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


September 8, 2023
Another SEC court loss, Schumer AI forums, Marriott blocks CSAM sites

Various: Implications of Grayscale’s big court win over SEC

Grayscale Investments’ court victory over the SEC — one of two recent notable defeats for the regulatory agency in a crypto-related case — drew ample coverage.

Judges on the U.S. District of Columbia Court of Appeals ruled that the SEC acted in an “arbitrary and capricious” manner when it rejected the digital asset manager’s request to list an exchange-traded product (ETP) based on the price of bitcoin. The agency must now revisit the company’s application.

Some news outlets pointed out that it was not the SEC’s first court loss in its effort to restrict crypto-related activities. Axios did not mince words, saying: “Gary Gensler’s Securities and Exchange Commission has really been faceplanting in the courts lately when it comes to crypto industry enforcement.”

“Previously, the agency received an arguably more significant defeat in the lawsuit brought by Ripple over the XRP cryptocurrency stewarded by the firm,” the news site said.

The Wall Street Journal’s editorial board said the court “finally called the SEC onto the carpet Tuesday for violating the Administrative Procedure Act” after the agency had rejected prior spot ETP proposals. Attention now turns to whether another SEC review of Grayscale’s proposal will have a different result. According to CNBC, the court’s decision “has paved the way for bitcoin exchange-traded funds.” The news outlet said the ruling “could impact other companies that want to create bitcoin ETFs, like BlackRock and Fidelity.” Grayscale, meanwhile, followed up its court victory with a letter to the SEC saying the agency had “no grounds” to reject its application.

Axios: Marriott taps Cisco technology to block online child abuse sites

A story in the Financial Times looked at the growing effect of “finfluencers,” who are busting the myth that financial advisors on social media sites are just trying to scam the uninformed.

As young people consult platforms such as TikTok and Instagram, the article said, “awaiting them is an ocean of cryptocurrency, high-frequency trading and ‘meme’ stocks as influencers promote risky investments, pledging eye-watering returns.”

“It’s a murky world where regulators are working hard to prevent unscrupulous operators taking money unfairly — and often illegally — from young people.”

But some finfluencers are increasingly positioning themselves as safe and reliable sources of information.

“Navigating these choppy waters is a growing group of young financial professionals with a different approach from the rule-breaking scammers — they want to provide straightforward guidance on subjects such as pensions, tax and balanced portfolios,” the story said.

🔒Washington Post: Schumer forums could advance proposals to regulate AI

As Washington policymakers weigh a response to the rapidly evolving AI landscape, many in the capital are focused on what will result from upcoming forums on the issue hosted by Sen. Chuck Schumer.

The New York Democrat, who is the Senate’s majority leader, “earlier this summer teased plans for “AI Insight Forums,” which he says will serve as the bedrock for his efforts to craft bipartisan legislation to address the risks of artificial intelligence,” the Washington Post reported.

The first forum on Sept. 13 will be a “closed-door gathering” with tech executives such as Tesla CEO Elon Musk and OpenAI CEO Sam Altman as well as “influential labor and civil rights advocates — a group that has sounded the alarm about the potential downsides of the booming technology.”

“The forum is scheduled amid a flurry of activity in Washington to regulate AI, a technology that has drawn greater scrutiny from lawmakers since last year’s launch of ChatGPT,” the news outlet said.

Bloomberg News: FCA may give crypto firms more time to comply with marketing rules

The U.K. Financial Conduct Authority may give some crypto firms flexibility in implementing marketing rules that will take effect later this fall.

As Bloomberg reported: “Crypto services are set to be categorized under the country’s high-risk investments category for marketing materials from October 8, meaning all platforms globally will need to display clear risk warnings to UK customers and have any public promotions approved by an authorized firm.”

But companies may have more time to comply with certain features of the regulation. 

“Firms may be given until Jan. 8 next year ‘to introduce features that require greater technical development,’ the regulator said in a statement Thursday, but they must first apply to be eligible for the delay,” article said. “This includes introducing a 24-hour cooling-off period for new customers.”


August 25, 2023
Bearish on AI, ‘finfluencers’ clean up their act, keeping dollar on top

🔒American Banker: Are payments companies overinvesting in generative AI?

Despite a “gold rush mentality” among financial services providers investing in generative AI, a story in American Banker cautioned that the industry’s fervor appears to exceed consumer demand. 

According to new research, only 10% of consumers “ranked AI-generated advice as a financial services feature that would be ‘most interesting’ to them,” the digital news publication reported.

“Companies are much more bullish than consumers are,” the story said. “More than half of U.S. financial services executives plan to increase investment in machine learning and AI over the next 12 months, according to FIS. Forty-five percent plan to invest in generative AI. Forty-five percent also plan to invest in the metaverse, or web-based virtual worlds that are still in the early stages of adoption in financial services.”

Financial Times: Make way for the social media ‘finfluencers’

A story in the Financial Times looked at the growing effect of “finfluencers,” who are busting the myth that financial advisors on social media sites are just trying to scam the uninformed.

As young people consult platforms such as TikTok and Instagram, the article said, “awaiting them is an ocean of cryptocurrency, high-frequency trading and ‘meme’ stocks as influencers promote risky investments, pledging eye-watering returns.”

“It’s a murky world where regulators are working hard to prevent unscrupulous operators taking money unfairly — and often illegally — from young people.”

But some finfluencers are increasingly positioning themselves as safe and reliable sources of information.

“Navigating these choppy waters is a growing group of young financial professionals with a different approach from the rule-breaking scammers — they want to provide straightforward guidance on subjects such as pensions, tax and balanced portfolios,” the story said.

Fortune: How to maintain ‘primacy’ of U.S. dollar

In commentary for Fortune.com, former CFTC Chairman J. Christopher Giancarlo and Georgetown law professor Daniel Gorfine outlined three principles for a central bank digital currency to maintain the “primacy” of the U.S. dollar in the digital age.

“It is an easy temptation to confuse financial stability with preserving the status quo. Yet, technological change will not wait, and a digitally networked future of alternate currency-blocks of finance is dawning,” they said.

The authors, who cofounded the Digital Dollar Project, warned about efforts among certain countries including Russia and China to mull a joint currency, as well as progress by U.S. rivals in launching a central bank digital currency.

“The past four years offer insights into how the U.S. can seek to preserve the role of the dollar in a digitally networked future that’s centered on key U.S. democratic norms and values like free markets and individual privacy,” they wrote.

They called for central bank-backed public money to be available in digital format, for the government to partner with private-sector innovators to ensure interoperability, and for investment in privacy-enhancing technologies, zero-knowledge proofs and other innovations to satisfy law enforcement objectives.

“Combining these PET technologies with big data analysis, pattern recognition, and other algorithmic methods will allow law enforcement to protect privacy by identifying wrongdoing when it actually takes place, rather than invading people’s privacy in case it someday might,” they wrote.

WIRED: Brazil nonprofit looks to technology to spur opportunity in favelas

WIRED Magazine spotlighted the Favela 3D initiative in Brazil, which is aiming to use technology to spur market creation and economic opportunities for inhabitants of favelas.

The initiative is centered first in the Dreams favela of the city of Ferraz de Vasconcelos. It includes bringing affordable and reliable internet access to slum areas, creating digital addresses for favela homes that otherwise can’t receive deliveries because they lack postal codes, and tech firms setting up shop to provide specialized services.

