Hello Fintech Friends,

Welcome to another week of fintech policy updates! This week, we provide a roundup of the most significant developments in the realms of crypto regulation and enforcement actions from the past week. We also explore updates pertaining to central bank digital currencies (CBDCs), payments, the Consumer Financial Protection Bureau (CFPB), and fintech regulation.

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1. Crypto Regulation

House Financial Services Committee Chair Patrick McHenry (R-NC) announced on May 10 that the committee is gearing up for a full floor vote on the Financial Innovation and Technology for the 21st Century Act, commonly referred to as FIT21. This significant move follows the bill's passage out of committee back in July 2023. FIT21's primary objective is to curtail the Securities and Exchange Commission's (SEC) authority while simultaneously endowing the Commodity Futures Trading Commission (CFTC) with clearer and broader regulatory powers in the digital asset space.

In a parallel development within the House, a group of Democratic representatives, led by Rep. Sean Casten (D-IL), introduced the US Blockchain Integrity Act. The primary aim of this bill is to implement a two-year moratorium on cryptocurrency mixers, prohibiting financial institutions, cryptocurrency exchanges, and registered money service businesses from accepting funds that have been processed through such platforms. Cryptocurrency mixers function as pools, providing users with the ability to generate new addresses and withdraw funds without revealing the linkage between the depositor and withdrawal addresses.

Continuing with House news, a decisive majority vote on Wednesday overturned the SEC’s Staff Accounting Bulletin (SAB) 121. However, this move was swiftly met with a warning from President Biden regarding a presidential veto. SAB 121, at its core, requires financial institutions to match every dollar of cryptocurrency they hold in custody with an equivalent dollar amount, thereby imposing significant burdens on those seeking to provide such a service.

At the state level, Oklahoma has joined other Republican-led states in enacting the Blockchain Basics Act—a standardized regulation aiming at safeguarding individuals’ freedoms to possess, exchange, and participate in the mining of digital currencies.

Internationally, the European Securities and Markets Authority (ESMA) is currently seeking feedback until August 7 on its proposal to include cryptocurrency among the assets eligible for Undertakings for Collective Investment in Transferable Securities, a vast market valued at €12T. Meanwhile, the International Monetary Fund (IMF) has advised Nigeria to consider licensing global cryptocurrency exchanges as part of its broader economic reform efforts. In another regulatory development, Taiwan has implemented new rules requiring all cryptocurrency service providers operating within its jurisdiction to undergo anti-money laundering registration.

2. Enforcement

Last Monday, Robinhood made headlines with the revelation that it had received a Wells Notice from the SEC, signaling impending legal action for alleged securities violations. The notice stems from Robinhood's failure to register as a securities exchange and clearing agency for the cryptocurrencies available on its platform. On Tuesday, news emerged that FTX's bankruptcy team is poised to fully repay creditors with interest, albeit based on asset valuations from the exchange's collapse in November 2022—a period marked by a crypto market downturn—rather than current valuations. Lastly, Coinbase found itself embroiled in yet another class action lawsuit, this time accused of misleading investors into purchasing securities.

3. CBDCs

Several major U.S. financial institutions have initiated a groundbreaking research initiative known as the Regulated Settlement Network proof-of-concept. The primary objective of this project is to explore the feasibility of integrating commercial bank money, wholesale CBDCs, and securities—such as U.S. Treasuries—into a shared, regulated ledger. Notable participants in this endeavor include Citi, JPMorgan, Mastercard, Swift, and Deloitte, with the New York Innovation Center of the Federal Reserve Bank of New York assuming the role of observer.

4. Payments

On May 8, the Senate rejected Sen. Roger Marshall (R-KS) proposal to include the Credit Card Competition Act (CCCA) in the Federal Aviation Administration Reauthorization bill. Originally introduced in 2022 and reintroduced in both the Senate and the House in June 2023, the CCCA aims to introduce greater competition into the credit card industry. If passed into law, the bill would require banks to allow card payments to be processed over at least one network that competes with industry giants like Mastercard and Visa.

5. CFPB

While many anticipated a new CFPB rule reducing credit card late fees to take effect on May 14, a federal judge in Texas granted an injunction, halting the proposed restrictions following a request from the banking industry and other business interests. This decision cited a 2022 court ruling declaring the CFPB's funding structure unconstitutional. In other news, the CFPB announced its intention to monitor credit card rewards programs and take appropriate action. Additionally, the agency reached a settlement with fintech firm Chime Financial, wherein Chime will pay at least $1.3M in redress to consumers and $3.25M in penalties for illegally delaying customer refunds upon account closure.

6. Fintech Regulation

The Board of Governors of the Federal Reserve System, along with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, has released a report titled "Third-Party Risk Management: A Guide for Community Banks." This guide is designed to assist community banks in establishing partnerships with third-party fintech vendors while effectively managing the various risks associated with such relationships, whether operational, compliance, financial, or strategic.

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See you next week!