This week, the European Securities and Markets Authority (ESMA) took a major step toward centralised supervision of Europe's financial markets, while China extended state oversight to almost all outbound investment. In the United States, regulators stripped reputational risk from the supervisory framework, removing a tool used for years to pressure banks over their client relationships. Read more on the week's key developments: 1. Fed, OCC and FDIC strip reputational risk from 15 interagency supervisory documents The Federal Reserve, Office of the Comptroller of the Currency (OCC) and Federal Deposit Insurance Corporation (FDIC) jointly reissued 15 interagency supervisory guidance documents on 2 June with all references to reputational risk removed, covering guidance spanning 1997 to 2024 across lending, risk management and cybersecurity. The action follows the OCC and FDIC's April final rule codifying the elimination of reputational risk from their supervisory programmes, effective 9 June, and Executive Order 14331. The Federal Reserve has a parallel proposal outstanding. Following the change, examiners can no longer issue supervisory findings on the basis that a client relationship creates reputational concern without identifying a specific financial, legal or operational risk. Banks serving crypto firms, firearms dealers, politically sensitive industries or other lawful but previously disfavoured sectors now have a cleaner supervisory basis for maintaining those relationships. 2. E6 finance ministers back centralised ESMA supervision The finance ministers of Germany, France, Italy, Poland, Spain and the Netherlands agreed on 29 May to support the European Commission's proposal to transfer supervision of significant market infrastructure, including central counterparties (CPP) and central securities depositories (CSD), to the ESMA in Paris. The six economies represent approximately 70% of the EU population, sufficient for the qualified majority needed for Council adoption. Germany's agreement is the pivotal shift, having previously resisted ceding national supervisory powers. Supervision of CPP and CSD under ESMA removes the fragmented national oversight that has complicated cross-border clearing and settlement within the EU. The commission's December 2025 savings and investments union package, which frames the shift as a means to redirect European household deposits toward capital markets, directly affects how banks compete for retail and institutional flows. The Economic and Financial Affairs Council (ECOFIN) meets in Luxembourg on 12 June as the next formal decision point. 3. UK Payments Initiative launches open banking scheme for commercial variable recurring payments The UK Payments Initiative, a scheme backed by 31 founding firms including all major retail banks in the United Kingdom (UK), launched on 2 June, and the Financial Conduct Authority (FCA) published its supporting statement on 3 June. The scheme enables commercial variable recurring payments (VRP), including account-to-account transactions that allow consumers to authorise recurring payments of varying amounts directly from their bank accounts without card credentials or direct debit mandates. Initial use cases cover utilities, financial services, government payments and charities. The launch marks the first live commercial VRP infrastructure in the UK and positions open banking payments as a direct competitor to card-on-file and direct debit for recurring revenue models. Banks that are founding members gain early influence over scheme rules and commercial terms. The FCA simultaneously published a regulatory roadmap for open finance and committed to consulting on a long-term open banking framework by the end of 2026, subject to new legislative powers. 4. Basel Committee flags change management failures as top cause of ICT incidents at global banks Change control gaps were the most frequently cited root cause of non-malicious information and communications technology (ICT) incidents at banks. These were reported by eight of the 12 jurisdictions that contributed incident data to a Basel Committee on Banking Supervision range-of-practices report published on 2 June. The survey covered global and domestic systemically important banks across 16 jurisdictions, with incident data spanning 2022 to 2024. Design and testing failures ranked second, as testing environments often failed to replicate production conditions closely enough to identify defects before deployment. The report reinforces that supervisory scrutiny should fall not only on cybersecurity alone but also on internal change governance. Supervisors in all 16 jurisdictions now share a common taxonomy for assessing ICT risk maturity, raising the bar for what constitutes adequate change management practice. The committee separately noted that artificial intelligence (AI) tools are entering ICT risk functions without settled accountability frameworks, a tension it will continue to monitor. 5. Indonesia expands central bank growth mandate as rupiah falls to record low against US dollar Indonesia's rupiah traded at 17,930 per US dollar on 4 June, down 7.2% year-to-date and among the weakest major emerging-market currencies, breaching the 18,000 level that evokes the 1997–1998 Asian Financial Crisis. As this developed, parliament passed legislation expanding the mandate of Bank Indonesia (BI) to include real-sector growth and job creation alongside price and exchange-rate stability. The new law grants parliament new powers to issue binding recommendations to the central bank and alters the mechanism for removing board members. The mandate expansion raises questions about BI's capacity to prioritise exchange-rate and price stability over growth when the two conflict. A separate regulation effective 1 June requiring non-oil-and-gas exporters to repatriate all earnings to state-owned banks for a minimum of 12 months compounds foreign exchange and liquidity planning for corporate clients, signalling capital control instincts that foreign investors typically treat as an early warning. Private-sector groups have filed formal objections to the repatriation requirement. 