“Coletando, a fintech company that makes digital payments to people in return for recyclable materials, has set up in the area. Fleury, a health care company, has established a telemedicine facility,” the article said.

“The technological components in the Favela 3D plan speak to a broader question of who has the right to access the fundamental aspects of the digital economy.”


August 16, 2023
DRR push, U.K. fund backs fintech, CFPB targets data brokers

🔒American Banker: AIR CEO urges progress on Digital Regulatory Reporting

Jo Ann Barefoot, Co-founder and CEO of the Alliance for Innovative Regulation (AIR), published an op-ed in American Banker arguing that regulators should establish Digital Regulatory Reporting (DRR) systems to ensure they have more up-to-the minute information on the health of the institutions they oversee.

“If such mechanisms had been in place earlier this year, the Federal Reserve, FDIC and other agencies may have had better insight into the contagion risk that grew at the banks that ultimately failed,” Barefoot wrote.

Some agencies have already taken a step in the right direction, she said. For example, the FDIC began a project in 2020 inviting firms to take part in a “rapid prototyping competition” to explore digital reporting solutions.

“With more innovative reporting tools, regulators would know about dire trouble at a financial institution before it hit the airwaves of social media and before depositors ran for the doors. In an age when digital technology can move money and propel risks at lightning speed, revamping the financial reporting process would allow regulators to be first on the scene with a solution to save an ailing bank from failure.”

CNBC: Investment fund aims to boost U.K.’s image as fintech hub

An investment fund in the U.K. has accumulated over $1 billion “to back growth-stage financial technology companies until they can go public, in a bid to bolster Britain’s global image as a fintech investment hub.”

The Fintech Growth Fund has support from “the likes of Mastercard, Barclays and the London Stock Exchange Group,” CNBC reported. 

The fund plans to invest between £10 million to £100 “focusing on companies ranging from consumer-focused challenger banks and payments tech groups to financial infrastructure and regulatory technology,” the article said.

“It marks a rare commitment to a specialized fund focused on fintech backed by mega-industry players. While fintech-focused funds like Augmentum Fintech and Anthemis Group exist, the U.K. has yet to see a fintech-oriented fund that came about from a government-led strategy.”

Reuters: CFPB preparing new restrictions for data brokers

The CFPB plans to regulate data brokers that “track and sell people’s personal data.”

The steps “are part of the Biden administration’s widening scrutiny of that industry’s privacy practices, officials said,” according to Reuters.

“Data brokers’ conduct can be ‘particularly worrisome’ because the sensitive data driving the use of artificial intelligence can be collected from military personnel, people experiencing dementia, and others, according to Rohit Chopra, director of the U.S. Consumer Financial Protection Bureau.”

Under the new policy, the agency plans to expand the number of firms subject to the Fair Credit Reporting Act “to cover the use of data derived from payment histories, personal income and criminal records.”

“Of particular concern, officials said, was the disclosure of ‘credit header data,’ or personal data such as names, addresses and social security numbers that the top three credit bureaus, Experian (EXPN.L), TransUnion (TRU.N) and Equifax (EFX.N), share for people, some of whom may be seeking to avoid contact, such as domestic violence victims.”

Bloomberg News: Cryptocurrencies targeted by SEC see rise in trading volume

Despite a crackdown by the SEC on digital currencies that the agency says should be designated as securities, “the 19 cryptocurrencies highlighted are seeing an increase in trading volume,” Bloomberg reported.

“The impact of the SEC crackdown on crypto appears to be fading for the 19 tokens designated as unregistered securities by the agency when it sued Binance and Coinbase Global Inc. in June,” the article said.

Data shows that the overall share of trading for those tokens has risen by about two percentage points to about 13%.

“While the total market value of the 19 tokens has dropped about 20% since the suits were filed, they are trading more even after some were delisted by platforms operated by Bakkt, Robinhood Markets Inc., Bitstamp and others.”


August 11, 2023
PayPal launches stablecoin, Fed’s crypto guidance, Russia CBDC pilot

Various: PayPal enters stablecoin fray

Several publications focused on the news of PayPal launching its own stablecoin. The announcement sparked various reactions from Silicon Valley to Washington. According to Forbes, “PayPal’s branded stablecoin, which the payments company launched on Monday, is likely to be a trendsetter.” 

The news site Blockworks said the launch of PYUSD “is the biggest crypto news in 2023, more significant than news about any future bitcoin ETF approval.”

“PayPal’s entry into crypto helped legitimize it as an asset class” and “PYUSD is a similar watershed moment for the industry, coming at a critical time when stablecoin volume outstanding is increasingly moving to offshore options such as USDT.”

Yet the move also raised eyebrows in Washington, where the crypto industry has met with tough criticism of late. Rep. Maxine Waters, the top Democrat on the House Financial Services Committee, said she was “deeply concerned that PayPal has chosen to launch its own stablecoin while there is still no Federal framework for regulation, oversight, and enforcement of these assets.” 

American Banker looked at how the launch “could reignite discussions about the future of stablecoin regulation.” One analyst quoted by the publication said the company’s plans may not be as derided as Facebook’s effort years to launch a cryptocurrency, but the “rollout could capture lawmakers’ attention and prompt discussions about the appropriate regulatory framework for stablecoin issuance.”

“‘PayPal isn’t quite as polarizing as Facebook, but it’s a high-profile name that will surely get attention on Capitol Hill,’ as well as from the Federal Reserve and the Securities and Exchange Commission, [Capital Alpha Partners’ Ian] Katz wrote in an email. ‘Democrats generally have been concerned that the Republicans are giving the states too much authority.’”

Various: Fed clarifies supervision policy for bank crypto activities

A pair of actions by the Federal Reserve Board sought to bring more clarity about the regulator’s oversight of financial innovation activities within state member banks, particularly activities related to cryptocurrencies.

The steps, which were both announced Aug. 8, included a supervisory letter clarifying that banks should get “a written supervisory nonobjection from the Fed before issuing, holding or transacting in dollar tokens used to facilitate payments, such as stablecoins,” according to reporting by Reuters.

In the other move, the Fed established the Novel Activities Supervision Program to coordinate oversight of certain technology-focused activities. “Novel activities include complex, technology-driven partnerships with non-banks to provide banking services to customers; and activities that involve crypto-assets and distributed ledger or ‘blockchain’ technology,” the Fed said in a press release.

CoinDesk wrote: “U.S. banking regulators have been clear during this administration that they intend to maintain a substantial barrier between the banking system and the crypto sector, though they also insist that lenders are welcome to keep experimenting under their close supervision.”

The Fed’s announcement came on the heels of PayPal’s launch of its new stablecoin, known as PayPal USD. “PayPal’s launch of PYUSD is the most significant move by a mainstream U.S. financial institution of its size into the stablecoin arena, which has been dominated by crypto companies such as Tether and Circle,” reported American Banker. “The Fed’s announcements on Tuesday indicate it wants to step up its supervision over novel technologies such as cryptocurrency and stablecoins which have a growing influence over the financial system.”

CoinDesk: Thirteen Russian banks to participate in CBDC pilot

Russia moved a step closer to issuing a digital ruble, announcing real-world tests for 13 banks participating in a pilot program.

President Vladimir Putin signed the nation’s digital ruble law in July. The tests of the central bank digital currency will be conducted on Aug. 15, CoinDesk reported.

“Russia – heavily sanctioned by the U.S. and Europe following the invasion of Ukraine – views the digital ruble as a way of circumventing the financial restrictions,” the article said.

