A weekly compilation of articles and other digital content about finance, innovation and regulation curated by our team.


August 10, 2022
Crypto carbon credit rules, growth for BNPL, Senate bill spotlights CFTC

🔒Wall Street Journal: Carbon-credit registry proposes transparency requirements for crypto exchanges

The nonprofit Verra, which operates the largest registry for carbon-offset credits, has proposed rules for trading carbon credits on cryptocurrency exchanges.

The proposed requirements would seek to address concerns about the anonymity of digital-token holders.

Verra is “considering asking for records that identify people and special accounts that track credits turned into crypto tokens, among other requirements, as it looks to rein in the market for its credits on crypto exchanges.”

The proposal includes a 60-day comment period for market participants to give feedback. The rules would go into effect later this year.

“The proposal comes as Verra and other entities deal with the fallout from cryptocurrency enthusiasts moving tens of millions of carbon credits onto digital exchanges that are backed by investors, including venture-capital firms,” according to the article in the Wall Street Journal.

The organization nonprofit has said that “it would like crypto platforms to share the identities of the creators of carbon tokens or those who claim its environmental benefit, warning that without transparency the system would be vulnerable to potential fraud. Verra is also considering whether it wants to ask for identities of those who swap these tokens.”

Protocol: BNPL sector finds new growth in business customers

A story in Protocol looked at a new growth segment for “buy now, pay later” companies: lending to other businesses.

While valuations for consumer-facing BNPL providers are on the decline, “business-to-business ‘buy now, pay later’ startups are on the rise, and it’s clear why.”

“Proponents say breaking up business payments over time promises more growth potential, a quicker path to profitability and less risk than catering to retail consumers.”

BNPL companies focusing on business customers also may save on legal costs since “business lending faces fewer regulatory hurdles than consumer financing.”

“It’s exempt from most state usury laws in the U.S., and the Truth in Lending Act, which requires certain levels of transparency in lending, is geared towards consumer credit. Most lending regulations abroad don’t address business financing either.”

Washington Post: Senate bill would give CFTC authority over two largest cryptocurrencies

Joining a crowded field of legislative proposals to clarify crypto regulatory policy, Sens. Debbie Stabenow (D-Mich.) and John Boozman (R-Ark.) — the two top leaders on the Senate Agriculture Committee — proposed a bill that “would subject bitcoin and ethereum to regulation by the CFTC.”

That agency already regulates futures markets related to the two leading cryptocurrencies. The platforms that enable investors to trade tokens, such as Coinbase, would have to register with the agency.

“Crypto interests for months have been lobbying lawmakers to empower the CFTC as their top regulator. They say the regulator would give them friendlier treatment than the SEC, where Chair Gary Gensler has taken an aggressive public line toward the industry.”

PYMNTS.com: ‘Text-to-buy’ payments options are on the rise for e-commerce

An article in PYMNTS.com highlighted new “text-to-buy” payments options allowing consumers to sidestep e-commerce websites and make purchases directly through SMS.

The latest text-to-buy option was introduced through a partnership between the e-commerce brand Shopify and the conversational commerce platform Attentive. Similarly, Meta Pay allows users to complete purchases in chat messages with businesses.

According to the article, “We’ve learned more about how to sell anywhere under any conditions in the past two years than in the prior 20, and more of that learning is appearing in the field as merchants turn to forms of conversational and embedded commerce to capture sales in the moment, in any channel.”

Fortune: Op-ed on ways to regulate crypto without “stifling” innovation

An op-ed by Matt Van Buskirk, co-founder and CEO of Hummingbird Regtech, said it is possible for crypto regulatory reforms “to protect investors without stifling financial innovation.”

New rules should include “clear, workable definitions,” he wrote. While the Securities and Exchange Commission has increased resources for crypto enforcement activities, “crypto platforms are still waiting for answers to the question of exactly how cryptocurrencies are to be classified, as well as how regulatory authority will be split or shared between the SEC and the Commodity Futures Trading Commission (CFTC).”

Policymakers should also focus on how to utilize technology to aid enforcement, Van Buskirk added. “As these new laws solidify, it will be crucial that these groups consider an often overlooked policy objective: the development of an enforcement framework that will allow regulators to move as fast as the crypto market itself.”


August 3, 2022
Prize challenges, Voyager crackdown, CFPB enforcement shift

Biden administration: U.S. and U.K. launch prize competition for privacy technologies

The White House announced the launch of prize challenges by the U.S. and U.K. “to unleash the potential of privacy-enhancing technologies (PETs) to combat global societal challenges.”

The competition offers combined cash prizes of $1.6 million for “privacy-preserving federated learning solutions that enable artificial intelligence models to be trained on sensitive data without organizations having to reveal, share, or combine their raw data,” the White House announcement said.

The two separate tracks offer prizes for solutions “improving detection of financial crime and forecasting an individual’s risk of infection during a pandemic.”

“The first track – aimed at transforming financial crime prevention – will spur technological innovation to tackle the challenge of international money laundering,” the White House said. “According to United Nations’ estimates, money laundering costs up to $2 trillion each year, undermining economic prosperity and financing organized crime.”

Reuters: Fed and FDIC order Voyager to end “misleading” deposit insurance claims

The Federal Reserve and Federal Deposit Insurance Corp. sent a letter to Voyager Digital telling the bankrupt crypto firm to cease and desist from making “false and misleading” claims that customer funds were insured by the federal government.

The agencies said the company had indicated that customer accounts had FDIC backing. In truth, the agency backs deposits at Metropolitan Commercial Bank, where Voyager holds an account, against a failure of the bank.

“‘Based on the information gathered to date, it appears that these representations likely misled and were relied upon by customers who placed their funds with Voyager and do not have immediate access to their funds,’ the regulators said in a joint statement.”

Associated Press: CFPB chief suggests new enforcement approach stemming from tech shift

With the tech giants offering financial products and other signs of transformation in the financial sector, monetary fines issued by the Consumer Financial Protection Bureau may no longer be sufficient to deter illegal activity, CFPB Director Rohit said in an interview published by the Associated Press.

His comments come as companies like Apple and Amazon get more involved in financial services, and “amid the rapid growth of buy now, pay later companies, which offer ways for borrowers to split up a purchase into a small number of equal installments.”

“‘We are trying to make sure that we have a real-world understanding of today’s markets, not in light of what happened in the pandemic, but in light of banking has really changed in the past few years,’” Chopra told the news agency.

The article said the CFPB is exploring alternatives to monetary fines “to rein in illegal practices, ranging from limitations on a firm’s growth or banning a company from opening new accounts, as well as imposing fines and liability on individuals instead of just the company.”

Coindesk: Bipartisan bill would create crypto advisory role in White House

New legislation headed to President Biden’s desk, aimed at expanding computer chip manufacturing, will also create a new position in the administration to advise officials on blockchain and crypto issues.

The new position will be in the Office of Science and Technology Policy, which “was directed in the president’s executive order on crypto to analyze the effects digital assets are having on climate change and return later this year with a report.”

“The bill, known as the Chips and Science Act, won a number of Republican supporters on an otherwise Democrat-heavy effort that will be counted as a significant political win for the party and President Biden.”


July 20, 2022
Future financial jobs, CFPB deadline, NFTs spark IP concerns

🔒Wall Street Journal: How technology is transforming jobs in the financial sector

The Wall Street Journal, in its “The Future of Everything” installment, looked at new types financial sector jobs that have emerged (and could become more dominant) with the continued growth in digital tech.

For example, banks have started hiring their own in-house hackers. “Large financial institutions have long hired companies to hack into their systems and report back on weaknesses, a process called penetration testing, says Shawn Moyer, co-founder of one of those companies, security-research firm Atredis Partners. A big change that he’s seen in recent years is that financial institutions are employing in-house penetration testers to continuously test their systems.”

Other new types of careers include NFT appraisers; a reimagined role for loan officers to offer financial advice because they will no longer have to run “down paperwork; a chief fintech officer; and a financial-bot adviser.

“People are going to need a new kind of financial adviser if they want someone to help them manage their virtual portfolios of NFTs and other assets, says Bertrand Perez, CEO of the Switzerland-based Web3 Foundation.”

🔒American Banker: Court sets deadline for CFPB small-business data rule

More than a decade after Congress required the Consumer Financial Protection Bureau to write its small-business data collection rule, a federal judge signed a court order stipulating that the agency has agreed to finish the regulation by March 31, 2023.

The provision is meant to identify areas of discrimination in small-business lending, but the agency has struggled to get the rule off the ground. Observers have said the prolonged delay stems from the fact that the regulation is complicated to write.

“CFPB Director Rohit Chopra has portrayed himself as a staunch supporter of small businesses and has defended access to credit in rural communities with few banks. But going through with the small-business lending rule could have the unintended effect of reducing lending where it is needed most by adding more paperwork to the process.”

New York Times: Columnist alleges regulatory evasion by crypto sector

New York Times columnist Paul Krugman suggested that crypto was able to evade regulatory oversight leading up to the recent pricing turmoil by gaining “a reputation for respectability through association with high-status institutions and individuals.”

“Given this aura of mainstream approval, how many people would have been willing to believe that the digital emperor had no clothes?” Krugman wrote. “More to the point, how many would have been willing to accept a regulatory crackdown?

The columnist said crypto “evolved into a sort of postmodern pyramid scheme.”

“The industry lured investors in with a combination of technobabble and libertarian derp; it used some of that cash flow to buy the illusion of respectability, which brought in even more investors. And for a while, even as the risks multiplied, it became, in effect, too big to regulate.”

Cointelegraph: Government examining IP effects of digital assets

The U.S. Patent and Trademark Office and U.S. Copyright Office are investigating the impact of digital assets such as NFTs on intellectual property rights.

“The examination of NFTs comes after a request from Senators Patrick Leahy and Thom Tillis in June for a deep dive into the potential ramifications the burgeoning asset class could have in regard to intellectual property rights,” according to a report by Cointelegraph.

The exponential growth in NFTs has sparked a backlash from companies that say “their products or intellectual property [have been] infringed upon in recent months.”

“A number of high-profile brands have sought legal recourse against NFT marketplaces and platforms that may have infringed on associated IP rights.”

Fortune: ECB urges tougher crypto regulation to prevent contagion

A “blistering report” by the European central bank called for stronger regulation of the crypto industry to prevent “contagion effects” that could result from the failure of one of the larger stablecoin providers.

“[The] recent drop in crypto prices, along with the downfall of the algorithmic stablecoin TerraUSD, has Europe’s central bank saying enough is enough, or it should be.”

The ECB urged “holistic and coordinated” regulation and criticized decentralized finance (DeFi) for having little utility despite the risk it presents to investors.

“This new report comes after the E.U.’s May approval of the Markets in Crypto-Assets (MiCa) regulatory framework that offers guidance on how crypto companies should operate in Europe,” the story said. “MiCa is expected to come into law in 2024, but ECB President Christine Lagarde said last month that more regulation will likely be needed before then.”


July 13, 2022
Metaverse standards, FDIC probes Voyager, Klarna’s valuation drop

🔒WIRED: What is the goal of new metaverse standards group?

A recent story in WIRED Magazine explored the new Metaverse Standards Forum, a collective made up of diverse companies such as Microsoft and Ikea and the nonprofit standards organization Khronos Group.

“Despite there being no clear definition of what ‘the metaverse’ even means, these companies and more are cooperating to make it interoperable. So what are they actually doing?”

The metaverse has largely existed for the gaming industry, but developers envision “a futuristic virtual world” where consumers will do much of their shopping, banking and socializing.

“Rather than focusing on what the metaverse means in a future-prediction sort of way, the Metaverse Standards Forum is designed to focus on the building blocks of what developers need today. Other people (like me) can bicker about the nomenclature.”

🔒Wall Street Journal: FDIC scrutinizes Voyager’s marketing materials in wake of bankruptcy

The FDIC launched an inquiry into Voyager Digital’s marketing after customers of the bankrupt crypto brokerage and lending firm were surprised to learn they didn’t have the backing of the government agency that they had expected, the Wall Street Journal reported.

Voyager, which “was caught in a spiral of plunging crypto prices,” froze withdrawals on $350 million of deposits held in a single custodial account at Metropolitan Bank.

“Some customers online said they were only just learning their deposits weren’t insured by the Federal Deposit Insurance Corp. in the way they thought. Voyager had marketed the accounts as protected by that national safety net, an attractive pitch in the volatile world of cryptocurrency.”

