Hello Fintech Friends,

Welcome to another week of fintech policy updates! In this edition, we offer an overview of the latest updates in the realms of crypto regulation, enforcement, central bank digital currencies (CBDCs), artificial intelligence (AI), and payments.

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1. Crypto Regulation

The recent approval by the U.S. Securities and Exchange Commission (SEC) of bitcoin exchange-traded funds (ETFs) continues to reverberate throughout the digital asset space. While many were hopeful that an approval of an ether ETF would quickly follow, recent developments indicate a different trajectory. The SEC's decision to postpone the verdict on Fidelity's proposal for a spot ether ETF and the subsequent delay in deciding on BlackRock’s iShares Ethereum Trust spot ether ETF and Grayscale’s Ethereum Trust ETF has added uncertainty to the market. Relatedly, the Chairman of the Commodity Futures Trading Commission (CFTC), Rostin Behnam, has expressed concerns about the SEC's approval of spot bitcoin ETFs. Behnam cautioned against potential risks, highlighting the possibility that such approval might convey regulatory oversight of the underlying asset, bitcoin, when, in fact, it remains unregulated.

In other U.S. crypto regulation news, the Financial Industry Regulatory Authority (FINRA) revealed that a substantial 70 percent of communications related to crypto made by member firms may have breached its regulations on fair and balanced information dissemination to the public. At the state level, Senator Colleen Burton of Florida introduced Senate Bill 662, aiming to regulate bitcoin and other virtual currency kiosks. The proposed bill mandates the registration and supervision of virtual currency kiosk businesses by the state. Notably, the U.S. is home to about 83% of the world’s crypto ATMs.

Also in the U.S., Sen. Cynthia Lummis (R-WY), along with Reps. Mike Flood (R-NE) and Wiley Nickel (D-NC), has introduced a joint resolution aiming to repeal the SEC's Staff Accounting Bulletin No. 121, commonly known as SAB 121. This bulletin mandates that companies holding custody of cryptocurrencies record customer crypto holdings as liabilities on their balance sheets, which significantly increases the cost of custody. Meanwhile, the SEC has denied a petition seeking to amend its longstanding "gag rule" from 1972, which prevents defendants from denying or refusing to admit the SEC’s allegations after settling. The U.S. Energy Information Administration (EIA), part of the Department of Energy, is launching a survey to assess the electricity usage of local cryptocurrency mining companies. 

In the EU, the European Securities and Markets Authority (ESMA) unveiled a new regulatory proposal within the framework of the new Markets in Crypto Asset (MiCA) regulation. This regulation aims to restrict the operations of non-regulated foreign crypto companies serving customers within the EU. If implemented, these companies would face a ban on various forms of solicitation, including advertisements, sponsorship deals, and even influencer or celebrity endorsements. ESMA will accept feedback on the proposed regulations until the end of April. In Argentina, the government has removed a proposed requirement to declare ownership of specific assets, including cryptocurrency, from a new tax bill that will be presented to Congress this month.

2. Enforcement

Terraform Labs, the stablecoin issuer behind TerraUSD, once the world's third-largest stablecoin by market cap, filed for bankruptcy in Delaware. The collapse of TerraUSD, marking what has come to be known as the crypto winter, resulted in the obliteration of at least $40B in value and triggered a cascading effect of additional bankruptcies across the crypto space. Bankruptcy files indicate that the listed assets and liabilities fall within the range of $100M to $500M.

Last week, the now-defunct cryptocurrency firm Genesis reached a settlement with the SEC, agreeing to pay $21M in damages, only after repaying its customers and creditors.

3. CBDCs

In their response to the consultation on the digital pound, the British finance ministry and the Bank of England outlined plans for future legislation that will prioritize privacy protections and, as a general rule, prohibit programmability. The Bank of England, in its consultation response, maintained the current cap of £10,000-£20,000 on digital pound holdings while expressing a willingness to reconsider this limit in the future.

4. AI

The CFTC issued a warning to investors, cautioning against the unrealistic promises made in relation to AI trading bots, especially those claiming to transform certain investment opportunities into money machines. Simultaneously, the Biden administration is considering new regulations for cloud computing services. These potential regulations, particularly focusing on "know your customer" standards, aim to identify the entities accessing U.S. cloud technology to train AI models.

5. Payments

The Consumer Financial Protection Bureau (CFPB) has proposed a new rule to curb banks and financial institutions from imposing non-sufficient funds (NSF) fees on transactions declined in real time. This move is particularly targeted at preventing fees on various transactions, including declined debit card purchases, ATM withdrawals, and specific peer-to-peer payments, where consumers may lack sufficient funds. So far, financial institutions have rarely charged NSF fees for such transactions. The deadline for submitting comments on this proposed rule is set for March 25.

The Federal Reserve Board has announced an extension of the comment period on its proposal regarding debit card interchange fees, initially introduced in October, pushing the deadline for comments to May 12, 2024.

The CFPB received pushback from House Republicans who called for reopening and extending the public comment period on a proposed rule that will grant the agency the authority to oversee significant nonbank entities providing services such as digital wallets and payment apps. The Congressmen raised concerns about "insufficient justification, unclear guidance regarding third-party service providers, unknown effects on the digital asset ecosystem, and an inadequate comment period," leading to their request.

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See you next week!