“‘The launch of pilot operations with real digital rubles is the most important stage of the project,’ the Bank of Russia said in Wednesday’s announcement. ‘This will allow us to test the operation of the digital ruble platform already in an industrial environment, work out all the necessary procedures with the involvement of clients, adjust processes, if necessary, and make sure that the client path is convenient and understandable for users.’”

The Finanser blog: Can millennials in C-suites modernize a ‘Bankenstein?’

Writing on The Finanser blog, Chris Skinner weighed the potential impact of tech-savvy millennials moving into C-suite positions at banks with legacy structures. “They get technology, the internet, the digital world. Does this mean that banking will evolve and change naturally, due to new leaders with new eyes? Possibly yes, maybe no,” Skinner wrote.

However, understanding technology is not enough to bring about real change, he said. It’s more of a “people challenge.”

“It is how well the new CxO understands change and, specifically, changing an organisation that has been cemented firmly in legacy structures.”

He compared the hard work of “breaking apart legacy structures” to moving into a “building that has rattling pipes, leaking ceilings, electrics that sparkle at night and holes in the walls.”

“It reminds me of something discussed many times these days: Bankenstein’s monster. Bankenstein is a bank that has been built over the past century with core systems never replaced. Those systems are now dead parts full of data that are purely kept alive through electricity and middle and front end technologies which disguise how old they are. How do you refresh an organisation full of dead parts that need replacing without any impact on customers?”

TechCrunch: A Q&A with Visa’s head of fintech partnerships

TechCrunch ran an interview with Visa’s head of fintech partnerships, Marie-Elise Drogra, in which she touched on the relationship between incumbent banks and newer fintechs, how Visa works with tech companies launch payment solutions, and the card network’s efforts to serve creators.

According to the article: “At Visa, Droga says she is focused on ‘identifying and synthesizing’ factors that influence the payments landscape, including new behaviors, new stores of value, new frameworks for money movement and new transaction environments.”

“‘It’s a very rich function that helps Visa be at the forefront of product innovation,’ she added. ‘Our team is constantly challenging itself in terms of what trends do we have to pay attention to and how does that translate into growth, not only for our products, but also so we can have even more pertinent solutions for our clients.’”


July 28, 2023
FedNow’s crypto effect, stablecoin talks fail, AI rules lag

Various: What Fed’s instant payments system means for crypto’s future

The official launch July 20 of the Federal Reserve’s new real-time payments system drew ample attention. However, much of the coverage of FedNow focused on how the new system could impact the crypto sector and future deliberations over a possible digital dollar.

The Fed has not yet determined if it will issue a central bank digital currency. But just to put any speculation to rest, the Fed “clarified that its new service for instant payments between organizations — the FedNow Service — has no relation with central bank digital currencies (CBDCs),” according to Cointelegraph.

Still, as CoinDesk observed, “FedNow offers functionality that proponents of cryptocurrencies and blockchains have long championed: making it easier to move money around.”

“The service could, therefore, increase friction between the conventional financial system and crypto – at a time when U.S. regulators have taken aggressive steps to clamp down on digital currencies,” according to the news site.

Others noted that FedNow does not solve all the issues in the payments sphere, leaving room for crypto solutions to emerge.“FedNow is not the end of crypto, and might actually open the door for more stablecoin transactions moving forward,” CUNY professor Sean Stein Smith wrote in Forbes.

CoinDesk: Lawmakers fail to reach compromise over stablecoin bill

Despite unprecedented votes by the GOP-controlled House Financial Services Committee to advance crypto-related bills, “lawmakers have failed to reach a bipartisan deal on stablecoins legislation,” CoinDesk reported.

Rep. Patrick McHenry, R-N.C., the committee’s chairman, blamed “White House intransigence for the stalemate while the panel’s top Democrat said it was McHenry who shut down the talks.”

Earlier in the week, the committee approved three bills on crypto issues, “the first time they advanced laws fully dedicated to the topic,” which would set up a full House vote.

“McHenry said he was ‘disappointed’ but did not explain the details of the disagreement with the executive branch,” the article said. “Any U.S. stablecoin bill would also have to win support in the Democrat-led Senate, so a bill coming solely from House Republicans rather than a bipartisan effort may be less likely to influence that other chamber.”

New York Times: U.S. is slow out of the gate to regulate AI

Despite initial moves by Washington policymakers to craft a regulatory framework for artificial intelligence in the face of “rapidly evolving technology,” the early actions are “not very meaningful yet,” the New York Times reported.

“The United States is only at the beginning of what is likely to be a long and difficult path toward the creation of A.I. rules, lawmakers and policy experts said,” according to the article.

“While there have been hearings, meetings with top tech executives at the White House and speeches to introduce A.I. bills, it is too soon to predict even the roughest sketches of regulations to protect consumers and contain the risks that the technology poses to jobs, the spread of disinformation and security.”

Even though other jurisdictions such as Europe have moved more aggressively, the slow progress in the U.S. “suits many of the tech companies, policy experts said.”

MIT Technology Review: Has politics killed a digital dollar?

Mike Orcutt wrote in the MIT Technology Review that the political winds do not favor the U.S. ever issuing a central bank digital currency.

When the Federal Reserve commissioned a study during the pandemic into the potential design of a digital dollar, the news stayed under the radar, Orcutt pointed out.

“How things change. Three years later, the digital dollar—even though it doesn’t exist and the Fed says it has no plans to issue one—has become political red meat,” he wrote. “Tapping into voters’ widespread opposition to government surveillance, a group of anti-CBDC politicians has emerged with the message that the digital dollar is something to fear.”

Orcutt said “CBDC alarmism” appeared to emerge after President Biden signed an executive order in March 2022 emphasizing the need for research into the design of a digital dollar.

“Now legislators in both houses of Congress have introduced bills aimed at making sure a CBDC doesn’t see the light of day. Presidential candidates are even campaigning against it.”

Independent: FCA report finds flaws in firms’ communications channels

The U.K.’s Financial Conduct Authority estimated that 7.4 million consumers tried unsuccessfully to contact their financial services provider.

The finding, which covers the time period from May 2021 to May 2022, was based on the regulator’s survey of the financial lives of 19,000 people across the country.

“The FCA’s findings also indicate that, in the year to May 2022, an estimated 3.6 million people (7%) were able to contact one of their financial services providers but could not get the information or support they wanted,” according to an article in the Independent.

The FCA’s report said: “Good communications from and with financial services providers are important to help consumers make informed and timely decisions about their financial products. Just over half (51%) of adults said they did not receive any communication in the 12 months to May 2022 to help them make a decision.”


July 14, 2023
FHFA TechSprint, Congress revisits crypto, SEC poses risk to inclusion

TechSprint: FHFA holds inaugural event on mortgage tech solutions

The Federal Housing Finance Agency (FHFA) held its inaugural TechSprint, with support from AIR, on solutions to improve the mortgage process.

The four-day Velocity TechSprint event held at the FHFA’s headquarters in Washington D.C., tasked 10 teams made up of roughly 80 total participants with developing new approaches to secure the free and fair flow of data in housing finance. It culminated July 13 with Demo Day during which the teams presented their prototype ideas to an audience and a panel of judges.

“You’ve come together as leaders in your respective companies to collectively solve some of the biggest challenges in the mortgage process. And my hope is that you continue to work together and with us after this event is over,” said Jason Cave, the FHFA’s Deputy Director of Division of Conservatorship Oversight and Readiness, addressing the participants to kick off Demo Day.

