Hello Fintech Friends,

Welcome to another week of fintech policy updates. The past week saw major developments happening in the realms of crypto regulation, enforcement, central bank digital currencies (CBDCs), and payments. Additionally, the Consumer Financial Protection Bureau (CFPB) unveiled long-awaited proposed rules on open banking—an announcement poised to revolutionize the banking sector in the U.S. Join us as we delve deeper into these exciting updates!

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 1. Crypto Regulation

The escalating armed conflict in the Middle East is beginning to have serious ramifications in the crypto world. On October 17, over 100 lawmakers from both parties, led by Senator Elizabeth Warren (D-MA), signed a letter condemning Hamas for utilizing crypto in funding its October 7 attack on Israel. The letter urges the Biden administration to provide lawmakers with information regarding the extent to which Hamas relied on crypto. Later in the week, the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued proposed rules designating crypto mixers (open-source codes used to obscure the trail to crypto's original source) as a money laundering concern. Notably, Chainanalysis, one of the most reputable crypto analysis firms, said that reports on crypto funding for militant groups are exaggerated and based on “flawed analyses.” The firm also asserted that due to the traceability of crypto transactions, traditional fiat-based finance remains a more preferable option for such activities.

In other crypto regulation news, China's Central Bank Governor has unveiled a comprehensive five-point strategy to mitigate financial risks, which includes the imposition of stricter controls on digital assets that are already banned in the country. Meanwhile, in the aftermath of the JPEX scandal, Hong Kong’s Securities and Futures Commission has proposed restricting investments in crypto "complex products" to institutional investors and requiring intermediaries offering crypto services to retail investors to ensure that these individuals possess adequate knowledge about virtual assets. Simultaneously, the Basel Committee of banking regulators has initiated a new consultation on how banks should disclose their crypto holdings to their investors. This consultation window will remain open for input until January 31, 2024.

2. Enforcement

In our enforcement news for this week, the Securities and Exchange Commission (SEC) has decided to drop charges against Ripple's co-founders, Brad Garlinghouse and Chris Larsen. This shift narrows the focus of the ongoing SEC v. Ripple case to the SEC's civil case against Ripple itself. In New York, Attorney General Letitia James has taken legal action against crypto exchange Gemini, crypto lending firm Genesis, crypto holding company DCG, former Genesis CEO Michael Moro, and DCG CEO Barry Silbert for their alleged wrongdoings that resulted in the substantial loss of $1B in investors' funds. Lastly, the Office of the Inspector General for the Federal Deposit Insurance Corp. (FDIC), an internal watchdog that audits the FDIC, has concluded that the banking regulator did not provide supervised banks with clear guidance regarding crypto risks and permissible actions in this domain. In response, the FDIC has committed to unveiling a comprehensive plan, along with a timeline, to furnish more precise directives soon.

3. CBDCs

After an extensive "investigation" phase, the European Central Bank (ECB) announced last week that the digital euro project will move to the "preparation" phase as of November 1, 2023. During this new phase, slated to last for two years, the ECB will concentrate its efforts on finalizing the digital euro's rulebook and selecting the providers who will build the digital euro platform and infrastructure.

4. Payments

On October 17, the Bank for International Settlements Committee on Payments and Market Infrastructures (CPMI) published harmonized ISO 20022 data requirements whose aim is to enhance the efficiency of global transfers by standardizing the messaging protocols used to move funds across borders. The CPMI encouraged market participants to align their operational processes with these new standards now and by end-2027 at the latest.

In the U.S., the Federal Reserve (Fed) is scheduled to convene a meeting on October 25 to discuss potential revisions to the debit card swipe fee cap. Reports from the Wall Street Journal indicate that the Fed is considering a reduction in this cap. Such a reduction would reduce the revenues of card issuers like Mastercard and Visa, while simultaneously delivering savings to both merchants and consumers.  Swipe fees are the charges incurred by merchants and passed on to consumers when using credit or debit cards for purchases. The Fed presently caps swipe fees for debit cards at 21 cents per transaction, plus an additional 0.05% based on the transaction amount.

5. Open Banking

On October 19, the CFPB unveiled a highly anticipated rule set to catalyze open banking in the U.S. The Personal Financial Data Rights rule proposal empowers consumers to authorize third-party access to their financial information and cash flow data held by their banks, while concurrently prohibiting these banks from levying fees for such access. The initiative marks the inaugural implementation of Section 1033 within the 2010 Consumer Financial Protection Act, a pivotal component of the Dodd-Frank Wall Street reform. The proposal will remain open for public commentary until December 29 and is expected to be finalized by the CFPB in the fall of 2024. Notably, the CFPB plans to implement the rule in phases, accommodating the diverse technological capabilities of various financial institutions. Accordingly, compliance periods will range from six months to four years, with complete exemptions granted to institutions that do not utilize a platform for service provision.

So, what does this all mean for consumers? In the near future, individuals dissatisfied with their current banking services or perturbed by exorbitant fees will find it increasingly convenient to authorize access to their financial data for alternative banks or fintech entities. This transfer will be free and accompanied by markedly reduced bureaucratic hurdles, presenting a compelling opportunity for individuals to explore alternative service providers. In simple terms, there will soon be more competition in the banking sector, and consumers will have more control over their financial relationships.

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See you next week!