Hello Fintech Friends,

Welcome to another edition of This Week in Policy! We are thrilled to be back after a brief pause and are eager to share updates with you about the latest developments in fintech and digital assets. In this edition, we cover several major policy and legal developments in the U.S. and the EU related to digital assets and e-payments.

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1. Crypto Regulation

The Republican-led U.S. House’s Financial Services Committee and its Subcommittee on Digital Assets, Financial Technology and Inclusion are leading the debates around crypto regulation on Capitol Hill. On May 10, the Financial Services Committee and the Committee on Agriculture held a rare joint hearing titled “The Future of Digital Assets: Closing the Regulatory Gaps in the Digital Asset Ecosystem.” The committees heard from six witnesses on various topics, including the future roles of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) in crypto regulation. Expectedly, the discussion showed a widening gulf between the two sides of the aisle.

A memo that was disseminated among Democrat members of the House Committee on Financial Services and leaked after the hearing confirmed the current partisan stalemate over digital assets. Members were instructed to support the authority of the SEC as the primary crypto regulator and to point out that the problem is not regulatory ambiguity but large-scale non-compliance. Not very surprising! What is surprising is that the limited bipartisan efforts we saw before the mid-term elections to regulate stablecoins, which resulted in the Waters-McHenry stablecoin bill, have now come to an end. Democrats are moving ahead with a separate stablecoin bill that differs significantly from the current Republican proposal. The Democrat proposal will give considerable power to the Federal Reserve (Fed) over non-bank stablecoin issuers and will not grant these issuers access to Fed’s liquidity.

Divides over digital assets in the U.S. are not only happening at the federal level; we are starting to see unprecedented regulatory fragmentation at the state level. Several states are voting to ban the use of central bank digital currencies (CBDCs) within their jurisdictions. Earlier this month, Florida’s legislature overwhelmingly legislated such a ban, and so did North Carolina's House of Representatives. In contrast, Texas is not banning CBDCs but is moving to make the use of digital currency a basic human right in the State's Bill of Rights, and its legislature is currently debating the issuance of a digital currency fully backed by gold (wouldn’t that be a state CBDC though?). Meanwhile, New York’s Attorney General has proposed comprehensive crypto regulation, and the state is considering another proposal to allow stablecoin use for bail payments.

2. Enforcement

The SEC-Coinbase legal confrontation seems to be heading toward more escalation. Since Coinbase was served with a Wells notice last March, it has been on the offense rather than the defense. On May 12, Coinbase launched a Global Advisory Council with a mission to “help navigate the complex and evolving landscape of the crypto industry, and strengthen relationships with strategic stakeholders around the world.” The council's initial members include three former congressmen: Patrick Toomey, Tim Ryan, and Sean Patrick Maloney. More importantly, Coinbase sued the SEC in April, asking a U.S. federal court to compel the SEC to respond to a request for rulemaking on digital assets, which Coinbase had filed with the SEC in July 2022. This week, the SEC challenged Coinbase’s request, arguing that “no statute or regulation requires [it] to take such action on a specific timeline.” And the saga continues!

3. Payments

EU antitrust regulators are gathering more information on Apple’s mobile payment system, which is viewed by many as a prelude to bringing enforcement action against the company. Last year, regulators accused Apple of unduly limiting competitors’ access to its tap-and-go technology and Near-Field Communication used for its mobile wallets, thereby hindering competitors from developing similar services on Apple devices. So far, Apple has refused to comment on the situation.

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See you next week!