Hello Fintech Friends,

Welcome to another week of fintech policy updates!

I would like to begin with a personal announcement: after over 80 articles and two wonderful years of serving as Editor in Chief for Policy with This Week in Fintech, I will be stepping down from this role by the end of this month. The team will be looking for the next Editor in Chief for Policy, and I will facilitate the search process. If you are an expert in fintech policy and would like to share your insights with thousands of our community of readers on a weekly basis, please reach out to me either on LinkedIn or Twitter.

In this edition, we bring you the main highlights from the past week related to crypto regulation, central bank digital currencies (CBDCs), payments, artificial intelligence (AI), the Consumer Financial Protection Bureau (CFPB), and the Securities and Exchange Commission (SEC).

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1. Crypto Regulation

Crypto regulation has taken center stage on Capitol Hill over the past few weeks. On May 15, the Republican-led House passed the Deploying American Blockchains Act of 2023, which was approved by a 334–79 vote. The bill does not create any detailed regulation of digital assets; rather, its main goal is to direct the Secretary of Commerce, Gina Raimondo, to take actions necessary and appropriate to promote the competitiveness of the United States in blockchain technology and other distributed ledger technologies.

A week later, on May 22, the House passed the Financial Innovation and Technology for the 21st Century Act (FIT21) with strong bipartisan support, including 71 Democrats, resulting in a 279-136 vote. This legislation, primarily spearheaded by House Republicans, aims to regulate the U.S. crypto markets by establishing consumer protections and positioning the Commodity Futures Trading Commission (CFTC) as the main regulator for digital assets spot markets. The bill also seeks to clearly define the distinctions between crypto tokens as securities or commodities. Notably, President Biden opposed the bill’s passage but did not threaten a veto, unlike his stance on the repeal of SAB 121.

Speaking of SAB 121, or the SEC's Staff Accounting Bulletin No. 121, which we covered last week, the deadline for presidential action on Resolution 109, which repealed the rule and was approved by both the House and the Senate, has been extended by ten days until June 3. This extension is primarily due to a delay in the delivery of the Resolution from the Senate to President Joe Biden.

The approval of Ethereum exchange-traded funds (ETFs) marked another significant development in crypto regulation, eagerly anticipated by the crypto community. On May 23, the SEC gave the green light to regulatory filings concerning spot Ether ETFs from BlackRock, Fidelity, Grayscale, Bitwise, VanEck, Ark, Invesco Galaxy, and Franklin Templeton. However, this approval process differed slightly from that of spot Bitcoin ETFs approved back in January. While spot Bitcoin ETFs were approved through a vote by a five-member committee, including SEC chief Gary Gensler, the spot Ether ETFs received approval from the Trading and Markets Division of the SEC, without a detailed voting record. The absence of such a record obscures the political dynamics at play during the approval process.

2. CBDCs

On May 23, the House took a decisive vote regarding the issuance of a CBDC by the Federal Reserve (Fed). Majority Whip Tom Emmer (R-MN) introduced the CBDC Anti-Surveillance State Act, aiming to halt the Fed's efforts in developing a digital dollar. Republicans, expressing apprehension, argued that a U.S. CBDC might lead to government control over citizens. Conversely, Democrats countered during the debate that such concerns were exaggerated and that banning CBDCs would stifle innovation and research in the public sector. The vote largely fell along party lines, with 213 Republicans and three Democrats supporting the bill, while 192 Democrats opposed it.

3. Payments

The Fed's proposal to reduce debit interchange fee caps, originally scheduled to conclude in February, officially closed on May 13. The proposal garnered significant attention, attracting approximately 2,500 responses from various stakeholders, including trade organizations representing merchants and financial services firms, as well as input from bank executives and independent individuals. Initially unveiled last October, the proposal outlined a plan to decrease interchange fees charged to merchants to 14.4 cents, down from the previous rate of 21 cents, with a provision for biennial reviews. Notably, the revised fee structure would apply to financial institutions with assets totaling at least $10B.

The $10B threshold proposed by the Fed for the applicability of the new debit interchange fee is being reconsidered through a recently approved bill by the House Financial Services Committee called the Bank Resilience and Regulatory Improvement Act. Among its provisions, the bill aims to elevate the threshold set by the Durbin Amendment, which limits interchange rates or fees imposed by banks on merchants for debit card transactions. If passed, this amendment would raise the threshold from $10B to $50B, significantly reducing the number of banks subject to fee revisions. The bill is now poised for consideration by the entire House of Representatives.

In other news, Apple announced its intention to seek dismissal of an antitrust lawsuit brought against it by the Justice Department and 15 states. Among the allegations outlined in the government's lawsuit is the claim that Apple has impeded the development of cross-platform, third-party digital wallets. However, Apple countered by asserting that it operates in a highly competitive market where customers have the freedom to switch to alternative suppliers if dissatisfied with its products. Furthermore, the company argued that the complaint lacks evidence demonstrating its ability to impose supra-competitive prices or limit output.

4. AI

The European Council has given its approval to the Artificial Intelligence (AI) Act, which is slated for publication in the EU’s Official Journal shortly. The Act will come into effect 20 days post-publication and will be applicable two years thereafter. Meanwhile, the Office of the Privacy Commissioner for Personal Data (PCPD) in Hong Kong has concluded its inquiry into Worldcoin, citing major breaches of privacy regulations. Consequently, the company has been directed to halt all operations.

5. CFPB

In a significant move, the CFPB announced on May 22 that buy-now-pay-later (BNPL) providers are to be considered credit card issuers, thus necessitating the provision of certain fundamental legal safeguards akin to traditional credit cards. These protections encompass rights such as the ability for consumers to contest charges and request refunds from the lender, as outlined by the agency. The CFPB is currently receiving public feedback on the interpretive rule.

6. SEC

The Intercontinental Exchange (ICE), the parent company of NYSE, has agreed to pay the SEC a $10M fine for neglecting to report a cyber intrusion to authorities. According to the SEC, the breach, detected in April 2021, exploited a virtual private network (VPN) device with inserted malicious code. Although ICE promptly identified the threat, it allegedly delayed informing legal and compliance personnel at its subsidiaries, including the New York Stock Exchange, for several days.

As we wrap up this edition, I want to extend my sincere gratitude to our readers and contributors. Your unwavering support and engagement have truly enriched our discussions and deepened our insights into fintech policy over the past two years. For those interested in stepping into the role of TWIF’s next Editor in Chief for Policy, please do not hesitate to reach out via LinkedIn or Twitter. Stay tuned for more insightful discussions on fintech policy in the future!