“We need your enthusiasm and vision now more than ever. This is FHFA’s first TechSprint, and we have been thrilled by how readily you hit the ground running to free us from the obstacles that block the free and fair flow of data in the mortgage process,” Cave continued. “We have also been deeply impressed by the spirit of generosity and collaboration you displayed throughout this competitive exercise.”

TechSprints are intense problem-solving sessions designed to build potential solutions to difficult problems by facilitating innovation and collaboration between regulators, industry experts and technologists.

WIRED: Senators’ second attempt to establish crypto framework

WIRED magazine reported on the tension between Congress and the Securities and Exchange Commission as lawmakers take another stab at legislating a crypto regulatory framework.

The article previewed the second attempt by Sens. Cynthia Lummis, R-Wyo., and Kirsten Gillibrand, D-N.Y., to propose a sweeping crypto policy bill. A main provision, according to WIRED, is to define expanded authority for the Commodity Futures Trading Commission over the digital-asset sector.

“While there’s plenty new in the revamped Lummis-Gillibrand Responsible Financial Innovation Act, its centerpiece is a measure that would classify most cryptocurrencies as commodities, putting them under the purview of the CFTC,” the article said. “It’s a clear rebuke to the SEC, which, Lummis and others say, is stifling innovation in financial technologies.”

The piece noted that the release of new Senate proposal corresponds with there being “significant animosity toward SEC chair Gary Gensler within the Republican-controlled House.”

“Republicans have even introduced a bill meant to dilute Gensler’s power by adding a sixth SEC commissioner and killing the chair position altogether. But lawmakers admit that they’ve created the space for the regulator to act—often unilaterally—on crypto because of inaction on the subject in Congress.”

🔒Forbes: Why SEC’s approach to crypto sector hurts inclusion efforts

Writing in Forbes, Cleve Mesidor of the Blockchain Foundation said the SEC’s “regulation-by-enforcement approach” to overseeing the crypto sector “may derail decentralized finance,” resulting in “roadblocks for diverse entrepreneurs and impact projects.”

“For many individuals, DeFi represents the opportunity to finally access traditional financial services without longstanding intermediaries empowered to exclude and maintain the status quo,” Mesidor wrote.

The agency’s recent proposed expansion of restrictions to DeFi “could lead to a ban on platforms that connect buyers with sellers, giving preference to intermediary-based legacy systems that have previously disadvantaged large segments of the population,” she said.

“No matter how well-intentioned, protection policies penalize the poorest when inclusion measures are not also central to rulemaking. The reality is the natural tensions between consumer protection and financial inclusion are even further exasperated with Gensler’s regulation-by-enforcement model.”

🔒American Banker: Collective targets underwriting bias with new lending criteria

A story in American Banker detailed a new initiative including 20 financial institutions that are “reassessing traditional ways of determining creditworthiness in an effort to expand opportunities for marginalized borrowers.”

The new collaborative effort is called Underwriting for Racial Justice. Its objective is to “create new lending criteria for lower-income U.S. borrowers who have historically faced higher barriers to obtaining financing,” according to the article.

The goal is to address bias in the underwriting process and enable the use of less traditional forms of data.

“Under the two-year pilot program, which launched last month, participating lenders will be able to exchange best practices on how to gauge a borrower’s ability to repay,” the story said. “The lenders will also submit data about loans they make to individuals from marginalized communities, which will then be anonymized and compiled into reports that get shared with other members of the group.”

Fast Company: ‘FinTok’ offers potential financial-literacy solution for Gen Z

The entrepreneur Aadi Gujral published an article in Fast Company magazine about how social media apps can help drive better financial literacy among Gen Z consumers.

“For Gen Z, our phones are more than a distraction; they’re shaping our financial behaviors, driving overconsumption, and clouding our understanding of personal finances,” Gujral wrote. “We need resources to make better financial decisions—but it doesn’t work to simply tell young people to get off their phones. Instead, we must create opportunities for Gen Z to learn about financial literacy, through the very digital devices older generations sometimes demonize.”

Gujral said one type of resource that can assist young consumers with financial decisions, if designed properly, are the growing volume of content creators on TikTok who specialize in providing personal finance tips. 

“Gen Z is already flocking to TikTok, or ‘FinTok,’ for financial advice, where young content creators and social media influencers share their personal finance journeys and sell tools followers can use to build their own budgets,” the article said. “So far, the hashtag #stocktok has been used over 1.4 billion times, and #PersonalFinance has garnered over 4.4 billion views.”

Gujral advised, “FinTok’s success lies in its format and messaging: the platform is familiar, the creators are relatable, and the content is easily digestible. 

“In engaging with FinTok, my generation is demonstrating a desire to become more financially literate, but they’re also sending a clear message that they want these lessons to come from peers who can make the information relevant and accessible.”


June 28, 2023
A supercomputer for NYDFS, Google Cloud AML tool, Digital Pound rationale

🔒Bloomberg: NYDFS seeks to add supercomputer to regulatory tool chest 

The New York Department of Financial Services is looking to purchase a supercomputer to help optimize the agency’s use of artificial intelligence systems for more effective regulation.

“‘When I say the DFS is looking at AI and machine learning it’s not limited to how we evaluate private sector use of those tools,’ said New York …[DFS] Superintendent Adrienne Harris at the Point Zero Forum for financial regulation in Zurich,” Bloomberg reported.

“‘My vision is for DFS and other regulators to become the regulator of the future, meaning that we are embracing reg tech to the public advantage, using data driven approaches that leverage data analytics to enhance our ability to predict and respond to events in the marketplace,’” she added.

The article noted that supercomputers are already a “mainstay” for both defense and intelligence, as well as civilian uses such as predicting the weather. “‘All of the major players in private tech and software are moving toward AI,’ said Harris. ‘That’s no secret, but it would be a huge missed opportunity for regulators to not make use of these tools as well.’”

🔒Wall Street Journal: Google Cloud unveils ‘AI-first’ product to fight money laundering

Google Cloud recently “announced the launch of a new AI-driven anti-money-laundering product,” according to the Wall Street Journal.

The tool features an API called Anti Money Laundering AI, which is designed to help financial institutions “comply with regulations that require them to screen for and report potentially suspicious activity,” the article said. Some notable clients of the service already include London-based HSBC, Brazil’s Banco Bradesco and Lunar, a Denmark-based digital bank.

Google Cloud is swapping a traditional set of rules-based AI inputs for a customizable system designed to cut down on false positives.

“With Google Cloud’s product, users won’t be able to input rules, but they will be able to customize the tool using their own risk indicators or typologies, executives said,” according to the WSJ’s reporting.

“By using an AI-first approach, Google Cloud says its technology cut the number of alerts HSBC received by as much as 60%, while increasing their accuracy. HSBC’s “true positives” went up by as much as two to four times, according to data cited by Google.”

The Block: Bank of England official gives rationale for Digital Pound

A Bank of England official sought to bolster the case for establishing a Digital Pound, as reported by The Block.

William Lovell, the BoE’s head of strategy and architecture, said digital money could compensate for certain risks inherent in the current payments system, which has already become largely digital.

According to the article, “Why is a Digital Pound needed when we already have bank accounts, debit cards and payment apps? Those mediums are a ‘wrapper on the payment system,’ Lovell said, where ‘you’re moving liabilities from the balance sheet of one bank to another bank.’”

Speaking on a webinar, Lovell noted that “banks are not without risk” and effectively serve as a “private sector layer between ordinary people and the central bank,” The Block reported.

