Hello Fintech Friends,

Welcome to another week of fintech policy news! This week, we will address major updates on topics ranging from crypto regulation and enforcement to central bank digital currencies (CBDCs), payments, and the latest from the Consumer Finance Protection Bureau (CFPB). Let’s get started!

As always, if you are not yet subscribed to the Policy Edition of This Week in Fintech, make sure to subscribe below! Additionally, if you are interested in contributing to the Policy Edition as a guest writer to cover ongoing events or dive deep into fintech policy issues, please feel free to reach out to me on Twitter or LinkedIn.

1. Crypto Regulation

Last week, Senators from both sides of the aisle joined forces to introduce a new bill targeting decentralized finance (DeFi). The Crypto Asset National Security Enhancement Act, spearheaded by Senator Jack Reed (D-RI) and co-sponsored by Sens. Mark Warner (D-VA), Mike Rounds (R-SD), and Mitt Romney (R-UT), aims to impose anti-money laundering measures and know-your-customer (KYC) policies on those "controlling" DeFi protocols. Controllers of protocols would be required to report suspicious activities and prevent sanctions-violating individuals from using the protocols. In cases where no identifiable controller exists, individuals investing over $25M in developing the protocol would be held responsible. The bill also proposes federal KYC laws for "virtual currency kiosks" like Bitcoin ATMs. By solely focusing on compliance in the DeFi space, the new bill adopts a narrow approach to crypto regulation, especially if compared to more comprehensive crypto bills currently being debated on the Hill, such as the Responsible Financial Innovation Act of Sens. Cynthia Lummis, (R-WY) and Kristen Gillibrand, (D-NY) or the Financial Innovation and Technology for the 21^st Century Act introduced by Republicans in the House on Thursday.

Speaking of Republican proposals, the Republican-led House Financial Services Committee has postponed a vote on comprehensive regulatory frameworks for stablecoins and cryptocurrency trading from last week to July 26, signaling a need for further bipartisan consensus before proceeding to a vote. The search for bipartisan consensus is perhaps why Rep. French Hill (R-AR) and Dusty Johnson (R-SD) have jointly sent a letter to Gary Gensler, the Chair of the Securities and Exchange Commission, emphasizing the urgent need for a comprehensive regulatory framework to nurture a well-regulated digital assets marketplace. The letter highlighted that over 15 hearings on digital asset policy have occurred in the past four years, uncovering notable regulatory gaps. However, it pointed out that substantial progress has yet to be made in addressing these issues.

Internationally, the UK government firmly rejected the proposal to categorize retail trading and investment in unbacked crypto assets as gambling, opting to keep it within the realm of financial services regulation. Across the English Channel, SG Forge, a subsidiary of Société Générale, achieved a significant feat by becoming the first licensed crypto service provider in France. Meanwhile, the Financial Stability Board issued its final recommendations for regulating crypto trading firms and "global stablecoin arrangements," focusing on key areas such as safeguarding customers' assets and addressing conflicts of interest. While these recommendations are considered “global,” their implementation will be tailored to the unique regulatory experiences of each jurisdiction that chooses to implement them. Lastly, for startups eyeing the UK market, the UK's Digital Sandbox, a platform facilitating experimentation with innovative fintech solutions, will be permanently accessible starting from August 1, 2023.

2. Enforcement

In our enforcement news, Celsius Network is making significant strides towards resolving customer claims and navigating its bankruptcy proceedings. Through agreements that enhance recoveries by 5%, the company aims to gain court approval for asset return and settlement. This resolution addresses fraudulent and misrepresentation claims, putting an end to a staggering 30,000 claims totaling $78B in damages.

In other news, Nasdaq, a global securities marketplace, has suspended its plans to launch a cryptocurrency custody service initially scheduled for the second quarter of 2023, citing regulatory risks within the U.S. Also, card issuer Discover Financial Services disclosed both a major pricing error and an ongoing compliance probe by the Federal Deposit Insurance Corporation (FDIC). Additionally, the company received a proposed consent order from the FDIC relating to consumer compliance matters.

3. CBDCs

In Russia, President Vladimir Putin signed the digital ruble bill into law on July 24. The new legislation is set to become effective from August 1, 2023. Under this law, Russia's central bank will play a central role as the primary operator of the digital ruble infrastructure and will be responsible for safeguarding all the stored assets. The digital ruble is primarily intended to function as a secure and efficient means of payments and money transfers, rather than serving as an investment vehicle.

4. Payments

The Federal Reserve (Fed) announced last week the launch of its new system for instant payments FedNow® Service. Now, banks and credit unions of all sizes can utilize this platform to facilitate instant money transfers for their customers, 24/7, throughout the year. However, despite its potential benefits, the FedNow adoption faces challenges, as only around 51 out of nearly 9,000 banks and credit unions in the country have subscribed to the service so far.

In a bid to challenge the dollar's global dominance, India and the United Arab Emirates have entered an agreement to conduct cross-border transactions using their local currencies. The plan includes linking payment systems to allow the use of the same cards in both nations, enhancing trade and fostering stronger economic ties.

And in the credit card world, the battle over the Credit Card Competition Act (CCCA) proposal is heating up, as it vies to be enacted as part of the National Defense Authorization Act. The bill, sponsored by Sens. Dick Durbin (D-IL) and Roger Marshall (R-KS), aims to reduce the dominance of Visa and Mastercard in the credit card processing industry and provide merchants with relief from interchange fees. The legislation seeks to promote competition in the card network sector by requiring at least two unaffiliated networks to be available to merchants for processing credit transactions. The CCCA bill has been referred to the Senate Committee on Banking, Housing, and Urban Affairs, and a similar House bill has attracted bipartisan support and awaits review in the House Committee on Financial Services.

5. CFPB

Last week, Rohit Chopra, the Director of the U.S. CFPB, and Didier Reynders, the Commissioner for Justice and Consumer Protection of the European Commission, announced the start of an informal dialogue between the CFPB and the European Commission on pressing issues such buy now, pay later platforms, artificial intelligence, and other emerging financial technologies. Both regulators emphasized the need for vigilance, as these innovations, if not properly monitored, could potentially expose consumers to fraud and manipulation.

Join me in conversation on Twitter or LinkedIn or leave a comment below.

See you next week!