release added: “With a mission to support AFP in its goal to be the key resource and advocate for the treasury profession within the MEA region, the Council functions as the "eyes and ears" between AFP and the MEA treasury community through activities such as sharing topics of interest and challenges that members may be facing and that AFP can support with a variety of resources.”

Jim Kaitz, AFP president and CEO commented: “The AFP MEA Treasury Advisory Council is comprised of incredibly distinguished treasury professionals, who are enthusiastic and passionate about the profession. I’m so excited about what this organisation can do to drive that enthusiasm for treasury, and at some point, finance, throughout the Middle East and Africa region.”

Standard Bank names first black female chair

South Africa’s Standard Bank Group has named Nonkululeko Merina Cheryl Nyembezi-Heita as the bank’s first black female chairperson-designate, effective 1 June.

Reports stated that Nyembezi-Heita will replace Thulani Gcabashe, who is expected to retire later this month. Nyembezi-Heitawas previously the chair of the Johannesburg Stock Exchange (JSE) and served as the CEO of steel firm ArcelorMittal South Africa.

Commenting on the appointment, Standard Bank’s CEO, Sim Tshabalala said: “It is hugely significant to us that the Standard Bank will shortly have its first female chairman and that this chairman is a black African woman.”

Nyembezi-Heita was born in Pietermaritzburg, South Africa and holds a bachelor’s degree in electrical engineering from the University of Manchester Institute of Science and Technology and a master’s degree from the California Institute of Technology. She also spent more than a decade working at IBM in both the US and South Africa and in 2012 was listed at 97 on Forbes magazine’s list of the world’s most powerful women.

Reports of Nyembezi-Heita’s appointment noted that it comes as South Africa’s financial sector is under increased pressure to diversify its ranks, board members, and upper management. The news was received positively as the bank’s shares rose 1.5% after the announcement went public.

As in many other countries, South Africa is attempting to make its corporate offices more diverse. The announcement comes less than a month after Absa Group, South Africa’s third-biggest bank, appointed Arrie Rautenbach, a white man, as CEO. The selection attracted criticism from many quarters, including South Africa’s state-owned Public Investment Corporation, the nation’s biggest and most influential investor.

The appointment is more positive news for Standard Bank, following recent reports that it has charged 67 staff members with alleged gross misconduct and dishonesty after identifying 20,000 retail client accounts that may not have been activated in line with guidelines and procedures.

South Korean watchdog calls for banks to strengthen risk management

South Korea's financial regulator, the Financial Supervisory Service (FSS) has asked the country’s banks to strengthen their pre-emptive risk management in response to the tightening liquidity environment.

At a meeting with bank CEOs earlier this month held in Seoul, Jeong Eun-bo, governor of the financial watchdog, said South Korean banks need to increase their capital cushion to absorb future losses and prepare for a soft landing in phasing out pandemic economic impact credit programs, including government-mandated loan rollovers and forbearance schemes.

In addition, Jeong advised bank CEOs to adopt a cautious stance on dividend pay-outs and share buybacks and instead focus on loss provisioning, according to local press reports.

The regulator enforced window guidance in 2021 to rein in South Korean banks’ hefty dividend payments. The watchdog will not likely reinstate formal window guidance for that purpose again in 2022, the reports added.

Attendees at the meeting included Woori Bank’s CEO Lee Won-duk, who has apologized over the recent embezzlement of 61.4 billion won (US$48.4 million) by a bank employee, adding that the bank will do its best to win back customer trust.

“The bank will take every possible measure to cooperate with the authorities in its investigation to get to the bottom of the embezzlement case,” Lee told reporters.

The case was referenced by the FSS chief during the session as he called on banks to take necessary measures to examine their respective internal controls issues so as to prevent similar incidents. “The recent financial incident (that took place at Woori Bank) is a serious matter that harms consumer trust in regard to the banking industry,” said Jeong.

“After thoroughly investigating the case at the bank, the FSS plans for strict punitive measures against those who are responsible and seek institutional improvements in order to modify any problems within the bank’s internal control systems.”

Bank of Israel says public supports digital shekel

The Bank of Israel has still to decide whether to proceed with the issue of a central bank digital currency (CBDC) but says that public feedback on the concept of a digital shekel is mainly positive.

According to a Reuters report the Bank summarised the results of the public consultation on its CBDC plans. It received 33 responses from different sectors, half of them coming from abroad and 17 from the domestic fintech community.