“‘So we need a new way,’ Lovell said. ‘As the way that people pay changes, that profile of risks changes, and the things that we need to do as a central bank changes.’”

In February, the BoE launched its consultation — set to close at the end of June — on developing a Digital Pound. Lovell said the bank will release a summary publication of the submissions it has received, which are said to number in the tens of thousands.

“Over the next two years, the BofE will undertake more development work and public communication on the Digital Pound model before making a final decision on roll-out in combination with the UK Treasury,” the article said.

TechCrunch: Plaid network seeks to help financial providers share fraud intel

On June 22, Plaid announced the launch of a new network called Beacon designed to enable financial institutions and other fintech companies to share fraud intelligence through APIs, as reported by TechCrunch.

Plaid “is describing [the service] as a ‘collaborative anti-fraud network enabling financial institutions and fintech companies to share critical fraud intelligence via API across Plaid,’” the news site reported.

The 10 founding members of the Beacon network include Tally, Credit Genie, Veridian Credit Union and Promise Finance. Plaid’s “argument for the need for such a network is that banks today already have access to shared fraud intelligence networks, but most companies don’t have access to the same types of tools,” the article said.

“Participating members of the network will contribute by reporting instances of fraud — including stolen, synthetic and account takeovers — to Plaid. From there, they can then screen new signups or users against the Beacon network to detect if a specific identity has been associated with fraud on other Plaid-powered platforms or already within their own organization.”

Meanwhile, Plaid’s Beacon is not the only anti-fraud network of its kind to be unveiled this month. On June 27, the payments platform Sardine announced the rollout of a consortium, SardineX, “to curtail payment fraud by bringing together established financial institutions and emerging fintech organizations to establish trust across multiple payment rails. Founding members include Chesapeake Bank, Visa, Airbase, Blockchain.com, Alloy Labs Alliance, iLex, and Novo.

“The shared goal is to provide real-time technology, under a privacy-oriented data-sharing framework, to establish the credentials of senders or receivers of funds no matter the rail on which the transaction is conducted,” Sardine said in a press release.

🔒American Banker: Canada’s faster payments rail hits another speed bump

A story in American Banker focused on Canada’s struggles trying to get its faster payments system up and running.

Payments Canada, which oversees the country’s payments networks, said Real-Time Rail will “be indefinitely delayed again,” according to the article. It was originally slated to go live this month. The oversight wants to pause the process “to perform a second review of the project’s risks.”

“The first delay was announced in October 2022, triggering the first review. In announcing the second review, Payments Canada provided no new launch date for the service,” the online trade publication said.


June 23, 2023
Deal averts Binance shutdown, Jack Henry fraud tool, MAS money protocol

New York Times: Binance, SEC reach compromise over U.S. assets

A deal between Binance and the SEC is intended to allow the cryptocurrency exchange’s U.S. business to remain open while the company is embroiled in a government lawsuit.

The SEC had sought to freeze Binance’s U.S. assets after filing a lawsuit alleging fraud against the company, but lawyers for the exchange said that that would force its U.S. operations to close, according to reporting by the New York Times. But the two parties agreed to a compromise that was approved by the judge in the case.

“Under the agreement, funds belonging to customers of Binance.US, an affiliate of the company’s larger offshore exchange, would go into special digital repositories accessible only to the U.S. exchange — and not to Binance’s international operation, or its founder, Changpeng Zhao,” the article said. 

“The deal stipulates that Binance.US can transfer company assets ‘solely to make payments for expenses or to satisfy obligations incurred in the ordinary course of business.’”

PYMNTS: Jack Henry rolls out anti-fraud tool powered by AI

The core processing company Jack Henry announced a new feature that uses AI to combat fraud in payments transactions.

According to the news site PYMNTS: “The new Payrailz Fraud Monitor, which joins the FinTech company’s Payrailz Digital Payments Platform, supports multiple payment types and detects fraud when payment transactions are initiated, Jack Henry said in a Tuesday (June 20) press release.”

The fraud monitor “generates an actionable score based on multiple fraud attributes and indicators and allows financial institutions to configure score ranges and thresholds based on their own risk tolerance,” the article said.

🔒 Bloomberg: MAS releases paper on common protocol for digital asset transactions

The Monetary Authority of Singapore unveiled a white paper with technical specifications for a “purpose-bound money protocol” that is designed to work with different digital currencies and other ledger technologies.

The protocol is intended to allow “users to access digital money using their preferred wallet provider, MAS said,” according to reporting by Bloomberg News. “With a common protocol, the same infrastructure can be used across multiple use cases, it added. Digital money includes central bank digital currencies, tokenized bank deposits and stablecoins on a distributed ledger.”

A number of financial companies in Singapore are launching trials in online commerce and programmable rewards using the new protocol. “Grab Holdings Ltd., for example, is involved in a pilot test on escrow arrangements for online retail payments,” the article said. “This allows payment to be released to the merchant only when the customer receives their items to provide greater assurance to both parties, MAS said.”

🔒American Banker: Op-Ed urges financial equity for LGBTQIA+ Americans

Lamine Zarrad, the founder and CEO of StellarFi, wrote an op-ed in American Banker arguing that “the credit industry continues to fall short with the LGBTQIA+ community” and offered recommendations for improving financial equity.

“Although Pride is a time to celebrate the accomplishments of this community, it’s also a time to see where we as allies are still coming up short in how we can help,” Zarrad wrote.

Zarrad noted that a third of lesbian, bisexual and queer women “have faced a personal financial crisis like declaring bankruptcy or not being able to pay bills, as opposed to 24% of straight women.”

“LGBTQIA+ individuals are 2x more likely to experience homelessness. Housing and mortgage applications still face discrimination to this day. Without access to credit, employment and loan and insurance access, mortgage applications become increasingly difficult to obtain.”

TechCrunch: Startup gains funding for carbon removal marketplace

TechCrunch reported on a $13 million funding round by Supercritical, a carbon removal marketplace that aims to help tech companies reach “net zero” emissions through the purchase of credits to fund clean-air technologies.

Carbon Dioxide Removal (CDR) strategies can result in the “only offsets recognized internationally that count toward net zero, by actually taking carbon out of the atmosphere and storing it away permanently,” the article said.

“However, CDR capacity is disappointing to date, to put it mildly. The Intergovernmental Panel on Climate Change (IPCC) found that only around 600,000 tonnes of CDR were purchased in 2022 — less than 0.01% of the 10 gigatonnes which we need to take out of the atmosphere annually by 2050.”

Supercritical’s clients include the “banking platform Tide, algorithmic trading firm XTX Markets, as well as Veriff, Multiverse and IMC.”


June 16, 2023
IBM quantum breakthrough, Jack Henry’s API goal, Ripple to boost CBDCs

Various: IBM researchers achieve quantum-computing ‘breakthrough’

IBM researchers published a paper in the journal Nature announcing a recent advance in quantum computing.

The calculations done by quantum computers today are unreliable. “But with their intrinsic ability to consider many possibilities at once, quantum computers do not have to be very large to tackle certain prickly problems of computation, and on Wednesday, IBM researchers announced that they had devised a method to manage the unreliability in a way that would lead to reliable, useful answers,” according to an article in the New York Times.

Writing in Forbes magazine, Karl Freund said IBM had achieved a “breakthrough” by using “a quantum computer to solve a problem that … stumps the leading classical methods.”