Metropolitan Commercial clarified that accounts qualify for FDIC insurance only in the case that the bank fails, which did not happen.

“The confusion drew the attention of the FDIC, which is looking into Voyager’s marketing, according to a person familiar with the matter,” the story said.

TechCrunch: Challenging times for BNPL provider Klarna

A story in TechCrunch looked at the “plunging valuation” for Klarna, the Swedish buy-now-pay-later and “upstart bank.”

“In case you missed it, on July 1, the Wall Street Journal reported that the Swedish buy now, pay later behemoth and upstart bank is reportedly raising $650 million at a $6.5 billion valuation, giving new meaning to the phrase ‘down round.’”

After massive growth, the company laid off 10% of its workforce in May and “the projection for the company’s alleged latest funding round and new valuation has steadily declined in recent weeks.”

Just about a year ago, Klarna was the highest-valued fintech in Europe.

“It’s also important to note, though, that Klarna is not the only BNPL provider that has seen a decline in valuation. As another tech enthusiast tweeted on Friday, competitor Affirm’s stock is also down significantly.”

Various: Officials owning crypto banned from working on digital asset policies

The U.S. Office of Government Ethics issued a new advisory that effectively bans officials who own cryptocurrencies from “working on regulations and policies that could affect the value of digital assets.”

The ruling applies to all federal employees. It contains an exemption allowing policymakers to invest up to $50,000 in mutual funds with stakes in companies benefiting from crypto technology.

According to CoinDesk: “The directive will likely have a significant impact on some White House staffers who have been open about their crypto investments, like Tim Wu, a technology adviser to the Biden administration who holds millions of dollars in bitcoin. Wu has already voluntarily recused himself from working on crypto policy.”

🔒American Banker: Fed official voices support for CBDC concept

Federal Reserve Board Vice Chair Lael Brainard, speaking at a Bank of England conference, said a central bank digital currency could help fortify a system of regulated stablecoin providers.

“‘Given the foundational role of fiat currency, there may be an advantage for future financial stability to having a digital native form of safe central bank money — a central bank digital currency,’ Brainard said in remarks delivered at the conference. ‘A digital native form of safe central bank money could enhance stability by providing the neutral trusted settlement layer in the future crypto financial system.’”

Brainard gave her comments as the Fed studies whether a digital dollar is something that U.S. policymakers should try to adopt. Other officials, such as Fed Chair Jerome Powell, have been more neutral and the banking industry has criticized the idea.

“While falling short of an outright endorsement of a digital dollar, Brainard described the development of a CBDC as a ‘natural evolution’ of the interoperability of public and private currencies,” the article said.


July 6, 2022
Rise of FTX, AI help for banks, India’s payments success

Reuters: EU policymakers strike deal on rules for digital tokens

A deal worked out between representatives of the EU Parliament and EU states will establish new licensing and consumer protection requirements for crypto companies to issue and sell digital tokens, Reuters reported.

Officials said the Markets in Crypto-assets (MiCA) law is aimed at reining in a “Wild West” market. The law, which still needs formal approval by the European Parliament and EU states, “gives issuers of crypto assets and providers of related services a ‘passport’ to serve clients across the EU from a single base,” the story said.

“Holders of stablecoins – a type of crypto designed to hold a steady value – will be offered a claim at any time and free of charge by the issuer, with all stablecoins supervised by the bloc’s banking watchdog EBA.”

But he pointed to key officials — including CFTC Chair Rostin Behnam and Deputy Treasury Secretary Wally Adeyemo — who, he said, recognize “the positive potential of cryptocurrencies, digital assets and blockchain technology.

🔒Various: Profile of FTX and its CEO grows amid crypto struggles

Several publications of late have delved into the influence and aspirations of the crypto exchange FTX and its increasingly recognizable CEO, Sam Bankman-Fried.

Bankman-Fried, with an estimated worth of $20.5 billion, has emerged as a key backer for “beleaguered crypto companies” hit by the industry’s market turmoil, according to CNBC. FTX agreed “to provide BlockFi with a $250 million revolving credit facility.” Voyager Digital, a digital asset brokerage, “said Alameda Research, Bankman-Fried’s quantitative research firm, would provide it with $500 million in financing.”

“The 30-year-old has emerged as something of a savior for the $900 billion crypto market as it faces a deepening liquidity crunch. In an interview with NPR, Bankman-Fried said he feels his exchange has a ‘responsibility to seriously consider stepping in, even if it is at a loss to ourselves, to stem contagion.’”

FTX is also exploring whether to acquire the trading platform Robinhood Markets Inc., according to reporting from Bloomberg. “A deal would combine two companies that vaulted to prominence during a pandemic-fueled trading boom, only to struggle with sharp declines this year in equity and crypto markets. It would also mark the end of a period of dramatic transformation for Robinhood, a popular trading platform among fledgling investors, with 22.8 million accounts.”

Other stories profiled Bankman-Fried himself. TheStreet said he “has become the savior the struggling crypto industry needs to avoid a complete shipwreck.”

“It is difficult to talk about a struggling crypto firm without his name appearing as the potential savior to prevent things from going downhill.”

An article in New York magazine said: “He’s the zhlubby guy onstage with Gisele Bündchen and Bill Clinton in the Bahamas, looking perfectly comfortable in a T-shirt, shorts, tube socks, and running shoes — a power move by way of his ostentatious display of informality.”

SBF, as he is widely known, “has stakes in two exchanges, a hedge fund, a brokerage, and a clearing corporation is now mulling buying the brokerage outright,” the story said. Regulators may scrutinize this activity, but it’s still unclear who regulates crypto firms. This points to a real issue right now on Wall Street, in that, by the time different federal regulators figure out how they’re going to divvy up responsibility for the crypto industry, the bubble will have been long ago burst and the survivors with the most money are going to remake the industry how they see fit.”

The Financial Brand: Tech emerges to help banks explain AI outcomes to regulators

A story in The Financial Brand focused on the difficulty for banks to explain how their AI models arrived at a certain outcome.

“In computer engineering circles this concept is known as a ‘black box’ — which describes a system which can take inputs and provide outputs, but not provide analysis of how those outputs were determined,” the article said. “This is increasingly becoming an issue in financial services. Many regulators are already looking at how AI in lending might lead to model bias, for example. Additionally, The Consumer Financial Protection Bureau (CFPB) in February said it has ‘outlined options to ensure that computer models used to help determine home valuations are accurate and fair.’”

This challenge could discourage banks from using AI for innovative purposes as Biden administration regulators “take a more aggressive approach to oversight of banking practices including use of AI in lending.” However, “explainable AI” (known as XAI) technology holds promise for addressing such risk and “deflecting regulatory criticism.”

“Ultimately, XAI aims to make AI models more explainable, intuitive, and understandable to human users without sacrificing performance or prediction accuracy.”

Fortune: India’s UPI payments platform already achieves what Web3 promises

An opinion piece in Fortune magazine argued that India’s successful real-time payments platform — United Payments Services, known as UPI — has already achieved what the cryptocurrency community and its Web3 have promised.

UPI has entered the European market, merchants in several Asian countries accept UPI payments and India’s National Payments Corporation is negotiating an integration deal with Australia’s fast payment platform, wrote co-authors Vivek Wadhwa, Ismail Amla and Alex Salkever.

“The reason for its broad adoption abroad is that UPI has been shown to work well for a very large population. In addition, UPI has an open protocol upon which other technologies can be built, creating a much larger and more useful network than its competitors for financial payments,” they wrote.

“By facilitating exactly what blockchain was supposed to do—cutting out intermediaries and inducing greater competition—UPI could force a global acceleration of innovation in payment technology.”

Protocol: CFPB terminates safe harbor for wage access provider Payactiv

The Consumer Financial Protection Bureau announced the termination of sandbox treatment for Payactiv. The company partners with employers to provide users with a cash advance of their earned but unpaid wages.

“The CFPB granted Payactiv ‘special regulatory treatment’ in December 2020 to offer ‘earned wage access’ products that would allow employees to obtain wages they already earned before payday,” according to Protocol.

The bureau informed the company earlier this month that it was weighing the termination “‘in light of certain public statements the company made wrongly suggesting a CFPB endorsement of its products,’” the article said. According to the agency, Payactiv had asked that the sandbox order be removed because the company planned to alter its fee model.

The agency’s “move underlined the CFPB’s increasingly critical view of sandbox deals that the agency said ‘proved to be ineffective.’”


June 29, 2022
Regulators’ crypto stances, Lummis on proposed reform, BNPL crackdown

CoinDesk: Praise for regulators’ ‘constructive’ approach to crypto policy

CoinDesk’s chief content officer sounded a note of optimism about a “cadre of regulators … [who] generally wants to be constructive” in developing cryptocurrency rules amid recent failures and other turmoil in the industry.

The collapse of the Terra USD stablecoin and the crypto lender Celsius, as well as liquidity troubles at the crypto hedge fund Three Arrows Capital, means “it should now be clear to all that this industry needs better, clearer and consistent rules,” wrote Michael J. Casey in an opinion piece for the news site.

Casey warned against “a knee-jerk policy response to the latest fallout,” which could include “regulators … forcing more centralization on an industry when the best way forward is to build workable decentralized systems that can’t be exploited by self-interested players.”

But he pointed to key officials — including CFTC Chair Rostin Behnam and Deputy Treasury Secretary Wally Adeyemo — who, he said, recognize “the positive potential of cryptocurrencies, digital assets and blockchain technology.

“This might be hard to accept for many in the crypto community who’ve seen the government as the enemy, but hearing these people’s open-minded perspectives has put them in a far more positive light than various crypto leaders whose dubious behavior has caused great pain for so many over the past few months.”

Protocol: Lummis seeks to set record straight on her crypto reform bill

Sen. Cynthia Lummis, R-Wyo., gave a wide-ranging interview on her efforts along with Sen. Kirsten Gillibrand, D-N.Y., to propose a legislative framework for cryptocurrencies.

She pushed back on the assertion that their bill crowns the CFTC as the lead crypto regulator. While their legislation indeed authorizes the CFTC to oversee digital assets with a large presence, such as Bitcoin and Ether, the SEC would regulate smaller entities that have had more association with fraud allegations.

“We need to make sure that for those legitimate digital assets like bitcoin, which is, in so many ways, the hardest money that’s ever been created in the history of the world, that their credibility isn’t tarnished by digital assets that were fraudulently created with nefarious intent,” she said.

“Some people are so new to this industry that they don’t realize there are over 15,000 cryptocurrencies, most of which are probably going to be regulated at the SEC. But in terms of market share, you’ve got two cryptocurrencies that are around 60% of market share: bitcoin and ether. So the bigger ones are more apt to be at the CFTC.”

Lummis said the recent turmoil in the crypto market, including the collapse of the TerraUSD stablecoin “helped to illustrate the need for this bill.”

“The stablecoins that we authorize would be those that are either issued by a financial institution insured by the FDIC or are 100% hard asset-backed. We want to make sure that when people are dealing with a stablecoin, especially a dollar-denominated or fiat-backed stablecoin, that it is stable. I mean, that’s the whole point of calling it a stablecoin.”

Reuters: U.K. announces new curbs on BNPL companies

Britain announced plans to regulate “buy now pay later” companies, according to Reuters.

The government intends to release a consultation draft on BNPL regulation later this year. Under the plan, BNPL firms would need to seek approval from the Financial Conduct Authority and conduct “affordability checks,” among other requirements.

The BNPL industry emerged during a time of low interest rates, but the prospect of rate hikes “could spell trouble for the sector,” the article said.

“‘Buy-now, pay-later can be a helpful way to manage your finances but we need to ensure that people can embrace new products and services with the appropriate protections in place,’ said John Glen, economic secretary to the finance ministry.”

Bloomberg Law: Digital dollar idea draws skepticism from diverse array of groups

There is “rare alignment among banks, consumer advocates, and lawmakers” who have expressed skepticism about the financial inclusion potential of a digital dollar, according to an article in Bloomberg Law.

Some say a Fed-issued digital currency widens economic and technological gaps in communities without broadband access, while others express concerns about the role of banks as intermediaries.

The banking industry has been highly skeptical of the idea as the Federal Reserve continues to study whether a digital dollar would be worthwhile, but the concerns are not limited to banks. For example, community reinvestment advocates worry that a digital dollar would mean fewer bank deposits covered by the Community Reinvestment Act.