The central bank first reviewed the concept of a digital shekel in late 2017 and a year later the research team recommended a temporary halt to the project, and it remained in hiatus until revived by the Bank of Israel in May 2021. Last November, the Bank said that research would be accelerated and in March this year it confirmed that it didn’t believe that the possible launch of a digital shekel posed any threat of “erosion” to the national banking system.

Stressing that any final decision on whether the project should proceed further is yet to be made, the Bank announced: “All of the responses to the public consultation indicate support for continued research regarding the various implications on the payments market, financial and monetary stability, legal and technological issues, and more.”

The consultation found that the public believes a digital shekel would encourage competition in the payments market, but the issue of privacy re-emerged as controversial. The Bank of Israel noted that some commentators prefer the future currency to be fully anonymous while others insist that the fight against money laundering and the black-market renders anonymity impractical. The Bank intends to continue the research and a “fruitful dialogue with all interested parties at all stages of research and development.”

Interviewed by the crypto news website Cointelegraph about the attitudes toward the digital shekel among the domestic crypto community, Elad Mor, head of international blockchain PR firm MarketAcross, which is headquartered in Israel, said: “It feels like most digital shekel CBDC supporters are painting the topic as a broad-strokes adoption narrative. In other words, any crypto adoption is still adoption even if it doesn’t adhere to crypto’s core values like decentralisation and anti-institutionalism.”

Mor added that not everyone in Israel’s digital finance sector shared the same vision, although he personally believes that “bringing crypto to the masses has to start with institutional and governmental involvement to some extent.”

In other CBDC news, an update from Chile states that the Central Bank of Chile has now delayed its plans for a CBDC saying that the issuance of a digital Chilean peso requires a deeper analysis of the benefits and risks, and promising a further report toward the end of the year.

Thailand plans further relaxation of forex rules

Thailand’s central bank has confirmed that it plans to further relax foreign exchange (FX) rules, seeking to help companies more efficiently hedge and manage risks.

Bank of Thailand assistant governor Alisara Mahasandana told a virtual briefing that the measures would come into effect from Friday 13 May and “make overseas transactions easier while simplifying hedging for businesses so there can be more efficient risk management.

Further measures would be introduced over the next few years, she added. “We will focus on non-banks by expanding the scope of non-bank FX services and adjusting guidelines for more flexible FX transactions,” she said, noting this would help lower costs.

She said on average such transactions account for 7% of expenses, which is higher than the average in the region.

Separately, the Bank of Thailand reported that the movement of the baht (THB) has had limited impact on inflation and the economy, after the currency reached its weakest level for five years against the US dollar.

“The Bank of Thailand is closely monitoring the situation and is ready to take care of the baht if necessary,” Alisara Mahasandana said.

Banking Circle partners with Gresham

Banking Circle, the London and Luxembourg based digital B2B payments and banking services provider has adopted fintech Gresham Technologies’ control solution for cash reconciliation.

A release announcing the deal stated: “A global market leader in mission-critical cloud-based software and managed service solutions for financial services, Gresham enables the growing bank to scale more quickly, easily and affordably by facilitating the reconciliation of millions of customer transactions per week.”

It added that in its 2021 European market infrastructure regulation (EMIR) and Securities Financing Transactions Regulation (SFTR) data quality report, the European Securities and Markets (ESMA) had acknowledged improvements, it also stated specifically that “data reconciliation will require more efforts by reporting entities,” with persistent and prevalent reconciliation, data quality, and reporting problems still present throughout the financial services industry amid increased market volatility and volume shifts.

The release continued: “By operating as a cloud-based managed service, Gresham’s Control solution allows Banking Circle to outsource non-core business functions, including end-to-end management of Gresham’s Clareti platform, and focus on higher-level, value-add tasks.

“The elimination of costly manual processes, human error and infrastructure management has led to a more streamlined experience for customers and more scalable and resilient operations for the bank. This partnership is part of a wider shared mission of the two industry leaders, both of whom are part of the Luxembourg House of Financial Technology (LHoFT), to improve market confidence and facilitate FinTech innovation.”

Alex Panican, LHoFT’s Head of Partnerships & Ecosystem commented: “We’re excited to see two FinTech champions coming together to push the folds of what efficient cross-border payments can look like. With Luxembourg’s growing status as a FinTech hub, there’s no better time or place to be investing in innovation.”

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