Hello Fintech Friends!

We have an eventful week ahead! Tomorrow, all 435 seats in the House of Representatives and 35 of the 100 seats in the Senate will be contested. Observers wonder if U.S. voters will renew their confidence in the Biden administration or take America in another direction. In crypto land, everyone is trying to figure out what these elections would mean for crypto policy and digital assets in general. Having clarity may take some time. Until then, we’ll keep reading, writing, and debating about the exciting developments in fintech policy every week.

Also, this week, the This Week in Fintech team will get together in N.Y.C. with many fintech friends from all over the country for The Fintech Formal. The Policy Edition will pause next week and resume as usual the following week. I hope to see many of you there!

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This week’s updates span three different continents, from crypto regulation to central bank digital currencies (CBDCs). Let’s take a look.

1.       Crypto Regulation

The United Arab Emirates and the EU made news on crypto regulation this week. On November 1, the Dubai Financial Services Authority (DFSA) announced a list of “recognized crypto tokens,” which included three tokens: Bitcoin, Ethereum, and Litecoin. The idea is to recognize these tokens as mediums of exchange or means of payment, which means that they can be used by firms in conducting financial services within or from the Dubai International Financial Center. Interestingly, the list does not include other digital assets, such as non-fungible tokens, utility tokens, stablecoins, or CBDCs. What about other crypto tokens that are not on the list? An application for DFSA recognition would have to be filed by either a DFSA-authorized person or the issuer/developer of the crypto token before such token is used as means of payment.

On to the EU. Remember the two major EU crypto regulations we coved last July— the Transfer of Funds Regulation (TFR) and the Markets in Crypto Assets (MiCA)? The EU Parliament was supposed to approve MiCA in a plenary session this month, but a decision was made to postpone the vote until February 2023. The delay was not motivated by any disagreement or need for renegotiations. Rather, believe it or not, it arose from the need to translate the quite long legislation (over 160 pages) into the 24 official EU languages. Apparently, being comprehensive comes at a cost! Some experts warned that the delay may prolong uncertainty in the sector and cause further delays in the approval of other related EU crypto regulations such as TFR and the Anti-Money Laundering Regulation.

Across the Atlantic, The Criminal Investigation division of the Internal Revenue Service (IRS) announced that it is preparing “hundreds” of crypto-related cases and that many of such cases would be made public. Most of the cases relate either to “off-ramping” transactions (i.e., getting off the blockchain and exchanging crypto for fiat currency) or payments in crypto that are reported by recipients. Also, the Office of the Comptroller of the Currency (OCC) announced that it will establish an Office of Financial Technology early next year to keep up with the fast-paced developments in fintech. A week later, on November 3, the OCC said that it will be hosting “virtual innovation office hours” to “discuss fintech, new products or services, [partnerships] with a bank or fintech company, or other matters related to responsible innovation in financial services.” The OCC, which acts as the primary charterer and regulator of banks in the U.S., seems to be pushing for more powers over fintech firms, which is perfectly aligned with its prior opposition to granting the Consumer Financial Protection Bureau chartering powers over non-depository fintech firms.

2.       The SEC

Four Republican congressmen, Rep. Tom Emmer (R-MN), Rep. Patrick McHenry (R-NC), Rep. Jim Jordan (R-OH), and Rep. James Comer (R-KY), sent a letter to the Chair of the U.S. Securities and Exchange Commission (SEC), Gary Gensler, accusing “Gensler’s regime at the SEC” of “regulatory hypocrisy and inconsistency.” The letter added that “the SEC [under Gensler] is failing to comply with federal transparency and record-keeping laws.” The letter also mentioned that “[r]ecent reports suggest that SEC officials are using ‘off-channel’ communications platforms, such as Signal, Whatsapp, Teams, and Zoom, for official business and without producing these records in response to open-record requests.” The congressmen pointed out that in 2013, while Gensler acted as the Chair of the Commodity Futures Trading Commission (CFTC), the CFTC’s Office of Inspector General discovered that he used his personal email “7,005 times to conduct official business related to [one case] alone.” The letter asked Gensler to certify that “the SEC is following all applicable federal record-keeping and transparency requirements” and that he has “never used a private email account or off-channel communications for official SEC business.”

3.       CBDCs

Countries are ramping up experimentation with CBDCs all over the world. The Indian central bank introduced a wholesale CBDC pilot on November 1 and will launch a retail version within a month. The Monetary Authority of Singapore (MAS) published a report after successfully completing the first phase of its CBDC pilot, Project Orchid. The report found no urgent need for a retail CBDC but recommended that the MAS be prepared in case that changes. Also, the MAS launched a new initiative known as Ubin+ which aims to advance cross-border connectivity of wholesale CBDCs. The initiative will explore the exchange and settlement of Swiss francs, Euros, and Singapore dollars using an automated market maker (a mechanism that enables the automatic exchange and settlement of two or more digital assets using a smart contract). The initiative also investigates how blockchain-based payment systems can be made interoperable with more centralized payment systems that do not use the same technology.

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See you next week!