Hello Fintech Friends,

Welcome to another week of fintech policy updates. In the following lines, we will unravel the most noteworthy developments from the past week, spanning across crypto regulation, central bank digital currencies (CBDCs), payments, and fintech, both in the U.S. and internationally. We will also discuss an important update related to the Consumer Finance Protection Bureau (CFPB).

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 1. Crypto Regulation

Amidst a heated debate in Washington about the role of crypto in funding militant organizations, U.S. Rep. Sean Casten (D-IL) revealed last week that he will introduce a bill mirroring the one championed by Sen. Elizabeth Warren (D-MA) in the Senate. The bill Casten referred to is probably the one Warren introduced in July, which seeks to curb the use of crypto for money laundering and sanctions evasion and extends the requirements of the Bank Secrecy Act into the realm of digital assets.

In the Senate, Sens. Thom Tillis (R-NC) and John Hickenlooper (D-CO) jointly introduced a bipartisan bill focused on establishing safeguards against potential collapses of digital currency exchanges. Among its provisions, the bill prohibits the commingling of customer funds and mandates the monthly submission of a proof-of-reserves report prepared by a neutral, third-party auditing firm. The bill joins a roster of several others in Congress that are not expected to pass any time soon because of the present partisan divide over crypto. Also, it is not clear if the bill offers any new regulatory frameworks beyond those already present in existing bills.

Shifting focus to the Internal Revenue Service (IRS), the agency extended the deadline for public comments on its proposed crypto tax rules by two weeks, citing a “strong public interest” in the matter. Unveiled by the IRS in August, these proposed rules impose reporting obligations on crypto brokers, a category that encompasses trading platforms, digital asset payment processors, specific digital asset hosted wallet providers, and entities that regularly offer to redeem digital assets they created or issued but excludes crypto miners.

Internationally, lawmakers in the U.K. passed the Economic Crime and Corporate Transparency Bill. This legislation empowers law enforcement authorities to seize cryptocurrency linked to criminal activities, even in the absence of a conviction. The bill is slated to come into effect this week.

2. CBDCs

In his final speech as Deputy Governor for Financial Stability, Jon Cunliffe revealed that the Bank of England's digital pound consultation received an impressive response, with over 50,000 submissions. Among the predominant concerns voiced were those pertaining to privacy, programmability, and the potential decline of physical cash. Cunliffe also noted that the Bank will release a comprehensive paper on stablecoins soon. The paper will probably propose significant restrictions on stablecoin issuers, particularly in regard to the entities authorized to issue these assets.

3. Payments

Last Wednesday, the Federal Reserve (Fed) proposed a substantial 30% reduction in debit card swipe fees, from 21 cents plus 0.05% of the transaction value to 14.40 cents plus 0.04%. Additionally, the Fed introduced a proposal for a biannual adjustment, indicating the possibility of further reductions in the future. The proposed rules are now available for public comment for a 90-day period.

For those interested in learning about the potential systemic risk of a hypothetical cyber-attack on a significant payments system, a recent study published by Lloyd’s in collaboration with the Cambridge Centre for Risk Studies offers invaluable insights. The study quantifies the projected average losses over a five-year period across three distinct scenarios – major, severe, and extreme. The estimated losses range from $2.2T in the less severe case to a staggering $16T in the extreme scenario.

4. Fintech

In a significant move to address systemic inequalities in access to credit in minority neighborhoods, the Office of the Comptroller of the Currency, along with the Fed and the Federal Deposit Insurance Corporation, announced a new rule on Tuesday to modernize the Community Reinvestment Act (CRA) of 1977. The CRA rates banks based on their provision of financial services to low- and moderate-income communities. The need for these updates emanates from the challenges posed by the proliferation of online banking and mobile transactions, which have empowered banks to operate virtually anywhere, breaking free from the confines of physical branch locations. Under the new rules, banks will be evaluated on their lending activities in the locations where they make large volumes of loans, rather than looking solely at where their branches are located. The final rule is set to take effect on April 1, 2024, while most of its provisions will become applicable on January 1, 2026.

In other news, the Federal Trade Commission (FTC) unanimously approved an amendment to the Safeguards Rule. This revision mandates that non-banking financial entities, including mortgage brokers, motor vehicle dealers, and payday lenders, promptly report any data security breaches impacting the data of 500 or more individuals within a 30-day window of discovery directly to the FTC. The new requirement will become effective 180 days after the publication of the rule in the Federal Register.

5. CFPB

On October 18, the Senate overturned a CFPB rule, which requires lenders to report demographic data concerning the recipients of their small business loans. Senators in favor of invalidating the rule argued that it might lead to intrusion and regulatory overreach, while the proponents of the rule emphasized that collecting such lending data would promote transparency and contribute to equitable access to credit. The White House issued a veto threat against the bill, and as of now, the House is yet to cast its vote on the CFPB rule.

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See you next week!