“‘If you have fewer deposits that have a CRA obligation, you’re going to see more problems not being solved in communities,’ said Adam Rust, a senior advisor at the National Community Reinvestment Coalition.”

Meanwhile, some critics say a bank-intermediated system for distributing digital currency “wouldn’t help consumers who already lack access to deposit accounts because of high fees, balance minimums, and a deep-rooted wariness of financial institutions,” the article said.

🔒Bloomberg: China signals rollback of fintech restrictions

Bloomberg reported on a meeting of Chinese officials led by President Xi Jinping in which they backed the establishment of a “healthy” fintech industry.

The move was seen as somewhat of a reversal of the government crackdown on companies like Ant Group Co., which “torpedoed” Ant’s IPO in 2020. The announcement likely will enable Ant to create a financial holding company.

The meeting of the central commission “also backed enhancing regulation of major payment platforms, state broadcaster China Central Television reported, adding that companies would be encouraged to return to their roots while the authorities will improve regulation,” the article said.

“A meaningful relaxation of curbs on Ant … would send a powerful signal that policy makers are following through on recent pledges to support the industry.”


June 22, 2022
Celsius fallout, ‘no-action’ letter revoked, transatlantic AML prize

Various: Celsius troubles make for another tough week in crypto market

It was another topsy-turvy week in the cryptocurrency markets after the crypto bank Celsius — which pays customers interest in return for lending out their deposits — announced that it was pausing withdrawals as well as swap transactions and transfers between accounts because of “extreme market conditions.”

The move came amid continued fears about price volatility and liquidity concerns at top crypto firms. Binance temporarily paused Bitcoin withdrawals and BlockFi said it was reducing its workforce by 20%.

Forbes magazine quoted “experts [who] say that the crypto collapse on Monday is yet another sign of the risk-averse sentiment in markets, as investors flee to safer bets amid a backdrop of rising rates and recession fears.”

Writing for the Defector — an employee-owned sports and culture website — Patrick Redford said Celsius’s similarities to a traditional bank only go so far.

“Celsius is essentially a crypto bank, one that operates on certain principles of traditional finance, only the lending firm uses cryptocurrency instead of actual currency; for that reason, it boasts of the sort of outlandish returns no traditional bank can realistically offer,” he wrote. “Crucially, however, and notably unlike traditional banks, the values of the assets traded on Celsius are highly unstable, and the firm is not FDIC-insured.”

On Wednesday, the Wall Street Journal reported that Celsius had engaged with restructuring attorneys. And CoinDesk reported that the price of Bitcoin on Wednesday had fallen near $20,000 — a level not seen since mid-2020 — amid “contagion risk.”

“Bitcoin fell to just above the $22,000 level in U.S. hours Tuesday. The decline gathered pace Wednesday morning, with the cryptocurrency sliding under $21,000, dropping for the eighth consecutive day and losing 30% over the past week,” CoinDesk said.

Politico: Crypto lenders fear getting caught in regulatory headwinds

Other crypto lending businesses are worried about a regulatory backlash resulting from the troubles at Celsius, according to Politico.

“The ongoing crisis has raised new fears that market regulators could put the kibosh on the nascent crypto lending businesses that have positioned themselves as alternatives to traditional banks,” the story said.

Patrick Heusser, the chief executive for Crypto Finance, told the news outlet that he was “pretty angry at how reckless[ly] Celsius is conducting their business.”

“My guess is that a rather strong or overreacting measure by the regulators will be the result (instead of a thoughtful one),” he said in the article.

“Heusser is far from alone. At an Amsterdam fintech conference last week, attendees working for crypto companies were whispering concerns about Celsius and fearing a regulatory backlash.”

Protocol: CFPB revokes ‘no-action’ letter for fintech lender

In another sign of the Consumer Financial Protection Bureau’s more conservative approach toward fintech startups, the agency and the AI-driven lender Upstart mutually agreed to end an arrangement that had provided the company with “limited regulatory immunity,” according to a June 14 story in Protocol.

Last week, the CFPB nullified its so-called no-action letter for Upstart. The lender was the first company to receive such a letter in 2017 under an agency program to “help bring new products to market.” The letters along with a sandbox program promised flexibility to startups to experiment with product development without an overarching fear of regulatory enforcement.

But in May, Biden-appointed Director Rohit Chopra said “the CFPB would reorganize [its innovation] office and shift away from efforts that place ‘special regulatory treatment on individual companies.’”

“Upstart said it requested the letter’s termination in response to ‘changing priorities’ at the agency, as well as the ‘need to keep our risk models accurate and up-to-date during a period of significant economic change,’ Nat Hoopes, Upstart’s vice president and head of public policy and regulatory affairs, said in a company blog post.”

Wall Street Journal: Transatlantic ‘prize challenge’ aims to improve AML data analysis

The U.S. and U.K. are collaborating on a “prize challenge” to foster solutions for better analyzing anti-money laundering data without violating data-privacy requirements, the Wall Street Journal reported.

The Financial Crimes Enforcement Network in the U.S. and the U.K.’s Financial Conduct Authority are involved in the effort “to encourage the development of new machine-learning technologies that could be used to combat money laundering.”

“Though governments have encouraged financial institutions to create information-sharing partnerships to improve their reporting activity and make the data more meaningful, data-privacy rules create challenges for doing so,” the story said.

“The U.S. and the U.K. said they want to improve technology that will allow machine-learning models to be trained on data from multiple sources without that data leaving a safe environment—a method known as federated learning.”

Finextra: Swedish banks will be first to test pan-Nordic instant payments platform

More than two dozen banks connected to the Swedish instant payments platform Swish are set to test the pan-Nordic payments solution P27 by the end of the year.

P27 is backed by Danske Bank, Handelsbanken, Nordea, OP Financial Group, SEB and Swedbank. The new platform’s “lofty ambition is to create one common state of the art payment platform in the Nordic countries,” Finextra reported on June 10.

“While Swedish banks may be the first to join P27’s platform, their Danish counterparts aren’t far behind. Like in Sweden, a transformation committee has already been set up in Denmark to facilitate the transition towards P27.”


June 14, 2022
LGBTQ+ survey, New York stablecoin guidance, synthetic data in AI

Bankless Times: LGBTQ+ community more likely to use crypto than other consumers

As reported by Bankless Times, over a third of LGBTQ+ Americans have a cryptocurrency wallet compared to just 16% of the U.S. population overall. The data came from the LGBTQ+ Money Study, conducted by The Motley Fool and the Debt Free Guys, which said 48% of LGBTQ+ Americans experienced discrimination from financial services providers, and 44% reported that that contributes to financial insecurity.

“Out of all financial products listed in the study involving 2,005 LGBTQ+ Americans, cryptocurrency was the only one that LGBTQ+ Americans are more likely to have,” the Bankless Times article said. “As a more …[detailed] breakdown, 33% lesbian, bi, or gay, 44% transgender, and 29% genderqueer/non-binary respondents said they own cryptocurrency wallets.

Citing outside observers and the study, the story said, “[A]nonymity and accessibility a decentralised currency offers is one reason cryptocurrency may be particularly appealing to the LGBTQ+ community, who may face prejudiced attitudes from traditional financial services.”

🔒American Banker: Mastercard sponsors Pride Plaza in metaverse

Mastercard joined forces with Decentraland, the metaverse platform, to sponsor a venue in the virtual environment to host conversations with LGBTQ thought leaders, feature NFT wearables created by LGBTQ artists and facilitate other ways to connect with the LGBTQ community during Pride Month.

As reported by American Banker, the partnership is part of Decentraland’s Metaverse Pride initiative. The event will include the Mastercard Pride Plaza, which will “provide a portal for people to send letters to their younger selves, and experience virtual travel.”

Mastercard’s other LGBTQ inclusion efforts “include the True Name program, which allows transgender and nonbinary people to use their preferred name on cards,” according to the article.

Speaking to the banking news site, Raja Rajamannar, Mastercard’s chief marketing and communications officer, said the company’s participation is intended for the card network to show its support for the LGBTQ community while also gaining experience in platforms tied to Web 3.0 and the blockchain.

“Like Visa, Ripple and other payment companies, Mastercard is still looking for use cases in Web 3.0, but there are opportunities to process payments for sales of NFTs and use digital assets for rewards. American Express also uses NFTs as part of incentive marketing, and St. Jude Research Hospital has sold NFTs as part of its fundraising.”

New York State DFS: Guidance on reserving, attestations for dollar-backed stablecoin issuers

The New York State Department of Financial Services became the first financial regulator to issue guidance on dollar-backed stablecoins. The guidelines include that a stablecoin approved for issuance by the state must be fully backed by reserves held in custody by a depository institution or asset custodian, and that management’s attestation concerning reserve backing is audited once a month.

“Since DFS approved the first USD-backed stablecoins for issuance in New York in 2018, our regulated entities have had to meet conservative reserve requirements and provide routine attestations to protect consumers and ensure the stability of the coins issued,” said Superintendent Adrienne Harris in a press release on June 8, the same day that the department issued the guidance. “Leveraging our years of expertise in the space, our Regulatory Guidance today creates clear criteria for virtual currency companies looking to issue USD-backed stablecoins in New York.”

The New York regulator was among the first government agencies to focus on crypto companies, introducing its BitLicense for virtual currency activities in 2014.

Leading up to the release of the stablecoin guidance, two senior officials in the department spoke to AIR CEO Jo Ann Barefoot on her Barefoot Innovation Podcast. Kaitlin Asrow, executive deputy superintendent of research and innovation, said Harris and others at the department “are really committed to keeping New York at the center of technological innovation — the center of forward-looking regulation across all financial services and continuing to be this preeminent regulator of virtual currency.”

Forbes: Synthetic data emerges as key resource for AI developers

Forbes published a deep-dive article by venture capitalist Rob Toews on the emergence of synthetic data in the world of artificial intelligence, with use cases in sectors such as autonomous vehicles, financial services and healthcare.

“Data is the lifeblood of modern artificial intelligence,” the article said. “Getting the right data is both the most important and the most challenging part of building powerful AI. Collecting quality data from the real world is complicated, expensive and time-consuming. This is where synthetic data comes in.”

The story cited a Gartner study that found that 60% of the data utilized for developing AI “will be synthetic rather than real by 2024.”

Synthetic data is a “particularly natural fit for” autonomous vehicles, Toews wrote.

“Collecting real-world driving data for every conceivable scenario an autonomous vehicle might encounter on the road is simply not possible. Given how unpredictable and unbounded the world is, it would take literally hundreds of years of real-world driving to collect all the data required to build a truly safe autonomous vehicle. So instead, AV companies developed sophisticated simulation engines to synthetically generate the requisite volume of data and efficiently expose their AI systems to the ‘long tail’ of driving scenarios.”

CoinDesk: Thumbs up from CFTC chief on crypto policy bill

CoinDesk reported on June 8 that Rostin Behnam, chairman of the Commodity Futures Trading Commission, praised the crypto reform bill proposed by Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y. The bill would give the CFTC a key role in regulating digital assets treated as commodities.

“‘It does a very good job,’ Behnam said Wednesday at a cryptocurrency event hosted by the Washington Post. “One of the trickiest things we’re going to have to do – and I think they address this very well – is deciphering between a commodity and security.”

Whether the CFTC or Securities and Exchange Commission is in the driver’s seat of crypto regulation has been one of the key questions about lawmakers’ deliberations over how to police the burgeoning sector.

Speaking at the same event, Lummis and Gillibrand “were quick to point out that the Securities and Exchange Commission – which has been perceived by the cryptocurrency industry as being more adversarial than the CFTC – is also given a major role and a new system of disclosures” in the bill.


June 7, 2022
Crypto reform bill, banks’ metaverse moves, Nigerian startup

🔒Various: Senators Lummis and Gillibrand drop crypto reform bill

There was ample coverage on June 7 of the crypto reform bill proposed by Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y., after weeks of anticipation and intense lobbying effort. The Wall Street Journal reported that the “industry-friendly” bill “would create special exemptions to federal law for some cryptocurrencies.”

The bill would also grant the CFTC authority “to regulate so-called spot markets for” decentralized digital tokens that would essentially be treated like commodities, the WSJ said.

CoinDesk said the proposal “attempts to tackle the biggest questions hanging over digital assets.”

