Hello Fintech Friends,

Welcome to another week of fintech policy updates. In this edition, we delve into the main updates from last week, covering significant developments in crypto regulation, artificial intelligence (AI), blockchain technology, and open banking. We also cover the major enforcement action taken in the U.S. against Binance, the largest crypto exchange in the world. The aftermath of this action has been nothing short of dramatic, with Binance's CEO forced to step down in a surprising move not only to the crypto world but also to the broader financial sector.

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1. Crypto Regulation

In a bid to enhance the effectiveness of anti-money laundering (AML) and combat the financing of terrorism (CFT) measures within the cryptocurrency realm, the European Banking Authority (EBA) has issued new guidelines. These guidelines will necessitate crypto-asset service providers (CASPs) to acquire and maintain information not only on their customers but also on self-hosted wallets. Notably, these requirements are applicable to any transfer exceeding €1000. Stakeholders and industry participants have an opportunity to provide input on the proposed guidelines until February 26, 2024.

In a parallel move, Canada's Office of the Superintendent of Financial Institutions (OSFI) announced last Monday that it is soliciting feedback on its proposed rules concerning the disclosure of exposure to cryptocurrency assets by federally regulated banks. The comment period will remain open until January 31, 2024.

2. Enforcement

Now, turning to the main story from last week: In a significant development, a joint press conference was held on November 21, featuring Attorney General Merrick Garland, Treasury Secretary Janet Yellen, Commodities Futures Exchange Commission (CFTC) Chair Rostin Behnam, and Deputy Attorney General Lisa Monaco, hosted by the Department of Justice (DOJ). Attorney General Garland disclosed that Changpeng Zhao (CZ), the now-former CEO of the crypto exchange Binance, personally entered his plea in a U.S. federal court. As part of the plea bargain, CZ admitted guilt to violating the Bank Secrecy Act (BSA) and other pertinent laws, agreeing to a substantial $50M fine. This fine will be offset against payments to the Commodity Futures Trading Commission (CFTC) if fulfilled by the designated penalty date. The legal repercussions extended to Binance itself, which pleaded guilty to multiple charges and accepted a monumental $4.3B in fines and forfeitures— one of the largest corporate penalties in U.S. history. Binance is also mandated to appoint monitors for compliance oversight, conduct a review of past transactions, and acknowledge CZ's resignation as CEO. Despite being released on a $175 million personal recognizance bond, CZ, a citizen of China, Canada, and the UAE, faces the possibility of travel restrictions and an 18-month prison term in the U.S. Notably absent from the joint press conference was the Securities and Exchange Commission (SEC), which has an open case against Binance. This absence suggests that the SEC's charges, including offering unregistered securities and commingling customers' and corporate funds, still stand and will be pursued by the SEC in subsequent proceedings.

In other enforcement news, the SEC filed a lawsuit in a San Francisco federal court against Payward Inc and Payward Ventures Inc., the two companies behind Kraken, which is one of the world's largest cryptocurrency exchanges. Echoing similar charges previously made against crypto exchanges earlier this year, the SEC asserts that Kraken is operating as a securities exchange without registering with the SEC and is commingling customers' funds with its own.

Also in California, consumers initiated a class-action lawsuit against Apple on November 17, alleging that the tech giant has colluded with PayPal’s Venmo and Block’s Cash App to restrict peer-to-peer payment options on its devices and block crypto technology from iOS payments apps. The claimants argue that Apple's purported anticompetitive practices led them to pay "rapidly inflating prices."

3. Blockchain Technology

Tokenization is seemingly taking off in the UK! Last week, the UK Chancellor of the Exchequer, Jeremy Hunt, revealed that the UK government is set to enact legislation to implement the Digital Securities Sandbox (DSS), a visionary initiative aimed at fostering the widespread adoption of digital assets within financial markets. According to Hunt, the DSS is scheduled to launch in the first quarter of 2024. Additionally, the Technology Working Group of the U.K. Government’s Asset Management Taskforce granted authorization for investment funds to embark on the tokenization of investment assets. The immediate focus will be on tokenization that aligns with existing legal and regulatory frameworks, which can be immediately implemented by investment management firms.

4. AI

In tandem with the EU's endeavors to regulate AI, as manifested by the "AI Act" proposed last June, Germany, France, and Italy have reached an agreement that is anticipated to expedite discussions at the European level. The new agreement focuses on regulating the technology itself rather than its specific applications, which will be regulated by the forthcoming AI Act. The three governments advocate for "mandatory self-regulation through codes of conduct" specifically targeting foundation models of AI, which generate a diverse array of outputs. As part of this regulatory framework, developers of foundation models would be obligated to disclose model cards through which they will offer comprehensive insights into the model's functioning and capabilities.

5. Open Banking

The Canadian government has pledged to introduce an open banking framework in 2024. Concurrently, the government has set its sights on amending the Canadian Payments Act to extend membership eligibility for Payments Canada beyond traditional big banks. As per the official announcement, the comprehensive governance framework necessary for these initiatives is slated to be in place by 2025.

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See you next week!