Hello Fintech Friends,

Welcome to another week of fintech policy updates. This week, we explore the latest happenings in the realms of crypto regulation, enforcement, stablecoins, and payments. Join us as we shed light on these exciting developments that unfolded in the past week.

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 1. Crypto Regulation

The past week saw important legislative initiatives related to digital assets on the Hill. Sen. Ted Budd (R-NC) introduced a new bill named Keep Your Coins Act. The bill aims to safeguard individuals’ right to self-custody of digital assets, explicitly prohibiting federal agencies from imposing restrictions on the use of these assets for the purchase of goods or services. Budd’s proposal echoes a similar bill Rep. Warren Davidson (R-OH) introduced earlier this year in the House, also named the “Keep Your Coins Act of 2023.”  However, like all outstanding crypto bills, Davidson's proposal faced a partisan impasse, preventing its approval in the House.

In addition, lawmakers introduced two other crypto-related bills focusing on China. In the Senate, Sen. Rick Scott (R-FL) put forward the Chinese CBDC Prohibition Act, a bill aimed to bar U.S. entities, including post offices, money-transfer firms, peer-to-peer crowdfunding platforms, and all money services businesses, from facilitating transactions involving China's digital yuan. The main motivation behind the bill is to restrict Chinese access to American financial data, particularly given the escalating tensions between the two countries. In parallel, Reps. Zach Nunn (R-IA) and Abigail Spanberger (D-VA) introduced the Creating Legal Accountability for Rogue Innovators and Technology (CLARITY) Act in the House. The CLARITY Act prohibits government officials from transacting with crypto companies from China or other foreign adversaries and utilizing blockchains developed by these nations. Among the entities listed are iFinex, the parent company of USDT issuer Tether, and Red Date Technology Co., the architect behind China's national blockchain project and its CBDC.

In the EU, the European Parliament approved the European Data Act, a legislative framework that introduces a controversial "kill switch" provision. This provision makes it possible to halt the execution of smart contracts in emergency situations, introducing a layer of flexibility but simultaneously undermining the finality of smart contracts. The Act will need to be approved by the European Council, consisting of the heads of state from the 27 member nations, before it can be enacted into law.

Shifting focus globally, 47 national governments have collectively committed to implementing information exchange agreements by 2027 under the Crypto-Asset Reporting Framework (CARF). Crafted by the Organisation for Economic Cooperation and Development (OECD) in 2022, this framework outlines a mechanism for the automatic exchange of information between tax authorities in signatory countries. Notable absences from this commitment include major players such as China, Russia, the United Arab Emirates, and Turkey.

2. Enforcement

Last week marked a pivotal development in the ongoing Chapter 11 proceedings involving Celsius Network as the bankruptcy court approved a plan signaling the conclusion of the bankruptcy case. Per the approved plan, the company is set to return a substantial portion of the remaining cryptocurrency to its customers, and the reins of Celsius's crypto mining and staking activities will be taken over by a new entity.

In other news, the Commodity Futures Trading Commission (CFTC) released its annual enforcement report, revealing a noteworthy surge in crypto-related cases. This year, such cases constituted 49% of the CFTC's workload, a significant increase from the previous year's 20%. This new data challenges the assumption within the crypto industry that the CFTC is inherently friendly towards the sector.

3. Stablecoins

The European Banking Authority (EBA) has put forth a proposal outlining minimum capital and liquidity requirements for stablecoin issuers, set to come into effect in June 2024. According to the proposal, issuers of stablecoins backed by a currency must be capable of providing full redemptions at par to investors. Conversely, those backed by an asset, such as gold, are obligated to offer redemptions at the prevailing market price for the asset during redemption. These proposals are currently open for public consultation for a period of three months, with a public hearing scheduled for January 17, 2024.

Simultaneously, reports from both the Bank of International Settlements (BIS) and Moody’s Analytics underscored the challenges facing the mass adoption of stablecoins as a means of payment. The BIS report indicated that, despite a decade of trading history, no stablecoin, including all major ones, has consistently maintained its peg. In the same vein, Moody’s report revealed that large-cap fiat-backed stablecoins have so far experienced 609 instances of depegging in 2023.

4. Payments

On November 7, the Consumer Financial Protection Bureau (CFPB) announced proposed rulemaking designed to extend the supervisory framework, currently applicable to banks and credit unions, to digitally-native firms processing over 5 million transactions annually. If implemented, these rules would encompass major tech companies like PayPal, Meta, Amazon, and Google. The proposed regulatory framework grants the CFPB the authority to scrutinize privacy safeguards, executive behavior, and adherence to regulations preventing unfair and deceptive practices by these tech companies. Approximately 17 companies, collectively responsible for more than 13 billion payments each year, would fall under the purview of these proposed rules if implemented.

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See you next week!