“It would set new federal law for stablecoins, taxes on small-scale payments and the jurisdictions of regulators – answering the uncertainties that have kept the fledgling financial sector from maturing,” according to the news site.

Yet the bill is not expected to pass anytime soon. “The effort from Lummis and Gillibrand, however, is seen in Washington as a starting point for a dialogue that won’t lead anywhere significant before next year. It joins several previous bills that mostly sought to bite off narrow pieces of the cryptocurrency landscape, such as the recent push for stablecoin rules by Sen. Pat Toomey (R-Pa.). It even borrows from some of that work,” according to the CoinDesk story.

The Washington Post said the crypto industry scored “a big win” with the bill.

“By giving primary responsibility for crypto oversight to the CFTC, the relatively small agency tasked with regulating a swath of financial markets, from grain futures to more complex products, the bill — introduced Tuesday — sidelines the SEC, whose chair, Gary Gensler, has taken an aggressive posture toward crypto interests,” the Post’s story said.

Bloomberg Law: White House plans to study crypto’s carbon impact

Bloomberg Law reported that the Biden administration is preparing a report, expected to be released in August, with policy recommendations on how to reduce the cryptocurrency sector’s energy use and carbon footprint.

The study could be one of the first policy documents produced by the government after the White House released an executive order urging agencies to develop their approaches to digital assets.

“‘It’s important, if this is going to be part of our financial system in any meaningful way, that it’s developed responsibly and minimizes total emissions,’ Costa Samaras, principal assistant director for energy for the White House Office of Science and Technology Policy, told Bloomberg Law.”

A key question is whether the government takes a “carrot or stick” approach to regulating crypto’s energy consumption.

“Some see the role of the federal government as shaping disclosures to investors who will then push crypto miners to clean up their operations,” the news outlet said.

A new White House energy team “plans to assess everything from local noise pollution to the energy efficiency of using different mining techniques—comparing Bitcoin’s proof-of-work technique with proof-of-stake, which is used by other cryptocurrencies and is more than 99% more energy efficient.”

Banking Dive: Banks jockey to be early movers in the metaverse

Numerous banks are trying to gain a “first-mover advantage” by having an early presence in the metaverse, according to a story in Banking Dive. They include JPMorgan Chase, which made books on the bank’s annual summer reading list available “for visitors to peruse in the virtual lounge it set up in Decentraland.” Last month, Quontic Bank opened an outpost of the New York-based digital bank.

“The metaverse, a virtual world which users can explore through the use of virtual reality and augmented reality headsets, is a new interaction and engagement model for society, said Sandeep Vishnu, a partner at consulting firm Capco, and it’s a space the banking industry can’t afford to sit out.”

Quontic Bank celebrated its foray into the metaverse with a virtual launch party complete with a DJ and NFT giveaway, the story said.

“‘If the metaverse is a new model for society, for interaction and engagement, then banks have to follow that,’ said Vishnu. ‘Banks have to figure out what role they are going to play in the metaverse, and getting a move and being part of the ecosystem early on might give them some landing rights that wouldn’t be there if they don’t move early.’”

Washington Post: Wikipedia editor builds following as crypto critic

A story in the Washington Post profiled Molly White, a 28-year-old software engineer who created the website Web3 is Going Just Great, where she “documents case after case of crypto malfeasance: investments that turn out to be scams, poorly-run projects that collapse under mismanagement and hacks that drain supporters’ money.”

“As much of the financial and tech elite has rallied around crypto, White has led a small but scrappy group of skeptics pushing the other way whose warnings have seemed vindicated by the cratering in recent weeks of cryptocurrency prices,” according to the article.

“‘Most of my disdain is reserved for the big players who are marketing this to a mainstream audience as though it’s an investment, often promising to be a ticket out of a really tough financial spot for people who don’t have many options,’ White said. ‘It’s very predatory.’”

White has had extensive experience writing and editing Wikipedia pages, including editing “articles on the brutal online attacks on women gamers and journalists, which came to be known as ‘GamerGate,’ and the ‘boogaloo’ militia movement” during the Trump presidency.

“Many of the posts on White’s website focus on projects that target middle-class investors looking for a way to trade their way into a new level of financial freedom. In longer posts, she untangles the devilishly complicated structures that prop up most crypto companies and initiatives, such as Axie Infinity, a business that allowed people, many in the Philippines, to make money by playing a crypto-based video game.”

🔒Tearsheet: Nigerian fintech Okra aims to offer African open banking portal

A story in Tearsheet (subscription required) profiled the Nigerian fintech Okra, an open banking platform that “aims to be a portal between financial service providers and consumers’ financial data.”

“For now, Okra’s focus is to serve companies in Nigeria. That may be a pretty natural starting point – according to [co-founder David] Peterside, not only is Nigeria the largest market on the continent but it’s also predicted to be the third largest country in the world by 2050. Still, Okra’s goal is to eventually spread across Africa.”

Okra emerged in 2019 as “one of the first of its kind in the African open banking space,” the article said.

Peterside is quoted as saying, “[W]hether you call yourself a bank or a fintech, depending on the license you have, if you want to build any fintech feature or platform, you can essentially use Okra as a full stack solution.”

Protocol: WeWork founder backs blockchain startup focused on carbon credits

A story in Protocol discussed the early funding success of Flowcarbon, which plans to sell tokenized carbon credits on the blockchain. Among the firm’s co-founders are Adam Neumann, the ousted founder of WeWork, and his wife Rebeka. The company recently announced that it had raised $70 million from venture funding and a token sale.

Carbon credits are meant as a way for companies to offset greenhouse gas emissions.

“Flowcarbon sees the blockchain as the best way to connect buyers of credits with developers of projects that create the offsets, with a focus on nature-based carbon removal efforts, such as reforestation,” the story said.


June 1, 2022
Mobile-payments boom in India, Terra’s MLB deal, CFPB nixes startup program


🔒WSJ: Consumers in India have embraced mobile payments, but is it profitable?

A story in the Wall Street Journal on May 27 delved into India’s mobile-payments boom.

Explosive growth in the sector for companies like Google, Walmart’s Flipkart and Paytm can be explained by ubiquitous use of mobile payments among Indians. Even those begging for money and their donors exchange funds with devices equipped with a QR code, the article said.

“Indians have been migrating toward digital financial services for some time. That is in part due to rising wealth, better internet and more-affordable technology—and because Prime Minister Narendra Modi put digital transformation at the center of government policy.”

In India, the task of developing a technological framework for phone-based payments transactions was given to a nonprofit overseer, the National Payments Corporation of India. Its mandate was to “facilitate an affordable payment mechanism to benefit the common man across the country and promote financial inclusion.” The pandemic “turbocharged” the shift.

“As an idea, Pix is not new or unique. India’s Unified Payments Interface (upi) began life in 2016. Other But companies helping advance the “digital finance revolution” are finding it hard to make the business profitable, according to the article.

“For now, digital-payment providers in India are likely losing money—and lots of it, analysts say. That is partly due to the way India’s payments system evolved.”

CoinDesk: What does Terra’s collapse mean for Nationals marketing deal?

The collapse in value of the Terra stablecoin is shining a new light on the platform’s five-year, $38 million marketing deal with the Washington Nationals.

CoinDesk reported on May 15 that Terra’s “dramatic death spiral” from a week earlier appeared to be a non-event among staff and fans at Nationals Park, where the blockchain protocol’s signage is still emblazoned on the outfield wall, high-priced seats behind home plate and the entrance to the stadium’s TerraClub. The team was paid for the deal upfront, but no one from the Nationals front office spoke to CoinDesk about whether the team still plans to promote the defunct stablecoin.

“As the team wrapped up a series against the visiting Houston Astros on Sunday, CoinDesk went to see if the $38.5 million advertising deal had worked. Were people at the ballpark aware of Terra or its UST stablecoin? Had anyone bought the asset, now worth far less than a penny, when it was trading at $115 on opening day just a few months ago?” the article said. “Responses from the stadium’s employees and patrons would suggest not. Few had heard of Terra’s demise despite the attention it captured in the cryptosphere, with even fewer owning the asset or any cryptocurrency, for that matter. One elevator operator said Terra was Latin for ‘dirt.’”

“The derivatives markets Five days later, on May 20, a story in the Washington Post cited “multiple people inside the organization, who … said that Terra’s collapse is stirring tension about how to proceed with the partnership.”

“The internal debate, according to multiple people with knowledge of the discussions, is centered on whether the organization should honor its agreement with Terra and keep the company’s name on its luxury club behind home plate, where ‘Terra’ is stripped across every seat, and elsewhere in the stadium.”

🔒American Banker: CFPB ends ‘no-action’ program for startups

The Consumer Financial Protection Bureau announced changes to the agency’s innovation office, including that the unit would no longer issue “no-action” letters for startup companies, American Banker reported.

The renamed Office of Competition and Innovation will instead “focus on promoting competition, hosting events and making it easier for consumers to switch financial providers,” according to the article.

No-action letters had been a way for burgeoning firms developing new products to apply to the CFPB for special regulatory treatment that would remove the fear of supervisory action.

“The move appears to be a demotion for the fintech office that had previously reported to the CFPB director but is now part of the bureau’s division of research, markets and regulation,” the article said. “The CFPB said the changes will allow the office to have greater access to market research to explore obstacles to competition, including how big players are squeezing out little ones.”

TechCrunch: Blockchain ID system shows financial inclusion potential in Africa

A story in TechCrunch discussed the potential around startups like FlexID, a Zimbabwean company that is creating a blockchain-based ID system designed for those left out of the banking system because they lack identity documents. The startup recently won funding from the blockchain protocol Algorand.

Addressing the lack of identity verification is seen as a key hurdle for expanding financial services access in African countries. From 2016 to 2020, the Zimbabwean government introduced a financial inclusion scheme, the article said.

Hadjibashi formerly was an executive at Barclays and Citi, while Armstrong founded the conversational AI platform Abe.AI.

“When people have little or no confidence in the financial system, or they don’t know certain financial services that meet their needs exist or they don’t have formal identification documents to seek these services, achieving optimal financial inclusion can prove herculean. These are issues that affect Africa and emerging markets, not just Zimbabwe. FlexID’s self-sovereign identity (SSI) platform takes a decentralized approach and gives users control over their personal information — not common in Africa, where other upstarts provide centralized solutions, such as Smile Identity, YC-backed Identitypass and Dojah.”

CoinDesk: Blockchain and digital-asset industry groups to join forces

Two major trade associations in the blockchain and digital-asset spheres are merging.

CoinDesk reported that the Global Blockchain Business Council and Global Digital Finance will join forces to create a single association with nearly 500 members.

“The new group will be named Global Blockchain Business Council (GBBC), and will be the world’s largest industry association of blockchain technology and digital assets, according to the announcement.”

GDF will now be known as GBBC Digital Finance and will be based in the U.K., the news outlet said.


May 24, 2022
Brazil’s instant payments a hit, more Terra fallout, neobank for ex-cons


🔒Economist: Brazil’s instant payments system gains traction

The Economist looked at the success of Pix, the instant-payments system operated by the central bank in Brazil.

Introduced to consumers in the country in late 2020, the platform “has transformed the way Brazilians make payments.”

Users and merchants exchange funds by way of a QR code and therefore do not have to share details about any financial accounts. It was used by more than two-thirds of Brazilian adults in April, and covered nearly $4 billion in payments in the last quarter of 2021.

“Already Pix has surpassed debit and credit cards as the most popular method of payment in Brazil,” the article said. “One in five transactions now takes place on the platform’s mobile app.”

“As an idea, Pix is not new or unique. India’s Unified Payments Interface (upi) began life in 2016. Other countries have established similar schemes. Nonetheless, Pix has been a remarkable success. For years the central bank sought to make Brazil’s financial system more competitive, digital and inclusive. Pix has helped achieve those aims. Its rapid adoption could also contain lessons for others.

WSJ: CFTC targets crypto fraud, manipulation

The head of the Commodity Futures Trading Commission gave remarks indicating a tougher approach by the agency to those accused of cryptocurrency fraud and manipulation, the Wall Street Journal reported.

Chair Rostin Benham “said the CFTC looks to prioritize the use of its existing authority to deter and combat fraud and manipulation in the crypto markets and will continue to add resources in this area, including using tools to help its enforcement efforts.”

In a speech to a crypto industry conference, Benham said, “‘Recent global conflicts have highlighted the ability for digital assets to be a tool for those who present risks to the broader American economy, the public and our way of life.’”