“This achievement could accelerate the timeline toward a day when scientists across disciplines could use quantum systems to solve previously intractable problems in chemistry, material science, AI and more,” Freund wrote.

Banking Dive: Jack Henry nears goal to eliminate screen scraping

The core technology provider Jack Henry plans to eliminate screen scraping by the end of the summer for more than 700 bank and credit union clients, according to a report from Banking Dive.

The company’s digital banking arm already uses APIs to integrate with data exchange platforms such as Finicity, Akoya, Plaid, Envestnet | Yodlee and Intuit. The core provider’s effort is part of larger-scale plans across the industry to improve data-sharing.

“Fintechs like Jack Henry aren’t the only ones pushing for the transition to APIs, standardized software widely regarded as a more secure way to connect consumers’ accounts to financial apps,” the article said.

“As the Consumer Financial Protection Bureau embarks on its open banking rulemaking process, aimed at giving consumers greater control over their financial data, the agency is looking to do away with screen scraping by requiring banks to establish and maintain APIs.”

But smaller financial institutions want the CFPB “to take a measured approach to a screen scraping phase-out, saying an abrupt transition would put community banks at a disadvantage.”

🔒 American Banker: New Ripple platform aims to be CBDC catalyst

Ripple recently unveiled a new digital-asset platform “that enables central banks, governments and financial institutions to issue their own central bank digital currencies and stablecoins,” American Banker reported.

“Ripple already uses the distributed ledger technology that supports the XRP token to enable international payments for e-commerce,” the article said.

“This new initiative attempts to replicate that success as a catalyst for CBDCs and stablecoins, placing Ripple alongside the U.S. card networks in the race to make different digital assets interoperable.”

CoinDesk: FCA proposes crypto advertising rules

The U.K.’s Financial Conduct Authority is proposing crypto advertising rules that would require marketing materials to include “clear risk warnings” for crypto investments, and would ban “refer a friend” incentives, CoinDesk reported.

The advertising rules come as a new set of crypto laws are set to take effect.

“When the FCA consulted on these rules last year, respondents largely disagreed with the proposals including the regulator’s intention to treat crypto as a high risk investment and to block new investors from receiving non-real-time promotion offers (DOFP), the report said,” according to the article. “The FCA will proceed with these measures nonetheless, it added.”

MAS: Next FinTech ‘Hackcelerator’ to focus on AI solutions 

The Monetary Authority of Singapore launched the eighth iteration of its Global FinTech Hackcelerator, which aims “to produce innovative and market-ready AI solutions that can transform the financial services industry,” the agency said.

Participants will be invited to present solutions to address 16 problem statements. They cover four areas, exploring “where AI can be better harnessed to achieve stronger outcomes: (i) Elevating Customer Experience; (ii) Enhancing Operational Efficiency; (iii) Strengthening Risk, Compliance and Fraud Monitoring; and (iv) Enabling Environmental, Social and Governance (ESG) solutions.”

“Up to 20 finalists will be shortlisted for a programme where they will be paired with a Corporate Champion,” the MAS said in a press release. “Each finalist will also receive a S$20,000 cash stipend. The judging will involve two distinct components.”


June 8, 2023
SEC targets exchanges, EU study stokes debate, third-party risk guidance

Various: SEC crypto crackdown intensifies with lawsuits against Binance, Coinbase

The U.S. regulatory stance towards the crypto industry hardened even more with the SEC’s pair of lawsuits against Binance and Coinbase. Both companies are accused of running securities exchanges and selling crypto-assets without proper registration, while Binance CEO is also accused of civil fraud.

According to CoinDesk, the agency “tore off crypto’s bandage this week, with its back-to-back enforcement actions against two of the most prominent digital assets platforms, … finally establishing its legal argument against the industry and setting up the future court fights that could decide everything.”

The lawsuits drew sharp rebukes and cast further doubt on the industry’s long-term prospects in the U.S. Kristin Smith, the CEO of the Blockchain Association, said the SEC’s “approach to regulation is unacceptable,” Cointelegraph reported. The article added: “[O]ther professionals working in the space believe that the effects of this recent move include pushing crypto players to more crypto-friendly jurisdictions and weakening consumer confidence in crypto within the United States.”

A story in American Banker said the silver lining from the SEC crackdown could be greater regulatory certainty. “Experts say that while the ensuing battles will inflict pain on the companies in the short term, the resulting legal precedents could provide clarity, and ultimately facilitate sustainable growth for the cryptocurrency industry.”Meanwhile, some news outlets also reported that the SEC is attempting to freeze Binance’s assets over concerns about the safety of customer holdings. The agency filed an emergency motion for restraining order, as reported by The Verge. “As part of the order, Binance and CEO Changpeng ‘CZ’ Zhao are required to give up ‘possession, custody, or control over Customer Assets’ within five days, with [neither] Zhao nor the company having the ability to transfer or withdraw assets from its customer wallets.”

CoinDesk: EU crypto study spurs debate over MiCA law

The European Parliament recently published a controversial study that “appears to turn the rationale for landmark new European Union (EU) crypto laws on its head,” according to CoinDesk.

The authors of the study “worry the bloc’s much heralded Markets in Crypto Assets regulation, MiCA, has so many loopholes that it will offer few benefits, and could create a regulatory vacuum,” the article said.

The study is not formally binding for EU policymakers “and, according to some, would require lawmakers to reverse new legislation even before the ink is dry.”

At issue in the debate over the new regulatory regime is the legal classification of crypto assets. “Litigating to decide which side of the line a crypto asset lies on can be painful – as companies such as Ripple, Coinbase and now Binance have found. … Hence the rationale for a tailored regime.”

“It’s hard to imagine that EU lawmakers will entirely pirouette on legislation that is now, after years of drafting, signed into the statute book.”

Banking Dive: Bank regulators finalize guidance on third-party relationships

Federal bank regulators in the U.S. released “long-awaited guidance” on how financial institutions should manage their third-party relationships with fintech vendors.

“Tuesday’s joint guidance comes as the growth of banking-as-a-service and fintech partnerships in the banking sector have grabbed the attention of regulatory agencies in recent years,” according to the article in Banking Dive.

The guidance is not meant to impose new requirements but rather seeks to strengthen consistency in one joint document after years of the agencies having their own policies.

“Regulators acknowledged that not all partnerships warrant the same level of oversight, noting ‘not all third-party relationships present the same risks.’”

World Economic Forum: How to harness power of blockchain to fight climate change

The World Economic Forum released a paper in April that explores how blockchain technologies can enable solutions to combat climate change.

The paper was the product of the WEF’s Crypto Sustainability Coalition’s Working Group on Web3 Climate Action. The objectives, according to the executive summary, include curating “an evidence-based, balanced and research-driven narrative on the relationship between blockchain,” and documenting “examples and use cases of blockchain applications.”

“In this period of rapid evolution, there is a growing need to better understand the opportunities and limits of blockchain and narrow the gap between understanding and the speed of innovation,” the paper said. “This paper aims to close this gap by helping to bridge traditional climate mitigation strategies with blockchain-enabled innovation, enabling the navigation of this expanding sector.”

The authors of the paper also sought to provide a “primer” on regenerative finance (ReFi), which “has emerged as a technological ecosystem that uses blockchain’s unique features and other cutting-edge technologies to reimagine extractive economic systems and incentivize regenerative practices.”

Forbes: Circle’s Allaire is urging Congress to legislate clearer stablecoin rules

Forbes magazine ran a cover story profiling Circle CEO Jeremy Allaire, whose company is the “maker of the world’s second largest stablecoin.”

