Hello Fintech Friends,

Welcome to another week of fintech policy updates. In this edition, our spotlight extends to the most significant updates from the past week in the dynamic world of crypto regulation, enforcement, central bank digital currencies (CBDCs), artificial intelligence (AI), and payments.

As always, if you are not yet subscribed to the Policy Edition of This Week in Fintech, make sure to subscribe below! Additionally, if you are interested in contributing to the Policy Edition as a guest writer to cover ongoing events or dive deep into fintech policy issues, please feel free to reach out to me on Twitter or LinkedIn.

 1. Crypto Regulation

Last week, Sens. Cynthia Lummis (R-WY) and Bill Hagerty (R-TN) introduced a new crypto bill. Titled the Preventing Illicit Finance Through Partnership Act of 2024, this bill aims to enhance collaboration between federal agencies and private companies to counter illicit financial activities. However, like all previous crypto regulatory proposals, doubts persist regarding this bill's likelihood of passing into law.

At the state level, we are seeing more and more crypto regulation proposals being made due to federal political impasse—a trend we highlighted earlier this month. On January 9, a new crypto bill mirroring proposals recently introduced in Missouri and Nebraska was presented in the Senate of the State of Virginia. In parallel, a similar bill was introduced in Indiana. Both pieces of legislation share common objectives, including safeguarding crypto miners from discriminatory practices, ensuring the right to self-custody, and absolving miners and stakers from Money Transmitting Licenses.

In other crypto regulation news, the U.S. Securities and Exchange Commission (SEC) has extended the decision deadline on Fidelity's proposal for a spot Ethereum exchange-traded fund (ETF) until March 5. Meanwhile, the Department of the Treasury and the Internal Revenue Service (IRS) announced that businesses that engage in transactions involving digital assets worth more than $10,000, which should be reported under the Infrastructure Investment and Jobs Act, will not be required to report until the necessary regulations are issued by the Treasury and the IRS.

Internationally, Canada has updated its investment fund requirements for cryptocurrencies; the European Banking Authority has issued new guidance to crypto-asset service providers on the effective management of their exposure to money laundering and terrorist financing risks; and Thailand's Securities and Exchange Commission has revised its criteria for retail investing in crypto, removing certain restrictions and introducing new ones.

2. Enforcement

Stablecoins are taking some heat because of a notable increase in their use in illicit finance. A recent report from blockchain analysis company Chainalysis revealed that stablecoins have replaced bitcoin as the primary facilitator of illicit transactions in crypto, accounting for almost 70% of scams last year. The United Nations echoed similar concerns related to stablecoins in a recent report. The report singled out USDT, the largest stablecoin globally by market cap, as a notable payment method for money laundering and scams in East and Southeast Asia.

In non-crypto-related enforcement news, the popular crypto and stock trading app Robinhood has reached an agreement with the securities regulator of Massachusetts to resolve an enforcement action initiated in 2020. The initial complaint alleged that Robinhood had portrayed its platform as a game, enticing consumers with the prospect of winning. As part of the settlement terms, Robinhood has agreed to pay a penalty amounting to $7.5M and completely revise its digital engagement practices, particularly those targeting inexperienced investors.

3. CBDCs

Former U.S. President Donald Trump, during a campaign speech in New Hampshire, asserted that if elected, he would not permit the introduction of a U.S. CBDC. Notably, last year, Florida's Governor Ron DeSantis, the top contender for the 2024 Republican nomination before withdrawing from the race, approved a first-in-the-nation law that explicitly prohibits the utilization of a federally adopted CBDC within the state.

4. AI

In a notable development last week, SEC Chairman Gary Gensler provided further insights into his repeated warnings about the risks AI poses to the financial system. Gensler emphasized the potential fragility stemming from centralized AI, which could materialize if the industry heavily relies on a limited set of AI models. According to Gensler, such reliance could lead to the formation of a "monoculture" within the financial sector, amplifying the errors or mistakes made by AI models. The solution, according to him, is the diversification of AI models used by financial actors.  

5. Payments  

The Supreme Court has declined to entertain Apple's appeal in its ongoing legal dispute with Epic Games, which means that the appellate court's 2023 decision, which Apple sought to challenge, will stand. The appellate court, while determining that Apple did not violate federal antitrust laws, did find the tech giant in breach of California's Unfair Competition Law. Specifically, Apple's restriction on developers informing users about alternative and potentially more cost-effective out-of-app payment methods was deemed problematic. In response, the appellate court mandated Apple to allow developers to provide customers with information about less expensive payment alternatives. 

Also, in relation to Apple and payments, the European Commission (EC) has called for feedback on the measures proposed by Apple to address the competition concerns raised by the EC. These concerns primarily revolve around the restrictions Apple imposes on access to contactless payments on iOS devices, limiting such access to Apple Pay. In response, Apple has pledged to permit third-party mobile wallet and payment service providers to freely utilize the near-field communication functionality on iOS devices through application programming interfaces (APIs), independently of Apple Pay or Apple Wallet. These proposed commitments are specific to Europe, set to be effective for a decade, and will undergo monitoring by an assigned trustee reporting directly to the EC.

Join me in conversation on Twitter or LinkedIn or leave a comment below.

See you next week!