“The derivatives markets regulator has filed more than 50 enforcement actions related to digital asset activity since 2015, and more than half of those cases involved allegations of fraud, Mr. Behnam said in the message to the conference hosted by blockchain data platform Chainalysis Inc. Twenty-three of those crypto-related cases were filed within the last fiscal year, he added.”

🔒American Banker: Impact of Terra/Luna collapse on banks

A story in American Banker weighed the policy implications of the recent collapse of TerraUSD and its affiliated cryptocurrency Luna.

Some observers were breathing a sigh of relief that the tumult in the digital assets market had not affected the regulated banking system.

“Still, the run on Terra is prompting policymakers to act with more urgency regarding the regulation of digital assets. Crypto companies have spent large sums trying to convince Washington that digital assets are a safe and growing place to put money, but last week’s turmoil could have shaken those efforts.”

A Biden administration report from the President’s Working Group on Financial Markets had recommended that Congress limit stablecoin issuance to FDIC-backed banking institutions. Yet skeptics have voiced “concerns about bringing the risk that stablecoins pose on bank balance sheets.”

“‘Dodd-Frank was about de-risking the big banks, and now the President’s Working Group contemplates that we’re going to add more risks to these institutions,’ Rep. Pat McHenry, R-N.C., said” during a House Financial Services Committee hearing.

Banking Dive: Neobank Stretch focuses on needs of ex-convicts

Banking Dive published a profile on the founders of the neobank Stretch, a Dallas-based startup catering to the financial services needs of the formerly incarcerated.

The husband-and-wife team of Yasaman Hadjibashi and Keith Armstrong “are zeroing in on the specific struggles the formerly incarcerated and their family members face, pain points that are not adequately addressed in the mainstream banking system, Hadjibashi said.”

Hadjibashi formerly was an executive at Barclays and Citi, while Armstrong founded the conversational AI platform Abe.AI.

Stretch offers checking accounts with no balance requirements or monthly fees. The neobank also places emphasis on helping its users find jobs. Its digital app is integrated with Honest Jobs, a platform helping the formerly incarcerated find employment.

“On the surface, Stretch is not unlike other digital banks that tout free services, but what sets the platform apart is its emphasis on helping members land jobs, a hurdle many formerly incarcerated people face upon release, Hadjibashi said. ‘It is an emotional drain on individuals when they send dozens and dozens of resumes to employers and they don’t know if they hire former convicts or not,’ Hadjibashi said.”

WIRED: Sanctions evaders may no longer be able to rely on crypto

A recent court filing involving a cryptocurrency platform, likely based in North Korea, may signal a shift in U.S. law enforcement policy and thereby make it harder for bad actors to use crypto transactions to evade sanctions screening.

A memorandum opinion by Magistrate Judge Zia Faruqui of the US District Court in Washington was recently unsealed, likely “because someone has been arrested for operating the crypto platform.”

“The platform, which was designed to sidestep financial bans aimed at crippling pariah countries, handled more than $10 million worth of bitcoin that was transferred between the United States and the sanctioned country using a US-based crypto exchange, which, the opinion implies, was not aware that it was helping users avoid sanctions,” the article said.

“‘Issue One: virtual currency is untraceable? WRONG. … Issue Two: sanctions do not apply to virtual currency? WRONG,’ Faruqui concludes in his opinion, directly citing two Saturday Night Live skits parodying TV host and political commentator John McLaughlin, who was known for his direct style.”


May 17, 2022
Stablecoin turmoil, Monzo CEO on digital banking, Big Tech legislation


Various: Fallout from Terra collapse

There was no shortage of different takes about the impact of sharp volatility in the cryptocurrency markets stemming from the collapse of the stablecoin TerraUSD.

With fears of a potential market contagion, the value of Tether — the world’s largest stablecoin — dropped to 95 cents on Thursday following more than $3 billion in withdrawals. However, by Friday, it had recovered, according to reporting by CNBC.

“By Friday, tether was trading firmly at $1 again, soothing investors’ fears about a possible crypto market contagion from the collapse of embattled stablecoin project Terra,” the story said.

The turmoil stoked by a sharp drop in stablecoin values coincided with Treasury Secretary Janet Yellen’s scheduled testimony before the House Financial Services Committee.

According to American Banker’s coverage, Yellen “said that stablecoins don’t yet present a systemic financial risk, but cautioned that they’re a fast-growing asset class that could become more important to the financial system.”

Yellen said: “‘I wouldn’t characterize it at this scale as a real threat to financial stability, but they’re growing very rapidly and they present the same kind of risks we have known for centuries in connection to bank runs.’” she said.

The collapse of the TerraUSD stablecoin and its associated token, Luna, “dealt a blow” to the crypto ecosystem, but there is still reason to be hopeful about the ecosystem’s future, wrote George Kaloudis in an opinion piece for CoinDesk. (Kaloudis is a research analyst for CoinDesk Research.)

“What really matters is that an undercollateralized, algorithmic stablecoin will fail no matter how long it succeeds,” Kaloudis wrote. “The system failed. But if we’re honest, UST was a wild success up until the moment it wasn’t. History should serve as a lesson here, when we inevitably will see a successful UST copycat crop up in 2027 or whatever. We also are incredibly lucky that UST and LUNA aren’t big or intertwined enough to cause mass hysteria across all markets. I honestly believe we were lucky this happened in 2022 and not in 2030.”

Meanwhile, Bloomberg News on May 10 ran an interview with Rostin Behnam, chairman of the Commodity Futures Trading Commission, in which he said regulators should step up to set crypto guardrails without congressional action.

“‘In the absence of clear direction from Congress, which I know they’re working on, it’s our responsibility to work together and to come up with solutions to the extent that we’re able to within the authority that we currently have,’” said Behnam, according to the story.


🔒WSJ: Monzo CEO wants to put consumers in driver’s seat of their finances

The Wall Street Journal on May 9 published an interview with TS Anil, CEO of Monzo Bank, an online institution headquartered in London that opened U.S. operations earlier this year. Monzo has no physical locations and consolidates users’ financial information on a digital app.

Anil said within 10 years he hopes to see “money work for everyone, which means really giving people the tools to make great decisions for themselves, to help them understand and make sense of their money.”

“It’s still amazing and sad how little customers around the world are supported in all decisions related to their money,” he said. “It’s such a source of anxiety for customers, that I’m hoping that, in the next decade, as an industry, we’ve solved that problem.”

Another goal he wants providers to aspire to is that “across all of your financial needs—whether it’s spending, paying, transacting borrowing, saving, investing—all of that happens in a single place. So as an individual trying to make sense of my money, I can see it all in one place; I can visualize it, I can analyze it.”

🔒Bloomberg News: Crypto sector seeks ally in New York Democrat

A story by Bloomberg News on May 7 focused on “growing pains” in the cryptocurrency sector as it tries to navigate Washington D.C.

The industry has attempted to make an ally out of Sen. Kirsten Gillibrand, D-N.Y., who “isn’t an obvious choice to play crypto’s savior on Capitol Hill.” She has teamed up with Wyoming Republican Cynthia Lummis, a crypto advocate “who personally invests in Bitcoin” on legislation to overhaul policy for the sector that “is seen as having a better chance of becoming law than many other crypto bills that have been introduced.”

“Yet despite the involvement of the pro-crypto Lummis, the effort is making some coin enthusiasts nervous,” the article said.

“Many worry that the legislation may be so broad it’ll cause unanticipated problems for firms down the road, according to people familiar with the matter. Others thought early drafts of the bill would give too much power to Securities and Exchange Commission Chair Gary Gensler, who says many digital assets are securities and subject to his agency’s tough investor protection standards.”

🔒Washington Post: Senate bill would create commission to oversee Big Tech firms

The Washington Post’s Technology 202 newsletter looked at legislative efforts to create a new regulator for the biggest technology companies.

Sen. Michael F. Bennet, D-Colo., is preparing to introduce a bill establishing a five-person commission “tasked with protecting consumers in the age of Big Tech,” the article said.

“According to a copy of the bill that Bennet shared exclusively with The Technology 202, the commission would be able to interrogate the algorithms that power major tech platforms and set new rules to force greater transparency of social media.”

Even though the bill “has very low odds of passing in this Congress” with Republicans likely to oppose the effort, the story said tech firms “could get on board with this proposal.”

“Microsoft President Brad Smith said at an April privacy conference that such a commission would represent ‘a better future than asking a Congress or a legislature or a parliament to go on a piecemeal basis and change each and every law separately.’”


May 11, 2022
SEC hiring binge, CFPB’s AI skepticism, Quarles not sold on CBDC


🔒Washington Post: SEC hires more staff for crypto enforcement unit

The Securities and Exchange Commission is more than doubling the size of the enforcement team in the new Crypto Assets and Cyber Unit, adding 20 staffers that include investigative staff attorneys, trial lawyers and fraud analysts, according to an SEC statement reported on by the Washington Post.

The new division will now be made up of 50 people, “beefing up its ability to police securities law violations involving new coin offerings, crypto exchanges, decentralized finance platforms, and non-fungible tokens, among other items, the agency said.”

“‘The U.S. has the greatest capital markets because investors have faith in them, and as more investors access the crypto markets, it is increasingly important to dedicate more resources to protecting them,’ SEC Chair Gary Gensler said in the statement.”

Since launching in 2017, the new office has imposed over $2 billion in enforcement action penalties. But the agency’s aggressive stance has drawn industry criticism.

“Many crypto leaders have turned sharply critical of Gensler’s approach to the industry since he took office a year ago,” the article said. “They say instead of developing clear rules for digital assets, he has pursued a policy of regulation by enforcement, defining wrongdoing after the fact and then seeking to punish it.”

🔒American Banker: CFPB still skeptical about AI in underwriting process

A 43-page report by the Consumer Financial Protection Bureau reinforced the agency’s skepticism about artificial-intelligence algorithms and other predictive analytics in the lending process, according to American Banker.

“In the report, Patrice Ficklin, the CFPB’s fair lending director, said that while she is encouraged by programs that can expand access to credit, she is skeptical of claims that advanced algorithms are a ‘cure-all’ that can eliminate bias in credit underwriting and pricing,” according to the news site’s article.

CFPB Director Rohit Chopra “had previously warned companies about relying too heavily on AI and machine learning in making lending decisions.” the article said.

“The CFPB said it will be ‘sharpening its focus on digital redlining and algorithmic bias.’

Podcast: Former Fed official casts doubt on Central Bank Digital Currency

Randal Quarles, the former vice chair for supervision at the Federal Reserve Board, continued to throw cold water on the idea of a central bank digital currency.

Echoing a speech he gave last year, Quarles said on the “Banking with Interest” podcast that it’s not a foregone conclusion that Congress would authorize a CBDC (which the Fed is exploring).

If “more analysis is given of the potential benefits of [a] central bank digital currency, they really seem to disappear,” Quarles said on the show. “And before you would have a law, before Congress had passed the law, … there would be a lot of public attention and public analysis on this question, which would increasingly make clear that the benefits of a central bank digital currency were extremely marginal if they exist at all.”

Quarles noted that moves by other countries like China to launch a CBDC should not be the rationale for the U.S. to follow suit.

“Increasingly, I’m hearing as like, one of the first arguments put forward, ‘Well, everyone’s doing it. So we’re going to have to.’ And so it’s like, I didn’t accept that argument from my son, and I’m not going to accept it from you.”

CNBC: California governor issues executive order on crypto

Aligning with a similar move by the Biden administration, California Gov. Gavin Newsom released an order on cryptocurrency policy that provides “a road map for regulatory and consumer protections and examining ways the state can take advantage of blockchain technologies and digital assets,” according to reporting by CNBC.

The order appears both to encourage using crypto technology for several purposes while ensuring safeguards.

The order calls on various state agencies — including the Business, Consumer Services and Housing Agency and the Department of Financial Protection and Innovation — to work in collaboration on recommending policy approaches.

“Newsom is sure to encounter skeptics, given concerns about the security of crypto and the speculative money that’s poured into digital assets. Criminals stole a record $14 billion worth of cryptocurrency last year, according to a report by data firm Chainalysis, and the SEC announced Tuesday that it will almost double its staff responsible for protecting investors in crypto markets.”

Associated Press: U.K. government outlines powers for new Big Tech watchdog

The United Kingdom on May 6 detailed the authorities that the government is planning to give the Digital Markets Unit, a new regulator established last year “to take on the dominance of tech giants.”

