Hello Fintech Friends,

Welcome to another week of fintech policy updates! In this edition, we bring you a curated roundup of the past week’s most pivotal developments in crypto regulation, enforcement actions, central bank digital currencies (CBDCs), decentralized autonomous organizations (DAOs), and open banking.

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1. Crypto Regulation

On December 27, Representative Phil Christofanelli of the Missouri State House took a pioneering step by introducing the Blockchain Basics Act. This legislation is designed to secure the rights of Missouri citizens to self-custody, transact, mine, and stake crypto-assets, while also abolishing state capital gains taxes for transactions under $200. Notably, the proposed bill bears great resemblance to the Keep Your Coins Act, which was introduced in the U.S. Congress last year but never passed. Today, news surfaced that a similar act bearing the same name has been introduced in Nebraska by Sen. Eliot Bolstar. The regulation of crypto at the state level might become a trend that will gain momentum in 2024, possibly in response to the congressional impasse on crypto due to partisan differences.

In the UK, starting today, major cryptocurrency exchanges, including Coinbase, Crypto.com, and Gemini, will require their users to respond to a questionnaire pertaining to financial services and regulations and complete a declaration regarding their investor profile. This declaration includes the identification of users as either high-net-worth individuals or restricted investors. The new measures are implemented in compliance with the Financial Services and Markets Act in the UK, which extends the regulatory treatment of traditional financial services to cryptocurrencies and stablecoins. Additionally, the new regulation mandates crypto companies to inform users about the risks associated with trading cryptocurrencies and to responsibly advertise their services.

2. Enforcement

Regulators are expanding their enforcement actions in the fintech space beyond crypto companies to include non-crypto fintech firms, exemplified by the recent case against financial app company FloatMe Corp. The Federal Trade Commission (FTC) filed a lawsuit accusing FloatMe of engaging in deceptive practices, such as charging users without consent and providing unclear eligibility standards for its cash advances. The FTC seeks $3M in damages and a permanent injunction against future violations by FloatMe. The app, which promises users cash advances of up to $50 with a $3.99 monthly membership fee, is alleged to limit the initial amount customers can receive to $20 or less, according to the FTC's suit.

3. CBDCs

The European Central Bank (ECB)'s Rulebook Development Group (RDG) has achieved a significant milestone by drafting the first chapters of the digital euro rulebook. Intended to be a comprehensive documentation of the future digital euro, the rulebook encompasses various aspects, including the functionality of use cases and services, high-level architecture, and standards. It also delineates the rights and obligations of participants in the digital euro plan. The RDG is open to feedback and anticipates making revisions based on received input and the progress of the digital euro legislative process. In tandem with this effort, the ECB has issued calls for applications, seeking framework agreements with potential providers for five components related to the digital euro: alias lookup, fraud and risk management, app and software development kit (SDK), offline services, and the secure exchange of payment information.

Meanwhile, opposition to CBDCs is gaining momentum in the U.S., particularly among Republican lawmakers. Currently, 75 U.S. lawmakers are backing the CBDC Anti-Surveillance State Act, a bill introduced by Congressman Tom Emmer (R-MN) in January 2022. The proposed legislation aims to restrict the Federal Reserve and the Federal Open Market Committee from utilizing any CBDC for implementing monetary policy. Furthermore, the bill prohibits a Federal Reserve bank from providing products or services directly to individuals, maintaining accounts on their behalf, or issuing CBDCs directly to individuals.

4. DAOs

In response to regulatory inquiries, Mango Market's DAO is allocating a budget of $250,000 in USD Coin (USDC) and hiring a third party to represent it in upcoming inquiries by U.S. regulators. The decision showcases the complexities of DAO governance, particularly the challenges DAOs face to secure legal representation in a regulatory landscape predominantly designed for centralized organizations. The challenges raise important questions about the effectiveness and long-term viability of the legal strategies employed by DAOs.

5. Open Banking

The proposed rule on open banking by the Consumer Financial Protection Bureau (CFPB) has faced criticism from the banking industry. Last week, the Clearing House Association and the Bank Policy Institute submitted recommendations to the CFPB in which they expressed concerns that the proposed rule inadequately safeguards consumer financial data and falls short in mandating that data recipients adhere to these regulations. While acknowledging the positive aspects of increased competition through fintechs’ access to consumer information, the recommendations emphasized the need for the rule to extend requirements for consumer authorization and permissible uses of data to all third parties and data aggregators. Additionally, the recommendations call for an explicit prohibition of screen scraping practices (i.e., the practice of collecting data from an application and webpages through scraping screens) once a data provider offers a developer interface.

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See you next week!