Hello Fintech Friends,

Three weeks after the District Court for the Southern District of New York set October 2, 2023 as the start date of the trial of FTX’s ex-CEO, Sam Bankman-Fried, the whole FTX debacle is quickly retreating to the background. For the first time since FTX’s implosion last November, it is possible to shift our attention to other big fintech developments. But, as you may imagine, some of these developments are either directly or indirectly related to the FTX fiasco.

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1.       Crypto Regulation

Last week, we talked about how 2023 might be a year of discordance in crypto regulation, both in the U.S. and globally. As if policymakers read the post, many calls were made worldwide for global coordination around crypto regulation. At the World Economic Forum, European Commissioner Mairead McGuinness argued last week that the EU Markets in Crypto Assets regulation (MiCA), which is one of the most thorough and strict crypto regulations worldwide, will basically be useless if other countries do not follow suit (the EU Parliament’s vote on MiCA was postponed until April). A similar call was made by Commodity Futures Trading Commissioner Caroline Pham who mentioned ongoing "advanced discussions" in other countries on crypto regulation. These calls are by no means new. Last December, the International Monetary Fund stressed the importance of “robust, globally consistent, comprehensive regulatory responses to achieve effective crypto regulation and supervision.”

Sounds easy, right? Not until you think of which standards countries should converge toward. For example, we discussed on multiple occasions how U.S. regulators view cryptocurrency as either a commodity or a security. Compare that to the call made last week by Mamoru Yanase, Deputy Director General at Japan’s Financial Services Agency, who urged regulators worldwide to regulate crypto companies as banking entities, and you will immediately realize the huge gulf that separates countries over how to regulate crypto. Until major countries are in agreement, at least on the very basics, “globally consistent, comprehensive regulatory responses” will remain an elusive goal.

In other U.S. crypto regulation news, New Hampshire may soon develop a legal framework for decentralized autonomous organizations (DAOs) and for the handling of digital assets by banks. In Mississippi and Missouri, lawmakers introduced bills to protect Bitcoin miners, which stand in contrast to the moratorium imposed by states like New York.

2.       Enforcement

Last week, the Wall Street Journal published a report about an investigation led by Sen. Ron Wyden (D-OR) which has shockingly revealed a secret program called the Transaction Record Analysis Center (TRAC). TRAC has so far allowed U.S. law enforcement agencies to access data on over 150 million transfers made between the U.S. and over 20 countries through payment providers such as Western Union, MoneyGram, and DolEX without any judicial authorization. The program has been key in combatting criminal activities, including money laundering and drug trafficking, but it led to an outcry due to its encroachment on Americans’ right to privacy.

TRAC was not the only transfer-related pain point discussed by policymakers last week. The Consumer Financial Protection Bureau (CFPB) announced that it is considering taking action soon to restrict the untransparent and exorbitant fees money transmitters charge Americans for sending money overseas. This is specifically one of the major areas where digital assets can revolutionize how money moves around the globe. But if this were to happen and digital assets become a widely used means of payment, CFPB would be ready to step in to regulate the space, as CFPB’s Chair Rohit Chopra alluded to last week.

The last two weeks were eventful for another major U.S. crypto regulator, the Securities and Exchange Commission (SEC). on January 12, the SEC charged crypto Lender Genesis and crypto exchange Gemini with trading in an unregistered security. Eight days later, Genesis, which is FTX's largest unsecured creditor, filed for bankruptcy. Last week, crypto lending firm Nexo agreed to pay $45M to settle SEC charges similar to those made against Genesis and Gemini. Overall, it seems that 2023 will see a continuation of the SEC’s enforcement trend against crypto firms, which increased by 50% in 2022.

3.   Blockchain Technology Applications

Two major developments happened last week. The first is that the UK Parliament started discussing the U.K.’s Electronic Trade Document Bill, which provides a framework for digitizing international trade documents using blockchain technology. The second is the Universal Digital Payments Network, which is a payment network that provides interoperability between regulated stablecoins and central bank digital currencies and was launched last week at the World Economic Forum.

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See you next week!