If the plan is finalized, the new watchdog would enforce rules to better enable consumers to switch social media accounts and smartphone platforms without losing personal data. Tech firms would have to alert small companies about changes in search algorithms, and the watchdog could get involved in “pricing disputes between online platforms and news publishers to ensure media companies get paid fairly for their content, the government said.”

Breaking rules enforced by the watchdog would result in fines of up to 10% of the tech giants’ annual global revenue, according to the Associated Press.

“Authorities in Britain and across Europe have been leading the global push to clamp down on tech companies amid rising concern about their outsized influence and harmful material proliferating on their platforms.”


May 3, 2022
Hockey unveils Column, OCC’s Hsu on crypto, N.Y.’s blockchain guidance


Various: Plaid cofounder announces new Column bank venture

Several news outlets and commentators picked up on the April 21 announcement by William Hockey, co-founder and ex-CTO of Plaid, that he and his wife, Annie, launched Column. The new venture bills itself as “the only nationally chartered bank built to enable developers and builders to create financial products.”

The couple spent about $50 million last year to acquire “Northern California National Bank, a 15-year-old bank with one retail branch in Chico, California, and roughly $300 million in deposits,” according to Forbes’ writeup. “The purchase lets them offer a fuller set of services that fintechs usually get from multiple financial institutions and software providers.”

The Forbes article said: “The problem the Hockeys are trying to solve is that fintechs and large tech companies often need to cobble together a patchwork of financial services partners to offer basic products. They need a chartered bank that can hold deposits and a separate ‘middleware’ software provider to connect the chartered bank’s systems to their own tech. Then they need a banking ‘core processor’ to actually move money. ‘After working in this space for almost 10 years, this supply chain is kind of silly,’ William says. ‘All this should be consolidated into a chartered bank that is also a technology company.’

TechCrunch wrote that William Hockey had kept a “low profile” after stepping down from his executive positions at Plaid. “But he’s been anything but idle, quietly creating the platform for what he believes is the first bank of its kind: a ‘financial infrastructure’ bank.”

Chris Skinner said on his The Finanser blog that the new startup is “worth watching.”

“Finally a true BaaS (Banking-as-a-Service) company,” he wrote. “What William has spotted is that most banks are not offering a truly open platform to others.”

AIR Podcast: OCC chief pitches comprehensive policy framework for crypto, stablecoins

Acting Comptroller of the Currency Michael Hsu, speaking to AIR CEO Jo Ann Barefoot on the Barefoot Innovation podcast, laid out a balanced policy approach toward cryptocurrencies and stablecoin.

Hsu, who has expressed skepticism in the past about crypto, said the growth of the developer community, the discussion around crypto’s value toward financial inclusion and the public policy concerns among regulators make now a golden opportunity for government and the industry to ask: “What do we want the system to look like?”

“We should have that discussion now. Now is exactly when we should say, ‘Okay, what are the choices? What are the trade-offs that we want to make so that the system works for us instead of us working for the system.’”

Hsu pointed to pending legislative discussion about a potential licensing regime for stablecoin issuers and said stablecoins are “basically functioning like money in the blockchain system.”

“If you want to trade off innovation versus stability and predictability, for stablecoins, we may want to err on the side of stability and predictability.”

His agency, the Office of the Comptroller of the Currency, also issued a statement April 27 by Hsu in which he called for a “standard setting initiative” to ensure the openness and inclusiveness of stablecoins.

In the statement, which was released after Hsu’s appearance at a symposium, he pointed to the standard setting bodies IETF (Internet Engineering Task Force) and W3C (World Wide Web Consortium) that established technical foundations for the internet.

“Stablecoins lack shared standards and are not interoperable. To ensure that stablecoins are open and inclusive, I believe a standard setting initiative similar to that undertaken by IETF and W3C needs to be established, with representatives not just from crypto/Web3 firms, but also including academics and government,” Hsu said.

WSJ: N.Y. regulator urges crypto firms to use blockchain tools for AML

Adrienne Harris, the head of the New York State Department of Financial Services, issued guidance April 28 encouraging cryptocurrency firms to use blockchain analytics tools.

As reported by the Wall Street Journal (and other publications): “‘Blockchain analytics tools provide companies with an efficient, data-driven way to conduct customer due diligence, transaction monitoring and sanctions screening, among other things, which are all critical elements of our virtual currency regulation,’ Ms. Harris said in a statement. ‘We expect regulated entities to utilize best practices to uphold the safety and soundness of the virtual currency market and to protect consumers.’”

According to one expert, “the guidance marks the first time any state or federal regulator has set explicit expectations for cryptocurrency transaction monitoring and the use of blockchain analytics,” the WSJ reported.

In a letter to all virtual currency companies licensed in the state, Harris said blockchain analytics could help firms address anti-money laundering requirements and compliance controls such as Know Your Customer rules, transaction monitoring and sanctions screening.

The “unique characteristics of virtual currencies present compliance challenges,” but “they also present new possibilities for control measures that leverage these new technologies. For example, virtual currencies, by their nature, typically enable provenance tracing (i.e., review of previous transfers or ‘hops’ along the public blockchain ledger, or ‘on-chain’),” Harris said in the guidance.

“Put differently, the blockchain ledger’s immutability typically allows a historical view of a virtual currency transmission between wallet addresses, providing the opportunity for greater visibility into transaction lineage than is typically found with traditional, fiat funds transfers.”

FinRegLab: Diagnostic tools show promise for use with machine learning models for extending consumer credit

A study released by FinRegLab provides the first independent empirical research on the performance of tools designed to help lenders explain and manage machine learning models in consumer credit.

The report, written by FinRegLab researchers as well as Laura Blattner and Jann Spiess of Stanford University, suggested cautious optimism that currently available tools can help lenders address concerns about transparency and assess compliance with certain consumer protection obligations. It also offers cautious optimism about the ability of automated machine learning approaches to help lenders find greater fairness in consumer credit underwriting, subject to performance tradeoffs.

“[T]he results … emphasize that responsible use of these tools adds an important dimension to the many consequential decisions that lenders must make—and will be accountable for—when they adopt machine learning to extend credit,” FinRegLab CEO Melissa Koide said in a press release accompanying the study.

This study suggests that responsible use of machine learning underwriting models requires careful consideration of a series of governance questions: what kind of machine learning model to use; how much complexity to enable; what tools to use to understand model behavior; what information produced by such tools means; and what actions, if any, are needed to mitigate aspects of model behavior.

The study, “Machine Learning Explainability & Fairness: Insights from Consumer Lending,” is focused on the capabilities, limitations, and performance of model diagnostic tools in generating individualized disclosures to explain why particular applicants were rejected or charged higher prices and analyzing what aspects of the model drive disparities in predictions among different demographic groups. The study relies on a set of underwriting models that use different types of machine learning and have various levels of complexity to illuminate the tools’ performance in specific regulatory contexts.

Later this year, FinRegLab will supplement this report with an evaluation of the tools in supporting firms’ efforts to comply with bank model risk management expectations.

ZDNet: Joint venture by Mastercard, Microsoft uses AI to combat digital fraud

Mastercard and Microsoft announced a joint venture on April 25 in which the software giant’s AI technology will help power Mastercard’s Digital Transaction Insights “to help financial institutions and credit issuers better detect fraud while approving genuine transactions,” ZDNet reported.

“According to the press release [issued by the two companies], the goal of the partnership is to facilitate safe and frictionless online transactions for consumers and business owners. The technology can better defend against fraudsters who get hold of consumer information and use it to dispute legitimate transactions,” the article said.

Digital Transaction Insights combats fraud by using Mastercard’s authentication tools to verify a consumer’s identity. The joint effort integrating Microsoft AI technology “will be used to facilitate online transactions, including ones made from smartwatches and digital wallets.”

“‘Shopping online should be simple, quick and secure. But that isn’t always the case. We’re committed to developing advanced identity and fraud technology to help enhance the real-time intelligence we provide to financial institutions around the globe,’” Ajay Bhalla, president of cyber and intelligence at Mastercard, said in the press release.


April 27, 2022
Regulators’ hiring spree, Stripe crypto payouts, fixing chatbot flaws


🔒American Banker: Financial regulatory agencies bulk up hiring of tech experts

In an April 18 story, American Banker reported on efforts by the Federal Reserve to hire staff with technology backgrounds, including the addition of at least seven ex-employees from Circle and one former employee from Ripple.

The hirings came to light in a February report released by a watchdog known as the Tech Transparency Project, the news outlet reported.

“Though comprehensive, the list does not provide an exhaustive accounting of the Fed’s hiring to date. It also represents the beginning of what promises to be a bigger buildout as the central bank looks to meet digitization objectives with looming deadlines,” the article said. “The Fed is preparing to roll out its FedNow real-time payments system next year and, in accordance with a White House directive issued last month, is weighing the pros and cons of developing its own digital currency.”

One day earlier, the news site offered more insight behind the Office of the Comptroller of the Currency’s plans to designate a deputy comptroller to oversee newer innovative banking companies as well as technology service providers.

A senior OCC official said “the move will allow specialists ‘more of a bird’s-eye view’ of new developments in financial services and promote consistent treatment across the agency’s regions of national banks that partner with fintechs or have cutting-edge business models.”

Various: Stripe rolls out crypto payout service linked to Twitter

It was widely reported that the payments giant Stripe is launching a crypto payouts feature as part of its Connect platform.

In the initial phase, the new service will enable Twitter to let certain creators receive freelance earnings via the stablecoin USDC.

“It’s Stripe’s first significant push into crypto since dropping support for bitcoin four years ago. The San Francisco-based start-up stopped accepting payments via bitcoin in January 2018, citing the digital coin’s notoriety for volatile price swings and a lack of efficiency in making everyday transactions,” according to CNBC.

The payouts will be facilitated over the Polygon network, which also offers integration with Ethereum. According to CoinDesk, “Stripe said it will add support for additional rails and payout currencies over time.”

VentureBeat: AI tools aim to fix defects in chatbot-based customer service

A feature story in VentureBeat looked at how conversational AI tools are improving customer-service experiences years after chatbots first came on to the scene.

Innovations from tech leaders such as Google and Microsoft as well as conversational AI specialists are offering “more sophisticated conversational AI tools, from smarter chatbots and asynchronous messaging to voice and mobile assistants,” VentureBeat said.

“Now, machines can not only better understand the words being said, but the intent behind them, while also being more flexible with responses.”

Some providers have “platforms that have user interfaces tailored for both the technical and non-technical user; out-of-the-box integrations; and a wide variety of channels.” Giant cloud providers, meanwhile, offer services such as translation, natural language understanding and speech-to-text services.

Research: Regtech spending expected to triple over next four years

A new report by Juniper Research says that regtech spending by private businesses will triple to $204 billion by 2026, making up more than half of regulatory compliance budgets worldwide, according to analysis of the research by FinTech Magazine.

The new research “predicts that BaaS models, which include outsourcing regtech services such as digital onboarding, will be key in accelerating AI-based automation for online document verification and KYC (Know Your Customer) processes.”

The report projects that 26% of digital onboarding systems in the banking sector will use AI by 2026, compared to just 8% this year. BaaS (Backend-as-a-Service) models will also be used to “expand the use of AI in banking for more comprehensive tasks, including fraud detection and mitigation,” according to the FinTech Magazine article.

Inc. Magazine: What will determine business success in the metaverse

A recent piece in Inc. Magazine focused on analysis by Louis Fischer of CB Insights about which “business opportunities [will be] ripe for the taking” in the metaverse.

According to the article, Fischer believes “it will be more than 10 years before any online metaverse-type experience reaches Ready Player One levels of immersion and interactivity.”

That’s not due to a lack of innovation by companies creating such experiences. It’s because, he says, the metaverse depends on six layers of technology — and each has a wide range of companies that are shaping it.”

Those layers include network and processing infrastructure; the interface determining how people will experience the metaverse; “Virtualization Tools,” or the “[tools] and game engines to help developers and designers build metaverse worlds and experiences, including avatar development and 3-D modeling and capture; virtual worlds; economic infrastructure; and “the activities in which individuals can actually immerse themselves within the metaverse.”

The last “layer is ‘where a lot of the fun stuff is coming up,’ Fischer says.”


