Hello Fintech Friends,

Welcome to another week of fintech policy updates. First and foremost, Happy Father's Day to all the fathers reading this post and to those who celebrated this special day with their fathers. In this week's article, we cover the latest updates related to crypto regulation, both in the U.S. and internationally, crypto enforcement actions, and open banking.

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1. Crypto Regulation

Recent developments in the past few weeks have provided greater clarity on the dynamics of crypto policy under the current U.S. Congress. The Republican-led House Financial Services Committee and Subcommittee on Digital Assets, Financial Technology and Inclusion have taken the lead in shaping discussions on broader crypto regulation and the regulation of stablecoins on the Hill. However, given the divided nature of this Congress, Republicans are forced to actively work to build bipartisan support for the regulatory initiatives originating from the House, particularly as they navigate the Democrat-controlled Senate. Meanwhile, Democrats are taking a step back, fully aware that their approval is indispensable for any regulatory initiatives proposed by Republicans to successfully come to fruition.

At the moment, two bills sponsored by House Republicans are the current focal points of the crypto regulation debates in Congress. The first is the Digital Asset Market Structure, proposed by House Financial Services Committee Chair Patrick McHenry (R-NC) and Agriculture Committee Chair Glenn "GT" Thompson (R-PA). The bill mainly aims to minimize the exposure of digital assets to U.S. securities law by devising two new categories of digital assets: (1) “digital commodities,” which are issued as digital commodities since inception (think bitcoin and ether), and (2) "restricted digital assets,” which might be initially created as centralized assets (making them securities), but they “mature” over time into commodities when they reach a sufficient degree of decentralization. Upon meeting certain requirements, restricted digital assets would be subjected to reduced disclosure requirements, which will no longer be binding when these assets turn into commodities. The second bill is the payment stablecoin bill, which we covered a month ago.

What has been the Democrats’ reaction to these regulatory initiatives so far? On June 13, at a hearing held by the House Financial Services Committee, ranking member Maxine Waters (D-CA) raised concerns regarding the provisional registration system outlined in the Digital Asset Market Structure bill for "restricted digital assets." Waters highlighted that the proposed rules could potentially enable “bad actors” to evade enforcement actions by the Securities and Exchange Commission (SEC), as the rules appear to temporarily halt any SEC enforcement actions against cryptocurrency firms, according to Waters. Accordingly, and in light of the stricter stances of other Democrats on the Committee and in the Senate, it would be reasonable to conclude that we should not expect any bipartisan consensus over the bill any time soon. The same goes for the stablecoin bill, even after the recent changes Republicans introduced to the bill last week.

Last week also saw the partisan divide in crypto regulation extend to the SEC’s proposed rule aiming to broaden the definition of exchanges subject to registration with the Commission. The new rule would encompass DeFi exchanges, even though these exchanges are mere codes that connect buyers and sellers of crypto assets without centralized intervention, at least in the view of DeFi proponents. Initially introduced in January 2022, the amendments were reopened for comments in May 2022, with the comment period concluding on June 13, 2022. Last week, House Financial Services Committee Republicans voiced strong opposition to the proposed rule in a letter sent to the SEC urging them to withdraw the proposal. As this issue unfolds, we should expect more divisions along party lines in the coming weeks.

Internationally, Brazil enacted a new law that places crypto companies under the purview of the central bank rather than the Brazilian securities regulator; Hong Kong approved a new regulation that would allow crypto companies to operate in Hong Kong if the city’s securities regulator concludes that they have “genuine operations and genuine business practices;” and the European Securities and Markets Authority (ESMA) will launch three consultations that aim to guide the implementation of the recently approved Markets in Crypto Assets (MiCA) regulation starting next month.

2. Enforcement

On the enforcement front, the SEC, during the proceedings before the Third Circuit Court involving Coinbase's petition for crypto rulemaking, stated that it had not yet made a decision but anticipated providing a recommendation within 120 days. In the ongoing SEC v. Ripple case, the disclosure of the "Hinman documents" revealed a divided SEC, but experts believe that these documents may not significantly improve Ripple's position. Additionally, BlackRock has filed an application with the SEC to become the first U.S. spot-Bitcoin exchange-traded fund (ETF), marking, if successful, a significant step in the adoption of cryptocurrencies within the traditional financial sector.

3. Open Banking

In a recent blog post, Rohit Chopra, the Director of the Consumer Financial Protection Bureau (CFPB), announced the agency's plans to introduce a highly anticipated open banking rule in the near future. Chopra emphasized that the CFPB aims to complete the rulemaking process and finalize the rule by 2024. This initiative aligns with the bureau's objective to promote open banking, enabling consumers to have greater control over their personal financial information and the freedom to share it at their discretion. In the coming weeks, we will give special attention to this topic. So, stay tuned!

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See you next week!