Hello Fintech Friends,

Welcome to another week of fintech policy updates. Last week was exceptionally eventful, with significant developments unfolding across various fronts. In this edition, we delve into updates in the realms of crypto regulation, enforcement, central bank digital currencies (CBDCs), fintech, as well as developments related to the Consumer Financial Protection Bureau (CFPB).

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1. Crypto Regulation

Last Thursday, the Republican-led House Financial Services Committee approved a resolution aimed at repealing the Security and Exchange Commission (SEC)’s Staff Accounting Bulletin (SAB) 121. The resolution passed with a vote of 31-20, receiving support from all Republicans and three Committee Democrats. Introduced in March 2022 and enacted the following month, SAB 121 mandates that digital asset custodians report custodied cryptocurrencies as a liability on their balance sheets, thus increasing the cost of digital asset custody. However, overturning SAB 121 faces challenges, as the resolution must pass a full floor vote in the Democrat-controlled Senate, making its approval by Congress unlikely in the near future.

Internationally, Argentina is reportedly gearing up to regulate digital assets, potentially through an executive order, ahead of an impending anti-money laundering evaluation by the Financial Action Task Force (FATF). In Asia, the Hong Kong Monetary Authority (HKMA) has announced plans to launch a regulatory sandbox specifically tailored for testing stablecoin issuance. This sandbox will cover essential aspects such as the issuance process, business models, investor protection, and risk management, while also facilitating discussions on future regulatory requirements. Concurrently, the Bank for International Settlements (BIS) has issued a comprehensive set of recommendations for regulating global stablecoins, covering cross-border cooperation, risk management, cybersecurity, anti-money laundering measures, and compliance.

2. Enforcement

A significant turn in the ongoing legal battle between the SEC and crypto exchange Kraken occurred last week when eleven U.S. state attorneys general jointly filed an amicus brief in support of Payward Ventures, Kraken's parent company, challenging the SEC's jurisdiction over crypto firms. Attorneys general from Montana, Arkansas, Iowa, Mississippi, Nebraska, Ohio, South Dakota, and Texas collectively submitted the brief. The central argument posited is that the SEC's exercise of authority poses a risk to consumers by potentially superseding state statutes better suited to address the specific risks associated with non-securities products, especially since some state laws offer greater consumer protection than federal securities laws.

On February 22, the Texas Blockchain Council (TBC) and Riot Platforms (RIOT), one of the state's largest crypto miners, filed a lawsuit against the U.S. Department of Energy, the U.S. Energy Information Administration (EIA), and the Office of Management and Budget (OMB) for what they deemed as "illegal" demands for information from several council members, including Riot. However, recent developments indicate that the involved parties have reached an agreement wherein the EIA will terminate its data collection efforts and commit to destroying all received or pending information. Additionally, the EIA will rescind the February 9th, 2024, notice and issue a new one open for public comments for 60 days from its release in the Federal Register.

In Nigeria, the government is considering imposing a hefty fine of $10B on crypto exchange Binance. This decision comes after central bank Governor Olayemi Cardoso revealed that the exchange facilitated the outflow of $26B in untraceable funds from the country amid a foreign exchange crisis Nigeria is facing. Meanwhile, the FATF updated its list of Jurisdictions under Increased Monitoring, which covers countries that are actively collaborating with the FATF to address strategic deficiencies in their regulatory frameworks concerning money laundering, terrorist financing, and proliferation financing.

3. CBDCs

Republican Senators, spearheaded by Sen. Ted Cruz (R-TX), have reintroduced the CBDC Anti-Surveillance State Act, a move aimed at blocking the Federal Reserve from issuing a retail CBDC. The legislation, originally proposed by Republican House Representative Tom Emmer in September 2023, underscores the partisan divide surrounding retail CBDCs in the United States. Although the bill faces slim prospects of passing, its reintroduction highlights the ongoing contentious debate within Congress over the role and scope of retail CBDCs.

4. CFPB

On Thursday, the CFPB announced its intention to propose rules aimed at restricting the activities of data brokers, particularly those involved in selling personal data abroad, leveraging its authority under the Fair Credit Reporting Act. This move followed President Joe Biden's issuance of an executive order the previous day, directing measures to safeguard Americans' personal data from countries deemed as "countries of concern." The executive order empowers the Justice Department to prevent hostile nations from harvesting sensitive information like biometric identifiers and personal health and financial data.

Additionally, the CFPB intensified its efforts to address deceptive practices within the financial industry, targeting companies operating comparison-shopping tools for financial products. A circular issued by the CFPB outlined how such companies may breach the law through kickbacks and deceptive practices. And in a surprising move, the CFPB assumed supervisory authority over fintech company and loan provider World Acceptance Corp., exercising its "dormant authority" to examine nonbank entities posing consumer risks. Notably, the CFPB clarified that the decision to place an entity under supervisory authority does not imply wrongdoing, allowing entities to contest or consent to supervision upon receiving a notice.

5. Fintech

Last Thursday marked a significant milestone as the EU Parliament overwhelmingly approved legislation to provide digital ID wallets to its residents, eliminating the need for reliance on private companies for such services. This groundbreaking Digital Identity Wallet initiative is poised to revolutionize online identification and authentication for citizens across the EU, granting them seamless access to online services while retaining control over their digital identities. The legislation now awaits final approval from the Council of Ministers.

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See you next week!