“Allaire has built his business on playing by the rules, but that has been a problem in a brand-new industry for which existing regulations often do not apply,” the article said. “It also puts the straightlaced, disclosure-prone Circle at a disadvantage to the edgier Tether Ltd., which is based in the British Virgin Islands, and keeps as much information about its business as it can away from prying eyes.”

The story pinpoints Allaire’s desire for crypto legislation in the U.S. “that would provide clear rules for stablecoins.”

“Through Allaire’s rose-colored glasses, new U.S. legislation would clear the way for USDC to be widely used in the financial system. In fact, he believes the banks will become his customers, rather than his competitors.”

“‘With a bill like this we’ll end up doing more business with banks than we currently do,’ says Allaire referring to a recent draft of the stablecoin bill introduced to the House of Representatives in April. ‘The banks can’t get involved in this because they’re not authorized, there’s no clear path, and they can’t hold stablecoins on their balance sheets because there’s no way for them to do that under the current rules. So this will actually increase bank adoption of USDC.’”


May 26, 2023
ChatGPT financial advice, Starling departure, OpenAI eyes EU rules

New York Times: Need financial advice? Ask ChatGPT

A story in the New York Times contemplated the question: “Would you take financial advice from A.I.?”

Investors and money managers increasingly view ChatGPT as a tool to provide tips about saving for retirement and making other financial decisions.

“As the investment industry turns to artificial intelligence as a financial planning and advice tool, the values of accuracy, humanity, security and accessibility are jostling for prominence,” the story said. “In the future, who — or what — will we be asking to advise us on some of life’s most important decisions?”

A number of providers of financial planning tools have already incorporated an AI component in their offerings, including Intuit, Mint and TurboTax.

“Even if you don’t think you’re familiar with it, chances are you’ve already been using generative A.I.”

TechCrunch: Starling Bank’s CEO to step down as interest rates boost revenue

Anne Boden, founder of the U.K.-based Starling Bank, announced she is stepping down amid significant revenue growth for the neobank, as reported by TechCrunch.

“Boden, who will officially leave the role on June 30, said in a statement that the reason for the move is because, as the bank grows, it makes sense for the leader to be distinct from someone who is a major shareholder,” according to the article.

A separate story on the tech news website offered explanations both for Boden’s departure and the bank’s strong results. “For a long-time founder, getting their company to the point of clear success is a reasonable time to take … a break.”

Meanwhile, Starling is among several fintech companies that have seen rapid revenue growth due to higher interest rates. “What is driving Starling’s strong results? There are several contributing factors, but chief among them is — you guessed it — rising interest-based income.”

Reuters: OpenAI may depart EU if new rules are too burdensome: CEO Altman

Upcoming AI regulations developed by the European Union could force OpenAI, creator of ChatGPT, to pull out of the continent, CEO Sam Altman said while in London.

“The EU is working on what could be the first set of rules globally to govern AI. As part of the draft, companies deploying generative AI tools, such as ChatGPT, will have to disclose any copyrighted material used to develop their systems,” Reuters said in the article.

Altman said the firm would try to comply before it considers closing down European operations.

“‘The current draft of the EU AI Act would be over-regulating, but we have heard it’s going to get pulled back,’ he told Reuters. ‘They are still talking about it.’”

Reuters: Microsoft executive joins calls for new agency to regulate A.I.

Echoing similar remarks made by OpenAI CEO Sam Altman in a visit to Congress, Microsoft President Brad Smith backed the creation of a new regulatory agency to oversee powerful A.I. technologies.

“A new federal agency to oversee AI’s development is the ‘most sensible’ course, Smith said in response to a question, echoing similar comments from Sam Altman, CEO of ChatGPT creator OpenAI, made to a congressional panel last week.”

“Members of Congress are discussing bipartisan legislation to set safeguards on AI, and on Tuesday the Biden administration sought public input on a national AI strategy that could lead to new regulations,” the article said.

“Policy makers have raised concerns about a range of potential downsides of the technology, such as the potential for AI systems to supercharge hacking capabilities or manipulate voters.”

🔒 American Banker: Op-Ed touts AI underwriting models as key to reduce discrimination

Yolanda McGill of Zest AI published an op-ed in American Banker calling on the Consumer Financial Protection Bureau and other regulators to “explicitly recognize” certain AI-powered technologies as tools that can help reduce lending discrimination.

A CFPB official recently issued a public clarification that lenders must ensure that, compared to their underwriting model, a less-discriminatory alternative (LDA) does not exist.

“Fortunately for millions of Americans historically underserved by our financial system, new artificial intelligence and machine learning tools can facilitate more effective searches that yield multiple less-discriminatory and equally accurate alternative models quickly and efficiently,” McGill wrote.

She said the CFPB’s “fair lending clarification could ultimately prove to be a watershed moment in advancing the use of AI in consumer finance to enhance fairness and financial inclusion.”

“For this moment to be realized, however, regulators must take additional bold action, and more is needed to ensure that American consumers benefit from proper application of a law intended to increase fairness, inclusion and ultimately access to credit.”


May 18, 2023
Call for new AI regulator, M-Pesa in Ethiopia, BofA accelerator

🔒 Various: OpenAI CEO backs creation of new regulatory agency

Capitol Hill hearings are often acrimonious, especially when tech executives appear. That was not the case when OpenAI CEO Sam Altman testified about ChatGPT, his company’s creation. He appeared aligned with senators on needing to regulate new AI technologies.

“The tone of congressional hearings involving tech industry executives in recent years can best be described as antagonistic,” according to the New York Times, but Altman “largely agreed with … [lawmakers] on the need to regulate the increasingly powerful A.I. technology being created inside his company and others like Google and Microsoft.”

As reported by the Wall Street Journal, “Mr. Altman called for ‘a new agency that licenses any effort above a certain scale of capabilities and could take that license away and ensure compliance with safety standards.’”

The hearing before a Senate Judiciary subcommittee was another example of how the explosion of new AI technologies has caused nervousness in both the government and tech sector.

“While there’s no immediate sign that Congress will craft sweeping new AI rules, as European lawmakers are doing, the societal concerns brought Altman and other tech CEOs to the White House earlier this month and have led U.S. agencies to promise to crack down on harmful AI products that break existing civil rights and consumer protection laws,” said the Associated Press.

WSJ: AI could plant seeds of next financial crisis, Gensler says

SEC Chair Gary Gensler warned that the next financial crisis could be triggered by AI technologies, the Wall Street Journal reported.

“Observers years from now might look back and say ‘the crisis in 2027 was because everything was relying on one base level, what’s called [the] generative AI level, and a bunch of fintech apps are built on top of it,’ Mr. Gensler said.” He was speaking to a conference hosted by the Financial Industry Regulatory Authority.

The regulator is among several policymakers in the government who “have taken a skeptical posture toward AI, even as a host of businesses across the economy have embraced the technology for its promise of enabling more work to be done with fewer workers,” the article said.

“Banks and other financial institutions have employed AI in a variety of functions, including for the normally laborious compliance work involved in sizing up new customers or checking for suspicious transactions. But despite the possible efficiency gains, the systems should be closely scrutinized, Mr. Gensler said.”

Cointelegraph: M-Pesa gets approval to operate in Ethiopia

The Kenyan company Safaricom has won approval from the National Bank of Ethiopia for a license to operate M-Pesa, the breakthrough mobile money transfer service.