April 19, 2022
AI’s language mastery, digital dollar pilot, OCC’s view on stablecoin


NYT Magazine: How AI models are demonstrating command of human language

A story in the New York Times Magazine profiles the excitement and skepticism about the “large language model” created by OpenAI known as Generative Pre-Trained Transformer 3, or GPT-3.

Rudimentary versions of AI-based neural nets that track language are well-known through the autocomplete features on everyday email or word processing software. But “with enough training data and sufficiently deep neural nets, large language models can display remarkable skill if you ask them not just to fill in the missing word, but also to continue on writing whole paragraphs in the style of the initial prompt,” the article said.

Some believe software like GPT-3 could revolutionize Internet searching and customer service. “Any company with a product that currently requires a human tech-support team might be able to train an L.L.M. to replace them,” the story said.

“But as GPT-3’s fluency has dazzled many observers, the large-language-model approach has also attracted significant criticism over the last few years. Some skeptics argue that the software is capable only of blind mimicry — that it’s imitating the syntactic patterns of human language but is incapable of generating its own ideas or making complex decisions, a fundamental limitation that will keep the L.L.M. approach from ever maturing into anything resembling human intelligence.”

DTCC plans pilot on use of digital dollar in settlement and clearing

The Depository Trust & Clearing Corporation, which provides clearing and settlement services for financial market participants, announced April 12 that it plans to launch a prototype “to explore how a [Central Bank Digital Currency] might operate in the U.S clearing and settlement infrastructure leveraging distributed ledger technology (DLT).”

The prototype, known as Project Lithium, is being developed in partnership with the Digital Dollar Project, which aims to promote discussion around the creation of a CBDC. U.S. policymakers are still examining whether to establish a digital dollar through the Federal Reserve System.

The pilot “aims to demonstrate the direct, bilateral settlement of cash tokens between participants in real-time delivery-versus-payment (DVP) settlement,” the company said in its announcement.

In its reporting on the plan, CoinDesk said that while “a CBDC can serve multiple purposes, Project Lithium is particularly focused on the needs of the financial services industry, such as how a CBDC could benefit the clearing and settlement of securities.”

🔒American Banker: Hsu voices support for regulating stablecoin issuers like banks

Acting Comptroller of the Currency Michael Hsu joined the chorus of policy voices calling for stablecoin issuers to be regulated more like banks.

In a speech on April 8, Hsu “pushed back against suggestions that stablecoins could be regulated as money market funds” and said “‘a banking approach would be more effective,” according to American Banker’s writeup of his remarks.

The news website pointed out that the comments by the head of the Office of the Comptroller of the Currency echoed similar arguments made by other federal policymakers, including Treasury Secretary Janet Yellen and Under Secretary for Domestic Finance Nellie Liang. Last year, the President’s Working Group on Financial Markets urged Congress to limit stablecoin issuance to insured depository institutions.

American Banker quoted Hsu as saying: “‘Provided that the activities and risk profile of a stablecoin-issuing bank could be narrowly prescribed, a tailored set of bank regulatory and supervisory requirements could balance stability with efficiency.’”

🔒WIRED: How crypto trackers helped take down child abuse site

WIRED Magazine published a detailed investigation into how the cryptocurrency tracing firm Chainalysis has played a crucial role in criminal probes.

The story centers on how the company’s founder, Jonathan Levin, partnered with law enforcement agencies in the U.S. and other countries to help bring down Welcome to Video, a Dark Web site that had distributed “child sexual abuse material” to over 1 million members in exchange for Bitcoin.

The story illustrates the misperception of cryptocurrencies as being anonymous. In reality, tracers like Chainalysis show how transactions that exist in a blockchain can be readily tracked.

“The counterintuitive truth about Bitcoin, the one upon which Chainalysis had built its business, was this: Every Bitcoin payment is captured in its blockchain, a permanent, unchangeable, and entirely public record of every transaction in the Bitcoin network,” the story said. “The blockchain ensures that coins can’t be forged or spent more than once. But it does so by making everyone in the Bitcoin economy a witness to every transaction. Every criminal payment is, in some sense, a smoking gun in broad daylight.”


April 12, 2022
Catfishing scams, crypto policy moves, underwriting debate


Washington Post: ‘Catfishing’ victim tells his story

The Washington Post recounted the story of an ex-cop from New Jersey who fell victim to a cryptocurrency “catfishing” scam, targeted by a woman he had met on an online dating app.

“Scams are rapidly multiplying in the lightly regulated province of crypto, experts say, each boosted wallet and disappeared dollar underscoring just how mainstream the thievery has become. The Federal Trade Commission estimates that Americans lost $750 million to crypto scams in 2021, and the number could rise this year,” the article said.

The woman encouraged him to try “liquidity mining,” and directed him to a seemingly legitimate website for depositing crypto that would handle the mining. He ultimately invested $15,000 and encouraged family members to invest too.

“And then one day in early December, he got a call from his nephew. The nephew’s money was gone. Had Jenkins heard anything? Jenkins said he hadn’t but went to check his own wallet. All $15,000 of his money had disappeared, too.”

The story paints a less-than-hopeful picture about law enforcement’s ability to stop such scams. “No one agency seems to have latched onto the scam that snatched Jenkins’s money, even though a Washington Post analysis of the blockchain records available suggests it is truly of staggering dimensions — with likely more than 5,000 victims in multiple states and $66.3 million stolen since August.”

Various: Yellen comments, Toomey bill headline eventful week in crypto policy

It was a busy week in Washington on the crypto policy front. Treasury Secretary Janet Yellen spoke on April 7 offering an update on the administration’s approach to a central bank digital currency. According to the Wall Street Journal, Yellen said launching a CBDC “‘would require years of development, not months.’”

Following the Biden administration’s release of an executive on crypto regulations, Yellen “said that policy makers should approach the industry with a tech-neutral approach, crafting new policies based on how to best protect against risk, rather than necessarily targeting new forms of technology.”

Also on the agenda this past week was a bill unveiled by Sen. Pat Toomey, R-Pa. and ranking Republican on the Senate Banking Committee, “to create a three-pronged regulatory framework for stablecoin issuers in the U.S.,” as reported by CoinDesk. A draft of the bill “would define a ‘payment stablecoin,’ authorize the Office of the Comptroller of the Currency (OCC) to create a new license specific to stablecoin issuers, allow insured depository banks to issue payment stablecoins and address state regulatory oversight of this segment of the crypto industry.”

Finally, the Federal Deposit Insurance Corporation issued guidance April 7 instructing any bank under the FDIC’s watch “to check in with the agency if it’s currently or planning on pursuing any cryptocurrency-related activities,” according to American Banker.

These steps come on the heels of U.K. regulators sending “red alert” warnings in March, warning crypto companies about potentially misleading advertisements.

🔒American Banker: Are FICO or AI lenders better at underwriting?

American Banker waded further into the debate over whether AI-based tech companies or traditional credit scorers such as FICO are better at assessing the creditworthiness of loan applicants.

Software companies have been accused of bias in their lending algorithms, but firms that use AI counter that their models are more objective than human underwriters.

In fact, FICO’s CEO told the news outlet that “his company is evolving the FICO score by making use of some of the same alternative data fintechs use.”

“‘All the lenders and all the fintechs and FICO share the same desire, which is to get as much credit into responsible hands as we possibly can,’ [Will] Lansing said.”

Fintech lenders argue that the FICO score is too opaque, the article said. “‘The biggest black box out there is FICO,’ said Teddy Flo, chief legal officer at Zest AI, an AI lending software provider.”

Finanser: Skinner’s take on Metaverse buzz

Following the release of a Citi report estimating a Metaverse market value of as high as $13 trillion, U.K. commentator Chris Skinner argued on his Finanser blog that “the metaverse is nothing new” and still poses risks for money management.

“Virtual worlds can be fun but, when it comes to money, it’s not fun,” he wrote.

Skinner recounted when Linden Labs’ Second Life platform began to lose popularity in 2007 after a crackdown on virtual gambling facilities and the collapse of the platform’s banking system. The closure of the game’s virtual Ginko Bank left users with massive real losses.

“The main issue is that the virtual world was unregulated. When Ginko Bank disappeared, Linden Labs – the creator of the Second Life platform – had demonstrators outside their offices for months, asking for their money back,” Skinner wrote. “Initially, Linden Labs said it’s not our problem. Eventually, they changed tack and said if you want to be a bank in the virtual world, you have to be a bank in the real world, and that is the main message and lesson.”

Brookings Institution: Keys to implementing AI in government

At the end of March, Darrell West of the Brookings Institution published a report entitled, “Six Steps to Responsible AI in the Federal Government.”

“There is widespread agreement that responsible artificial intelligence requires principles such as fairness, transparency, privacy, human safety, and explainability. Nearly all ethicists and tech policy advocates stress these factors and push for algorithms that are fair, transparent, safe, and understandable,” West wrote. “But it is not always clear how to operationalize these broad principles or how to handle situations where there are conflicts between competing goals. It is not easy to move from the abstract to the concrete in developing algorithms and sometimes a focus on one goal comes at the detriment of alternative objectives.”

His six recommendations for how to operationalize AI across the federal government include establishing “concrete codes of conduct”; using tools that promote ethical values and fight bias; setting “clear evaluation benchmarks and metrics”; using technical standards to help solve common problems; experimentation through pilot projects; and combining technical and nontechnical skills in the workforce.


April 5, 2022
Future-readiness gauge, crypto’s opportunity, Metaverse profit potential


HBR: A new yardstick to gauge if companies are ‘future ready’

The Harvard Business Review published an article March 21 in which management development researchers studied “what makes a company ‘future ready.’”

The paper, authored by Director Howard Yu and four research associates at the Center for Future Readiness at the International Institute for Management Development, in Switzerland, analyzed leading companies in four industries to determine “who is ready for the many changes the near future will bring — and who is not.”

“Becoming future ready means scaling up capabilities relevant to future competition. In previous research, we found that a company must make regular shifts in its know-how in order to stay ahead of competitors over the long run. If a company’s know-how stagnates, it will face competition from copycats, fall behind in advancements, and eventually fail,” they wrote.

The IMD Center’s “future-readiness indicator” assessed companies on seven factors: financial fundamentals, growth prospects, management diversity, productivity based on factors such as revenue per employee, and “the trajectory of new product rollouts.”

The article stated that 2021 “was a year for fintech innovation” as the dramatic move toward online shopping and financial management “permanently shifted consumer behavior.” While newer fintech firms such as Block “were near the head of the pack,” the highest-ranked financial services firms based on future readiness were the incumbent credit card payment networks Mastercard and Visa.

“How did these companies prosper when Apple Pay and Google Wallet seemed poised to make plastic cards obsolete? Instead of trying to outrun fintech disruptors and tech giants, Mastercard and Visa partnered with their rivals, to the benefit of all involved. Specifically, they invested heavily in a wide range of application programming interfaces (APIs),” the article said.

CoinDesk Op-Ed: Opportunity emerges for crypto to improve its image

An op-ed published in CoinDesk on March 31 said perceptions of the cryptocurrency sector could improve as a result of two developments: a Biden administration directive that federal agencies craft a joint approach to crypto, and a Ukrainian government policy to accept donations via crypto for the country’s defense against Russia’s invasion.

“If the crypto industry builds off both events, it can help correct misguided thinking about digital assets and help lawmakers create intelligent, long-lasting regulation that protects investors without compromising the innovation that has fueled the industry’s growth,” wrote Katherine Flocken and Rachael McWhirter, both of FS Vector. “The opportunity is historic,” they said.

Since the Biden executive order welcomed industry engagement on future crypto policies, they wrote, “it created openings for crypto companies and industry organizations to gently educate agencies, which have struggled to understand how crypto works and why it improves on fiat monetary systems.”

Report: Citi predicts “Metaverse economy” will be lucrative

Numerous publications picked up on a report released by Citi on March 31 estimating that the market “for the Metaverse economy could grow to between $8 trillion and $13 trillion by 2030.”

“Gaming is viewed as a key Metaverse use case for the next several years due to the immersive and multi-player experience of the space currently,” the banking giant said in the report. “But we believe that the Metaverse will eventually help us find new enhanced ways to do all of our current activities, including commerce, entertainment and media, education and training, manufacturing and enterprise in general.”

In its story about the report, Fortune magazine noted that “Citi’s not alone in its bullish predictions. Earlier this year, Goldman Sachs’ Eric Sheridan called the metaverse an ‘$8 trillion market opportunity’.”

