Hello Fintech Friends,

Welcome to another week of fintech policy updates! This week, we'll explore the latest developments from the past week in the realms of crypto regulation, enforcement, central bank digital currencies (CBDCs), and payments.

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1. Crypto Regulation

The Blockchain Basics Act, championed by the Satoshi Action Fund, continues to gain traction as it extends its reach into three additional U.S. states: Ohio, South Carolina, and Mississippi. Spearheaded by a nonprofit organization advocating for favorable crypto regulation at the state level, this proposed legislation aims to safeguard individuals' rights to cryptocurrency ownership, self-custody, and mining within state jurisdictions. The bill was previously presented in other states, including Virginia, Missouri, Indiana, Nebraska, and Tennessee.

Across the Atlantic, the Law Commission of England and Wales, tasked with reviewing and reforming laws, initiated a brief consultation on February 22, 2024. The focus of this consultation is draft legislation intended to establish a distinct category of personal property dedicated to digital assets and non-fungible tokens (NFTs). Unlike physical assets or rights-based assets such as debts and financial securities, digital assets possess unique characteristics that don't neatly align with either category of personal property. Thus, the creation of a third category aims to address this disparity. Stakeholders are invited to provide responses to the draft legislation until March 22, 2024.

In other international news, the EU has designated Frankfurt, Germany, as the headquarters for its newly established Anti-Money Laundering Authority (AMLA). This authority, representing all 27 member nations, will have oversight over various asset classes, including digital assets. Meanwhile, the Hong Kong Monetary Authority (HKMA) has issued comprehensive guidelines for authorized institutions offering digital asset custodial services. These guidelines cover crucial aspects of custody, such as governance, risk management, asset segregation, disclosure requirements, and record-keeping. Additionally, Japan's Ministry of Economy, Trade, and Industry has announced cabinet approval for amending laws related to Limited Partnership Funds (LPS), enabling venture capital firms to hold cryptocurrencies. This move opens avenues for companies seeking funding to issue crypto tokens to investors in lieu of stocks, expanding the scope of investment opportunities in the crypto market.

2. Enforcement

 A coalition of prominent crypto firms, collectively known as the Crypto Freedom Alliance of Texas (CFAT), has initiated legal action against the U.S. Securities and Exchange Commission (SEC) in Texas, citing what they deem as "misguided SEC enforcement actions." Notable members of CFAT, including Coinbase, a16z Crypto, Ledger, Paradigm, and Blockchain Capital, are seeking to contest the SEC's actions through the state court system, intensifying their ongoing legal battle with the regulatory agency.

In a separate development, Chainanalysis, a leading crypto analytics firm, revealed recent findings indicating a decline in cryptocurrency-related money laundering activities, correlating with a reduction in overall crypto transaction volume observed last year. Interestingly, while the total transaction volume decreased by 14.9%, the decline in money laundering activity was notably steeper, reaching 29.5%.

3. CBDCs

On February 15, the EU Parliament Committee on Civil Liberties, Justice and Home Affairs (LIBE) overwhelmingly approved a draft opinion endorsing the European Central Bank's (ECB) proposal for a digital currency. The vote, which saw 48 in favor, six against, and seven abstentions, recognized the need for a CBDC in the euro area to uphold the euro's competitiveness in an increasingly digitalized landscape. Moreover, the committee underscored the pivotal role that a digital euro can play in fostering financial inclusion, emphasizing the need for universal, affordable, and easy access to the digital currency for all individuals.

4. payments

The recent news of Capital One's acquisition of Discover Financial in a $35.3 billion deal, uniting two major U.S. credit card companies, has sparked concerns across markets and regulatory circles. If finalized, the merger would establish a global payments platform with access to over 70 million merchant acceptance points worldwide. With a combined market share of 22% and approximately $250 billion in card balances, Capital One and Discover would dominate the U.S. credit card market. Rep. Maxine Waters (D-CA) and Sen. Josh Hawley (R-MO) have both voiced opposition to the merger, citing worries about increased economic power and market concentration. For many observers, the deal's success largely depends on Capital One and Discover's ability to persuade regulators that they can bring innovation and competition to the highly concentrated credit card industry.

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See you next week!