6. RBI holds at 5.25% as government removes tax on government securities for foreign institutional investors The Reserve Bank of India's Monetary Policy Committee held the repo rate at 5.25% at its June meeting, the third consecutive hold, citing the balance between conflict-driven inflation and growth, with downside risks to the FY27 projection. Unable to cut rates without adding pressure to the rupee, the government moved on the same day through a separate channel: a government ordinance took effect exempting foreign institutional investors from tax on both interest income and capital gains on government securities, backdated to 1 April. The RBI simultaneously expanded the Fully Accessible Route to new long-dated government securities, removed foreign investor concentration limits, extended Foreign Currency Non-Resident (Bank) hedging support and restored the export-proceeds realisation period to nine months. The combined measures directly expand the addressable investor base for banks with government securities and foreign-investor custody franchises. Kotak Securities assessed the package as the most comprehensive dollar-mobilisation effort since 2013. 7. China publishes outbound investment regulation effective 1 July China's State Council published National Order No. 837, the Regulations on Outbound Investment, on 1 June, effective 1 July and signed by Premier Li Qiang. The regulation establishes full-process supervision of outbound investment from initial approval through disposal. Three categories are expressly regulated for the first time in a single instrument: offshore restructurings, including third-jurisdiction structures; technology and data transfers executed through licensing or personnel deployment rather than equity; and disposals of existing overseas assets. Every deal structure involving a third-jurisdiction holding entity, a technology licence or an asset disposal now requires regulatory clearance not previously codified. Transaction timelines will lengthen, and due diligence scope will expand across China-outbound mergers and acquisitions, structured finance and cross-border advisory pipelines. Banks with active China-outbound practices will need to reassess existing mandates against the new framework before the 1 July effective date. 8. HKMA tightens mainland investment-account controls The Hong Kong Monetary Authority (HKMA) issued a circular to licensed banks in the week of 1 June requiring additional controls on investment accounts held by mainland Chinese investors, including verification of account-opening documents, closure of zero-balance accounts inactive for 12 months, and a written declaration that funds originate from lawful sources outside mainland China. The circular followed a China Securities Regulatory Commission announcement on 22 May that it would confiscate illegal gains and impose penalties on several Hong Kong-based brokerages for unlicensed cross-border securities operations in mainland China. The circular triggers immediate operational requirements across Hong Kong's retail and wealth sector: document verification across existing account bases, account closure processes for inactive accounts and client communication programmes for the declaration requirement. Institutions that delayed account documentation hygiene now face accelerated remediation. The compliance cost falls disproportionately on smaller institutions with higher concentrations of mainland retail clients. 9. HKMA establishes Tokenised Bond Expert Group; Citi projects $5.5 trillion market The HKMA announced on 5 June the establishment of a Tokenised Bond Expert Group, bringing together 21 member institutions, including JPMorgan Securities, HSBC, Standard Chartered Bank, UBS, Ant Digital Technologies and HashKey Group, to develop policy and market practices for scaling tokenised bond issuance, building on its programme since 2021. The Citi Institute's report, published on 1 June and titled Tokenization 2030: Wall Street On-Chain, projects the tokenised asset market growing from approximately $17 billion today to $5.5 trillion by 2030 in its base case, led by US equities and Treasuries rather than private assets. Membership of the expert group confers early influence over the standards that will govern custody, settlement and distribution of tokenised bonds across the region, with Hong Kong positioning itself as the primary Asian jurisdiction for tokenised fixed-income issuance. The Depository Trust and Clearing Corporation (DTCC) has confirmed initial production trades of tokenised real-world assets are targeted for July 2026, with a full-service launch in October, accelerating the timeline for banks to develop operational readiness across custody, settlement and distribution. 10. Santander and G42 sign AI cooperation memorandum Banco Santander and Abu Dhabi-based technology group G42 signed a memorandum of understanding on 3 June covering AI-enabled advisory and savings tools and a banking intelligence layer across Santander's global operations. G42 subsidiaries Inception and Presight will contribute an agentic AI platform and applied-AI capabilities, respectively. Santander's chief data and AI officer Ricardo Martín Manjón described the arrangement as intended to be "foundational to the future of banking, not a feature layered on top of it." Rather than building AI capability in-house or through point vendor contracts, Santander is sourcing an agentic platform from a sovereign-backed technology group under a governance framework that spans multiple workstreams and geographies. That model, a partnership with a state-linked specialist rather than a hyperscaler, is distinct from the approaches taken by JPMorgan, which built internally, and Morgan Stanley, which partnered with OpenAI. What to watch: ECOFIN, Luxembourg, 12 June; ECB Governing Council rate decision, 11 June; Bank of Japan rate decision, 15–16 June; Federal Open Market Committee rate decision, 16–17 June: the first meeting under Federal Reserve chair Kevin Warsh. The Asian Banker Weekly Brief is a roundup of the biggest macroeconomic, industry and regulatory developments affecting banking globally.