Fast Company: WeChat parent freezes accounts tied to NFTs

Fast Company magazine reported on April 1 that the Chinese tech giant Tencent froze accounts using the company’s WeChat app because they were linked to NFTs.

“According to a statement from the company, this was to ‘rectify’ public profiles in order to ‘combat speculation in virtual currency transactions.’”

But the move could be tied to China’s general crackdown on crypto. At least a dozen accounts were reportedly frozen, but “the one for Tencent’s own NFT trading venture, Magic Core, was left alone,” the article said.

“As crypto has barreled into the mainstream worldwide, China has fought to keep the movement under control, arguing that virtual money is volatile and risky, and branding it the currency of fugitives and scammers. It has banned government-unsanctioned digital assets from banks and vendors, and criminalized Bitcoin mining in coal-rich regions under threat of stiff punishment.”

Some of the frozen accounts “were reportedly accused of fraud. Others must now submit certificates of cooperation with state-approved blockchain enterprises, which could presumably lift their suspension—although further regulation is surely on the horizon.”

WIRED: How AI has emerged as intelligence in tool in Ukraine

WIRED Magazine ran a story April 4 on how AI algorithms are being utilized by intelligence analysts to monitor intercepted messages from Russian soldiers in Ukraine. The story opened with a dialogue among Russian soldiers that had been captured from an unencrypted radio channel.

“As the soldiers spoke, an AI was listening. Their words were automatically captured, transcribed, translated, and analyzed using several artificial intelligence algorithms developed by Primer, a US company that provides AI services for intelligence analysts,” the article said.

The story pointed out how certain AI tools like natural language processing (used by financial firms and regulators to analyze things such as consumer complaints) could soon become instrumental in military efforts.

“Gathering and analyzing data using AI could eventually become central to battlefield operations. The US military is investing millions to develop AI software capable of ingesting and analyzing different signals in the field.”

While unencrypted Russian transmissions have already been shared on social media, the article said, “it’s the use of natural language processing technology to analyze Russian military communications that is especially novel.”


March 29, 2022
Ether founder’s concerns, SEC climate rule winners, metaverse experiments


TIME: Ethereum founder Buterin has worries about crypto’s impact

TIME magazine ran a long profile on March 23 of Ethereum creator Vitaly Buterin, whom the article referred to as the “Prince of Crypto.”

The feature, which focuses on how “Buterin has watched the world he created evolve with a mixture of pride and dread,” was the cover story in a special issue of the magazine released as an NFT on the blockchain. The magazine partnered on the project with LIT, a web3 cultural currency; Circle; and Transient Labs. “The magazine will live on the blockchain but is hosted through a decentralized protocol allowing holders to read the magazine in its entirety through an interactive NFT,” TIME said in a March 18 press release.

The story discussed Buterin’s early childhood in Russia and his being introduced to computer coding and Bitcoin at a young age. It also delves into Buterin’s concerns about some of the effects of Ethereum’s soaring growth, and his hope for cryptocurrency platforms to have socioeconomic benefit. “Buterin worries about the dangers to overeager investors, the soaring transaction fees, and the shameless displays of wealth that have come to dominate public perception of crypto.”

“‘There definitely are lots of people that are just buying yachts and Lambos,’” he told the magazine.

CNBC: SEC climate rule could help carbon accounting software makers

Several publications focused on the details of the Securities and Exchange Commission’s proposed climate-disclosure rule. A March 23 story published by CNBC looking at winners and losers said software “companies that can automate the carbon accounting and reporting processes” for firms subject to the rule stand to benefit.

The news outlet interviewed Kentaro Kawamori, the CEO of Persefoni, which provides software for carbon footprint reporting.

“‘Just like Salesforce created the system of record for the customer record, companies like us — you will have one or two big winners — will create a system of record for the carbon accounting piece,’ Kawamori said.”

Reena Aggarwal, a Georgetown professor, said there will be a mix of AI and human judgment involved in the process.

“Certainly, financial services companies will use artificial intelligence and data analytics in carbon accounting as it has been in financial accounting, but ‘they’ll always be some role for human beings,’ Aggarwal told CNBC.”

🔒 American Banker: How banks are exploring the metaverse

American Banker spotlighted financial services companies that are “experimenting in the metaverse.”

The piece noted that in the early 2000s some banks established branches in Linden Lab’s Second Life virtual world. “This time around, banks are setting up lobbies, games and methods of letting users buy and sell game tokens and turn them into cash.”

For example, JPMorgan Chase created a lounge in Decentraland, “a virtual world in which users can buy digital plots of land,” the trade publication said.

“When your avatar walks into the Onyx by J.P. Morgan lounge in Decentraland, you find yourself in a room with an illuminated portrait of Jamie Dimon, a pacing tiger, and a couple of wall-mounted displays. Clicking on one of the displays starts a video ‘demo’ of how payments could be made in space using smart contracts. Another shows a timeline of the bank’s blockchain projects.”

HSBC plans to acquire a virtual land plot in The Sandbox, a virtual gaming environment. “HSBC will use its plot to connect with sports, esports and gaming enthusiasts,” the article said. American Express has hinted at metaverse-related plans by filing various trademark applications, including one “for e-commerce software that lets consumers perform electronic business transactions in the metaverse.”

CoinDesk: What happens when a city hits pause on crypto mining?

CoinDesk published a feature story on March 21 about the “hot-and-cold relationship between local communities and crypto mining operations.”

The article focused on Plattsburgh, a city in Upstate New York that is a popular draw for cryptocurrency mining because of “dirt-cheap electricity.” But in 2018, Plattsburgh issued an 18-month moratorium on mining to address concerns about a strain on the local power supply. The concerns arose partly because “there’s less [power] to go around” in the winter when heating costs rise.

“For several months in a row, Plattsburgh’s miners, in combination with high residential power usage, pushed the city to the brink of its power quota, forcing the municipal power authority to buy expensive power on the spot market to keep the lights on,” the article said.

The moratorium was lifted early after the city worked out an arrangement to pass on electricity costs to miners instead of residents. But one mining firm, Coinmint, “pushed back against the new rules.”

“Plattsburgh answers a question that more and more lawmakers will soon be asking themselves: What happens when you ban crypto mining?”

Reactions to CFPB expansion of UDAAP to cover non-credit discrimination

Commentators and legal experts have continued to weigh in about a significant expansion of authority by the Consumer Financial Protection Bureau to crack down on “unfair, deceptive, or abusive acts and practices,” known as UDAAPs.

The CFPB revised its exam manual on March 16, defining “any discrimination involving a consumer financial product or service as ‘unfair,’” as noted in a March 22 opinion post by Catherine Brown and Paul Marker of Klaros in LendIt Fintech News.

Brown and Marker wrote that CFPB Director Rohit Chopra has already been clear that the agency “will use its UDAAP authority to address discrimination, even when traditional fair lending laws do not apply.” They said the agency may also expand its use of Bayesian Improved Surname Geocoding (BISG) to identify cases of discrimination, including under the “disparate impact” doctrine.

“With the revised manual, the CFPB is poised to use its broad UDAAP authority as an enforcement tool to combat discrimination throughout the entire product life cycle of every consumer financial product and service, with a particular focus on those areas that existing regulations do not specifically cover, and those that have been relatively untouched by regulators historically,” they wrote.

American Banker reported on the CFPB news March 18. (Subscription required.)


March 22, 2022
Living through war, no-password pitch, Dems’ crypto ‘rift’


Welcome to the inaugural launch of Seen & Heard. This online feature from AIR — Alliance for Innovative Regulation, will on a regular basis compile and share recent news stories and online posts highlighting key issues, pressure points and developments in digital finance and regulatory innovation.

🔒 American Banker: Ukrainian developer keeps working fintech job amid war

American Banker’s John Adams interviewed Yevhen Matasar, a Ukraine-based web developer for the Lithuanian digital payments company Paysera, about the horrors of living under Russian bombardment in the war between the two countries.

The article reads: “‘This is a very difficult situation,’ said Matasar from his car, parked in the dark outside a home in a small Ukrainian village as night fell. ‘You can hear the bombs and the fighter planes.’”

Paysera, which supports mobile POS payments, NFC cards and other services, is among “financial technology companies that are active in the region… working to evacuate some staff from Ukraine while protecting the employees who stay behind,” according to the news site.

The developer moved to a rural area about 20 miles away from Kyiv when Russia invaded.

“For Matasar, the weeks since Russia’s invasion began have been a dance between two lives. With one foot in the world before Feb. 24, Matasar still programs for Paysera when he can. But all the while, he’s dealing with the reality of a deadly military assault nearby. ‘It’s helpful to be able to continue to work,’ said Matasar, who is living with his parents and other relatives.”

WIRED: FIDO Alliance sets sights on password-free future

The FIDO Alliance released a new white paper this month to advance its concept of a passwordless future. “This work is dedicated to eliminating passwords and securing the simple act of logging on within the enterprise,” said the authentication-focused group made up of leading tech firms and large financial institutions.

The paper drew the attention of WIRED Magazine that wrote about the alliance’s “Big Bet to Kill the Password for Good” on March 17.

FIDO’s executive director and chief marketing officer told the magazine that the usability of passwordless authentication solutions will determine their success.

“‘The key to being successful for FIDO is being readily available—we need to be as ubiquitous as passwords,’ says Andrew Shikiar, executive director of the FIDO Alliance. ‘Passwords are part of the DNA of the web itself, and we’re trying [to] supplant that. Not using a password should be easier than using a password.’”

The paper discusses the features of various FIDO Authenticator types. “Roaming Authenticators” attach to a client device via USB, Bluetooth or NFC. “This means that even smartphones can act as authenticators for a separate client device,” according to the white paper. Meanwhile, “Platform Authenticators” are “implemented in a computing device playing the role of the client in the FIDO standard.”

POLITICO: Democratic ‘rift’ over crypto?

POLITICO published a story on March 15 about “a rift” among progressives in the Democratic party over how they view the cryptocurrency sector.

The article said Senator Elizabeth Warren of Massachusetts leads a segment of the party “warning that … [crypto] exposes consumers to danger, is ripe for financial crimes and is an environmental threat because of its electricity usage.” Another vocal critic is Senator Sherrod Brown of Ohio, the chairman of the Senate Banking Committee.

But some lawmakers on the left “are embracing the startup industry” and are “arguing against regulations that could stifle what proponents say is a new avenue for financial inclusion and a breakthrough alternative to traditional banks.”

They include freshman House member Ritchie Torres of New York, a member of the Congressional Progressive Caucus, who “said New York City … should embrace crypto if it wants to remain the financial capital of the world.”

Other Democrats taking positions that suggest support for crypto include Senate Finance Chair Ron Wyden of Oregon, Rep. Josh Gottheimer (D-N.J.), Rep. Jim Himes (D-Conn.), and Sen. Cory Booker of New Jersey.

🔒 Wall Street Journal: WeChat Pay draws scrutiny from Chinese regulators over AML

Chinese regulators are continuing to show more teeth when it comes to regulating fintech platforms, according to reporting by the Wall Street Journal.

Citing unnamed sources, WSJ reported March 14 that China’s central bank could impose a record fine on the parent company of WeChat Pay — a mobile digital payment and wallet service based in China — for alleged violations of anti-money-laundering and “Know Your Customer” rules.

Among the allegations against the company Tencent, the article said, are that “its ubiquitous mobile payments network was … found to have allowed the transfer and laundering of funds with illicit transactions such as gambling, the people added.”

Bloomberg: Blockchain firm Gauntlet hits $1B valuation after Series B financing

As first reported by Bloomberg and on the company’s blog, the crypto firm Gauntlet — which describes itself as a “financial modeling and simulation platform for blockchains” — announced Series B financing of $23.8 million, bringing the company’s total valuation to $1 billion. The financing round was led by the global investment firm Ribbit Capital.

The company says $38 billion of assets “now depend on Gauntlet’s financial modeling framework.”

“As the decentralized finance ecosystem develops and grows in complexity, the importance of strong risk management infrastructure becomes even more apparent,” said Nick Shalek, General Partner at Ribbit Capital, on the blog. “Gauntlet’s expertise in risk management and capital optimization will ensure that the company continues to play a key role in facilitating broader adoption of DeFi — ultimately driving institutional capital inflows towards protocols that adopt Gauntlet’s risk frameworks and products.”


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