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The Front Page of Global Fintech

The the largest fintech community in the world. Subscribe to our newsletter to stay up to date on the latest in news opinions, and all things financial technology.

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This Week in Policy (12/4)

This Week in Policy (12/4)

Hello Fintech Friends,

Welcome to another week of fintech policy updates! In this edition, we provide a roundup of last week's latest policy developments in the realms of crypto regulation, enforcement, blockchain technology, payments, and artificial intelligence (AI).

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

During a speech at the Blockchain Association’s Policy Summit, Deputy Treasury Secretary Wally Adeyemo unveiled that on November 28, the Department of the Treasury submitted recommendations to Congress aimed at expanding its authorities to combat illicit activities within the digital asset realm. The proposed enhancements go beyond the existing power to bar a company from accessing the U.S. financial system, now seeking the authority to sanction firms that continue to do business with such barred entities. Additionally, the Treasury is pushing to extend its extraterritorial jurisdiction to sanction foreign platforms facilitating dollar-backed stablecoins if exploited for illicit finance. The Treasury also intends to collaborate with the Financial Action Task Force (FATF) to encourage U.S. allies and partners worldwide to update their digital asset regulations.

In other crypto regulation news, more and more countries are imposing capital gain taxes on citizens' crypto holdings domestically and abroad, solidifying their territorial jurisdiction over digital assets that are inherently non-territorial. In Brazil, the parliament has greenlit a bill targeting Brazilians earning more than $1,200 on foreign exchanges, subjecting them to the same tax rate as domestically held funds starting January 1, 2024. The bill awaits the President's signature to become law. Meanwhile, the UK government has urged crypto users to voluntarily disclose unpaid capital gains or income taxes, providing guidance on the process to avoid penalties. In Spain, the Tax Administration Agency has introduced a tax declaration form mandating Spanish citizens with crypto assets on foreign platforms to declare holdings by March 31, 2024, with obligations applied to balance sheets exceeding 50,000 euros. Those using self-custody wallets must also report holdings through the standard wealth tax form 714.

Meanwhile, the European Banking Authority (EBA) has initiated a new consultation to receive feedback on its proposed procedures for applying the travel rule to crypto transfers. The proposed rules carve out exemptions for transfers between two unhosted wallets. However, if a transfer originates from an unhosted wallet and is directed to a wallet hosted by a service provider, compliance with the travel rule will be mandatory if the transaction amount exceeds 1,000 euros ($1,096). Stakeholders will have until February 26, 2024, to provide feedback.

2. Enforcement

Bankrupt crypto lender Genesis, along with its parent company Digital Currency Group (DCG), has reached an agreement that could potentially end an ongoing lawsuit seeking to recover $620M in repayments from DCG. Simultaneously, a federal judge has sanctioned crypto lending firm Voyager Digital and its affiliates, mandating a payment of $1.65B in monetary relief to the United States Federal Trade Commission (FTC). Additionally, Tether, the world's largest stablecoin issuer, has announced collaboration with the Department of Justice (DoJ) to aid in freezing the tokens linked to alleged crimes. In the same vein, Tether has also onboarded the United States Secret Service into its platform and is working closely with the Federal Bureau of Investigation (FBI).

3. Blockchain Technology

The International Monetary Fund (IMF), the World Bank, the Bank for International Settlements (BIS), and the Swiss National Bank have initiated a groundbreaking collaboration to explore the tokenization of "promissory notes" used by wealthier nations to make contributions to the World Bank's funds. The goal of the collaboration is to streamline financial processes and accelerate the transfer of funds to developing economies.

In Switzerland, the world's first commercial settlements of tokenized digital securities transactions was completed last week. A real wholesale Central Bank Digital Currency (CBDC) issued by the Swiss National Bank was utilized to enable the settlements on a fully regulated Distributed Ledger Technology (DLT)-based financial market infrastructure (FMI) for digital assets.

4. Payments

Last week, Swift announced the successful launch of the European Payment Council's One-Leg-Out Instant Credit Transfer scheme (OCT Inst). This development enables 24/7 processing of payments to and from Europe, marking a substantial leap forward in real-time payment capabilities. The live implementation follows a successful proof of concept earlier this year, conducted in collaboration with Iberpay, the European Payments System, and major banks spanning Spain, Australia, Brazil, and the UK.

5. AI

The recent AI agreement among France, Germany, and Italy, advocating for voluntary regulation of foundation models of AI, has sparked growing criticism. Amnesty International's Secretary General, Agnes Callamard, expressed concerns on November 27, asserting that concerns about stifling innovation are mere rhetoric from a small faction of tech companies aiming to dictate the "AI rulebook."

A new AI initiative called the Data and Trust Alliance, comprising over two dozen companies, including fintech giants like American Express and Mastercard, introduced data provenance standards to delineate the origin, history, and legal rights over data used in AI models. The framework is mainly designed to aid businesses adopting AI models and is less applicable to extensive language models trained on public web-scale datasets.

The UK National Cyber Security Centre (NCSC), the U.S. Cybersecurity and Infrastructure Security Agency (CISA), and 21 other cybersecurity organizations released a non-binding framework addressing the intersection of AI, cybersecurity, and critical infrastructure. The collaborative framework, although not binding, will be open for other countries to join.

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See you next week!