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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 (2/27)

Hello Fintech Friends,

Last week, the regulation of cryptocurrency took center stage as several international organizations made headlines with their discussions and proposals. The Financial Action Task Force (FATF), the International Monetary Fund (IMF), the Bank for International Settlements (BIS), the Financial Stability Board (FSB), and the G20 were at the forefront of these debates. These discussions signal potentially significant shifts in policy that could shape the future of digital payment and monetary systems.

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

Before we delve into the international organizations' activities on crypto regulation, let's take a look at some recent developments in the United States. On February 23, the Board of Governors of the Federal Reserve (Fed), along with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, issued a joint policy statement. The statement urged banks to apply existing risk management principles to liquidity risks associated with deposits made by crypto companies, including stablecoin issuers. While the regulators affirmed that banks are free to provide banking services to crypto companies, they recommended that banks actively monitor liquidity risks related to crypto firms. In essence, the regulators expressed concern about the increasing interconnectedness between the crypto and banking sectors.

Meanwhile, in the United States, Custodia Bank's request for Fed membership was denied again, which means that the bank will continue to not have a Fed master account. On the Hill, Rep. Tom Emmer (R-MN) introduced a bill in the House to prevent the Fed from issuing a central bank digital currency (CBDC).

Internationally, the FATF approved an action plan to “drive timely global implementation” of its crypto standards. The FATF is the creator of the famous "travel rule" and stated in June of last year that only 11 out of 98 jurisdictions it surveyed were enforcing the rule.

The IMF published a paper titled “Elements of Effective Policies for Crypto Assets,” which outlines a framework of nine policy principles for effective crypto policy. The principles address concerns like macroeconomic stability, financial stability, consumer protection, and market and financial integrity, with the most notable being the recommendation not to grant cryptocurrency legal tender status.

In Singapore, the General Manager of the BIS, Agustín Carstens, delivered a speech at the Monetary Authority of Singapore that drew a lot of attention. Carstens proposed the development of a unified ledger that would incorporate CBDCs and tokenized deposits, along with smart contracts, which he said can be bundled together like “money lego.” What about stablecoins? Carstens was skeptical that they can become part of the monetary system in the future.

Two days prior, in a letter to the G20 finance ministers and central bank governors summit that was held in Bangalore (India), Klaas Knot, the Chair of the FSB, stated that this year his organization will finalize its recommendations for the regulation, supervision, and oversight of crypto-assets, especially stablecoins, noting that many existing stablecoins would not currently meet these high-level recommendations.

After the summit, India announced that it plans to propose global cryptocurrency regulations later this year. The proposed rules will be based on a synthesis of the proposals made by the IMF and FSB. Developing global crypto regulation has been declared one of India's top priorities during its tenure as the chair of the G20.

2. Enforcement

While all was quiet on the enforcement front, Adrienne A. Harris, Superintendent of the New York State Department of Financial Services (DFS), announced last week that the Department has bolstered its capability to identify fraud and illicit behavior in virtual currency activities conducted by entities regulated by the state of New York. The Department has accomplished this by adopting new monitoring tools that focus on insider trading and market manipulation risks, although the specifics of these tools were not disclosed.

Join me in conversation on Twitter or LinkedIn or leave a comment below.

See you next week!