Hello Fintech Friends,

Welcome to our weekly update on fintech policy! In this edition, we bring you the latest policy developments in the world of fintech, with very extensive coverage spanning international crypto regulation, crypto enforcement, central bank digital currencies (CBDCs), stablecoins, the Consumer Financial Protection Bureau (CFPB), and fintech.

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1. Crypto Regulation

This week, we shift our focus away from the debates about crypto regulation in the U.S. and turn our attention to important international developments. Last week, the International Monetary Fund (IMF) published an update highlighting the potential role of CBDCs in reducing remittance costs and fostering financial inclusion. Notably, the IMF emphasized that a complete ban on cryptocurrencies may not be effective in the long run and recommended, instead, that countries address the underlying drivers of crypto demand, such as financial exclusion and the lack of transparency in traditional finance. The IMF also recommended the inclusion of crypto asset transactions in national statistics.

Additionally, during its regular plenary meeting last week, the Financial Action Task Force (FATF) said that nearly three-quarters of jurisdictions are only partially compliant or not compliant with FATF's requirements for digital assets. As a reminder, FATF is the international watchdog that extended the well-known Travel Rule, which mandates the sharing of customer information for transfers above a certain threshold, to digital assets in 2019.

In another international development, the House of Lords, the upper chamber of the UK Parliament, approved the Financial Services and Markets Bill (FSMB) last week. This significant milestone recognizes cryptocurrencies as regulated activities and designates stablecoins as a form of payment. The next step will be to send the FSMB to the lower house of Parliament for final agreement on the bill's version.

2. Enforcement

Last week, the federal judge overseeing the lawsuit brought by the U.S. Securities and Exchange Commission (SEC) against Binance approved an interim agreement between the two parties, which mandates Binance.US to prevent any access by Binance officials to private keys of wallets, hardware wallets, or root access to Binance.US's Amazon Web Services tools. The agreement came about following a motion filed by the SEC seeking to freeze Binance.US's assets for fear that Binance.US may transfer funds of U.S. customers offshore or destroy crucial records. Notably, U.S. customers will be able to withdraw funds throughout the legal proceedings.

The global ramifications of the enforcement action against Binance in the U.S. are coming to the surface. Since the commencement of the SEC's lawsuit, Binance has withdrawn from the Netherlands, applied to cancel its registration in Cyprus and the U.K., and has been ordered to halt activities in Belgium. Furthermore, the exchange has reportedly been under investigation in France since February 2022 for "aggravated money laundering."

In other U.S. news, the Supreme Court ruled in favor of Coinbase in a lawsuit involving a dispute over the arbitration clause in the user agreement. Also, five U.S. enforcement agencies are coming together to establish a new digital currency anti-crime task force. In the world of investment, Wall Street investment manager Valkyrie filed an application with the SEC for a Bitcoin spot ETF, following the footsteps of BlackRock, WisdomTree, and Invesco. Lastly, the SEC has decided to withhold collecting its $30M penalty against the defunct crypto firm BlockFi until customers are fully reimbursed.

3. CBDCs

Two significant developments from last week point towards a future where monetary systems will be based on centralized CBDC ledgers controlled by central banks. The IMF published a paper that focused on enhancing interoperability, efficiency, and safety in cross-border payments and domestic financial markets. The paper proposed the concept of a platform that utilizes a single ledger for settlement, along with CBDCs as a secure settlement asset. The paper rejected the idea of a distributed ledger because of significant “limitations,” such as validation costs, security, efficiency, and privacy concerns.

Following the IMF's proposal, the Bank for International Settlements (BIS) expressed support for the establishment of a unified ledger, echoing the notion that centralization would be the answer. The proposed ledger would integrate CBDCs, tokenized deposits, and other tokenized assets on a programmable platform.

Meanwhile, the Monetary Authority of Singapore (MAS) appears to lean towards the utilization of distributed ledgers. In a whitepaper published last week, MAS outlined a common protocol for the use of CBDCs, tokenized deposits, and stablecoins on a distributed ledger. The regulator also released open-source software prototypes whose goal is to enable users to determine “the conditions upon which an underlying digital money can be used."

4. Stablecoins

Last week, during the House of Representatives Financial Services Committee's semi-annual hearing on Fed policy, Federal Reserve Chair Jerome Powell emphasized the need for federal-level regulation of stablecoins. Powell stated that stablecoins should be viewed as a form of money and that a robust federal role in their oversight is necessary, adding that "[a]llowing a lot of private money creation at the state level would be a mistake.” Lately, the specification of a future regulator for stablecoins has become a point of contention between House Republicans and Democrats regarding stablecoin regulation.

Last week, as well, significant attention was directed towards the composition of reserves backing Tether, the world's largest stablecoin. Observers expressed concern regarding the inclusion of commercial papers from Chinese companies within these reserves.

5. CFPB

The CFPB has recently released reports shedding light on banking access and consumer finance in Southern states. The findings indicate that the Southern region has a lower number of bank branches per person compared to other areas of the country, with 3.6 branches per 10,000 people as opposed to the national average of 5 branches per 10,000 people. This disparity in local access to banking options poses challenges for individuals seeking competitive interest rates on mortgages, credit cards, or small business loans. Interestingly, initial analyses reveal that credit scores alone cannot account for these lower levels of lending, suggesting that other factors may be at play.

6. Fintech

Last Thursday, Nevada Governor Joe Lombardo signed the nation's first earned wage access (EWA) bill into law. The legislation introduces a licensing process for earned wage access providers in the state, with oversight from the Commissioner of Financial Institutions. Earned wage access providers act as intermediaries between employers and employees, allowing workers to access their wages before regular pay cycles. While fees are charged for this service, supporters argue that they are typically lower than the interest rates associated with payday loans, which offer similar credit to workers.

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See you next week!