Hello Fintech Friends,

Thank you to those who shared their thoughts on our TWIF surveys and the new TWIF Slack channel, TWIF finnovation! By the way, TWIF finnovation is open to everyone, so make sure to join if would like to closely engage with the TWIF team and community. By popular demand, moving forward, we will be covering new ground in the Policy Edition—stay tuned!

Debates are intensifying around proposed rules that promote competition between banks and fintechs. Experts are considering how emerging markets may use central bank digital currencies (CBDCs) to challenge the dominance of the U.S. dollar. And various U.S. regulators have been adopting stricter stances toward crypto.

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1. The CFPB

Last week brought heated debates around new rules proposed by the Consumer Financial Protection Bureau (CFPB) that would require banks to share their customer data with fintech companies with a view to furthering competition in financial services. On Wednesday, bank groups asked the CFPB to clarify some “critical” points around liability in case the shared data is misused. A version of the proposed rules was published earlier this year.

In other news, the CFPB is soliciting public input on the consumer credit card market as part of its biennial review of the industry, which informs its future rulemaking in the area. Last week, the CFPB also published a report showing that the COVID-19 pandemic has actually been helpful for consumers with the worst credit scores. According to the report, “deep subprime and subprime tiers experienced the biggest upward shift, though individuals in higher credit score tiers were also more likely to move up at least one tier than they were before the pandemic.” In your opinion, to what extent should the exceptional government measures that caused such positive outcomes become permanent?

2. Payments

A new opinion piece in the Financial Times suggests that the acceleration of CBDC experimentation around the world is encouraging some countries in the global east and south to consider building a parallel international monetary order away from the present one dominated by the dollar. The idea is to create a “CBDC-based network — enforced with bilateral currency swap lines — [that] could enable central banks in the global east and south to serve as foreign exchange dealers to intermediate currency flows between local banking systems, all without referencing the dollar or touching the western banking system.”

3. Crypto Regulation

Last week, the Federal Reserve (Fed) was active on the crypto front. On January 27, it issued a new policy statement that prohibits state banks, whether they have deposit insurance or not, from engaging in activities not permitted by national banks, primarily the custody of crypto assets, unless authorized by a state legislation. As per the statement, the goal is to limit regulatory arbitrage (i.e., relocating activities to jurisdictions with more permissible regulations) between state and national banks. The Fed also warned that issuing stablecoins by banks is “highly likely to be inconsistent with safe and sound banking practices.” On the same day, the Fed finally responded to the 2020 neobank Custodia’s application for a master account, which would have enabled Custodia to have access to the Fed’s liquidity. The Fed rejected the application, citing its long-established position that crypto is inconsistent with safe and sound banking.

Other regulators and policymakers have also been active. The Internal Revenue Service published guidelines on how to report income from digital assets. The White House weighed in on crypto as well. Four top officials in the administration said in an official statement that allowing mainstream institutions to have deep ties with crypto “would be a grave mistake,” adding that the administration would be sharing “priorities for digital assets research development…[in]…the coming months.” On the Hill, Senators Elizabeth Warren (D-MA) and Ron Wyden (D- OR) pressured the U.S. audit regulator to probe the activities of accounting firms working in the crypto sector in a letter sent to the Chair of the Public Company Accounting Oversight Board. Meanwhile, the new Chair of the House subcommittee on digital assets said that the stablecoin legislation will be a top priority for his subcommittee.

4. The SEC

The week was also eventful for the Securities and Exchange Commission (SEC). Last week, the SEC denied a request to create a Bitcoin ETF called Ark 21Shares Bitcoin ETF for the second time, citing reasons in line with its reasons for not authorizing Grayscale’s Bitcoin ETF last year. The SEC is also inquiring into whether registered investment advisers are abiding by the rules around custody of client crypto assets.

5. Blockchain Technology Application

On January 19, two bills were introduced to the Massachusetts House of Representatives. The first, which is pioneering, is titled “An Act establishing a special commission on blockchain and cryptocurrency” and is meant to explore, among other things, “[t]he feasibility, validity, admissibility, and risks related to using blockchain technology for government usage within Massachusetts.” The second is titled “An Act protecting consumers in cryptocurrency exchanges.”

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See you next week!