The company already has 3 million mobile phone users in Ethiopia, which becomes the 10th country to allow M-Pesa, according to an article by Cointelegraph. 

“Previously, only Telebirr, part of the state-owned Ethio Telecom network, operated in that market,” the article said. “Kenya-based Safaricom was also the first company to break Ethio Telecom’s monopoly on Ethiopian mobile phone service in October, through its Safaricom Telecommunications Ethiopia subsidiary.”

M-Pesa is already available in Kenya, Tanzania, South Africa, Afghanistan, Lesotho, DRC, Ghana, Mozambique and Egypt.

🔒 American Banker: Bank of America rolls out fintech accelerator

American Banker reported on a fintech accelerator being launched by Bank of America focusing “primarily on founders from underrepresented communities, including Black, Hispanic and Native American entrepreneurs.”

The official launch of Bank of America Breakthrough Lab follows two pilots conducted in 2021 and 2022, the trade publication reported.

“The bank is looking specifically for pre-seed stage companies with a minimum viable product that focuses on fintech or uses technology to advance inclusion in fields such as health, wealth, education and housing,” the article said. “The program will be free for participants and will afford them senior-level mentors at Bank of America, live instruction, guidance on how to partner with or sell to larger companies, a pitch day at the end and more.”

🔒 Economist: Impact of the global boom in digital payments

The Economist magazine previewed online a special report, “Cashless talk,” covering several angles of the digital finance revolution from the effects of new payments systems on global financial services to the success of digital payments in India.

One article featured as part of the insert highlighted how traditional “banks and card networks have proved remarkably resilient in the face of digital competition.”

Other stories looked at the challenges for crypto finance and central-bank digital currencies, the prospect of digital payments threatening the dollar’s dominance, and what the future could bring for digital payments.


May 11, 2023
Biden focus on AI risk, N.Y. crypto bill, new financial crime solution

Various: White House sharpens focus on generative AI risks

The Biden administration’s sharper focus on risks and opportunities posed by AI received significant coverage. On May 4, Vice President Kamala Harris met with executives from Google, Microsoft, Google-backed Anthropic and Microsoft-backed OpenAI, the maker of ChatGPT.

“The ease with which [ChatGPT] can mimic humans has propelled governments around the world to consider how it could take away jobs, trick people and spread disinformation,” reported the Associated Press.

The White House released a “fact sheet” announcing “new actions to promote responsible AI innovation that protects Americans’ rights and safety.” The actions include $140 million of investment to launch seven AI research institutes, bringing the total number of such institutes across the U.S. to 25. They will focus on developing AI use cases that are “ethical, trustworthy, responsible and serve the public good”.

As reported by The Guardian: “Biden, who has used ChatGPT and experimented with it, told the officials they must mitigate current and potential risks AI poses to individuals, society and national security, the White House said.”

Meanwhile, the administration is coordinating with Microsoft and Google on a mass hacking event, planned as part of the upcoming DEF CON convention in Las Vegas, to test the vulnerabilities of ChatGPT and other AI models.“Come August, the competition will open up the code for ChatGPT, Google’s Bard, Stability AI’s Stable Diffusion and Hugging Face programs, so that thousands of DEF CON attendees can try to find vulnerabilities or bypass the tools’ safety mechanisms,” Thomas Brewster wrote in Forbes.

BBC: U.K.’s competition regulator launches probe of AI chatbot software

The U.K.’s Competition and Markets Authority plans to investigate the software underlying chatbots like ChatGPT as the “industry is facing scrutiny over the pace at which it is developing technology to mimic human behaviour,” the BBC reported.

The head of the CMA, Sarah Cardell, “said so-called foundation models such as the software behind ChatGPT had the potential to ‘transform the way businesses compete as well as drive substantial economic growth’,” according to the report.

“But she said it was crucial that the potential benefits were ‘readily accessible to UK businesses and consumers while people remain protected from issues like false or misleading information’.”

CoinDesk: N.Y. AG asks legislature for tougher powers over crypto firms

A state bill proposed by New York Attorney General Letitia James would strengthen the authority of the Department of Financial Services over digital-asset companies.

The bill would among other things require exchanges to reimburse customers in the case of fraud, according to CoinDesk. The legislation would also treat the bundling of certain services by crypto firms as a conflict of interest.

“In recent months James has taken actions involving crypto companies Celsius, KuCoin and Nexo, claiming a number of crypto tokens are commodities or securities despite a considerable gray area over the scope of existing law,” the news outlet said. 

With the federal government still unsure about how the regulate the crypto industry, “New York has been a de facto leader in U.S. regulation of the industry – an approach that other states including California and Illinois have sought to follow but haven’t yet established regulations.”

TechCrunch: Company aims to help banks and fintech partners fight financial crime

An article in TechCrunch profiled Cable, a company that provides banks and other financial services providers with a comprehensive platform — including risk assessments and automated assurance — to monitor all accounts for potential financial crimes, as well as Banking-as-a-Service organizations oversight ability for their fintech partners.

“In the past year, the company increased its revenue five times, and since 2021, attracted customers, including Axiom Bank, Quaint Oak Bank and Griffin on the banking side, and fintech and crypto companies, including Tide and Ramp,” the tech news website said.

The platform complements other financial crime vendors, helping clients “know, in real time, if they are compliant with regulations and if their failure controls are working as expected to combat breaches.”

Forbes: What are the keys to FedNow’s success?

A crypto industry advocacy is moving resources out of New York State “as it gears up to fight against federal regulators’ increasingly stringent restrictions on the” the sector, said CoinDesk.

The Blockchain Association will “focus on federal policy” and “continue to hire and build out our full-time staff in Washington,” CEO Kristin Smith said in the article through a spokesperson. The decision comes after New York State banned certain types of crypto mining. Federal regulators, meanwhile, cracked down on some in the industry following the collapse of FTX.

“Regulators’ actions have sparked outrage among crypto advocates, fueling cries for regulators to clarify existing regulatory guidelines to allow crypto companies to register with the federal agency and stem the damage from a recent swath of high-profile crackdowns, the article said.


May 4, 2023
Blow to startups, AI scrutinized, warning on bank-fintech partnerships

TechCrunch: First Republic failure deals another blow to startup community

A pair of stories in TechCrunch looked at how the failure of First Republic Bank, which the FDIC sold to JPMorgan Chase, left the technology world without another major banking partner.

Like Silicon Valley Bank, First Republic provided “accounts and other banking and financial services to a range of startups, and pointedly to a number of investment firms, through its dedicated technology division,” the tech news outlet said in a story about the failure.

First Republic’s collapse was met with relative “malaise” compared with the more chaotic failure of SVB.  Yet, “as startups scrap together new money management plans, fatigued with banking and stressed by the downturn, they’re finding that a gap has been left behind by the collapse of these venture-friendly institutions.”

🔒Washington Post: Agencies mount fight against ‘digital redlining’ in AI decisions

Four federal agencies announced a plan to combat discrimination in artificial intelligence algorithms, the Washington Post reported.

“With AI increasingly used to make decisions about hiring, credit, housing and other services, top leaders from the Equal Employment Opportunity Commission and other federal watchdogs warned about the risk of ‘digital redlining,’” the article said. “The officials said they are concerned that faulty data sets and poor design choices could perpetuate racial disparities. They promised to use existing law to combat those harms.”

The EEOC was joined by the Federal Trade Commission, Consumer Financial Protection Bureau and Department of Justice in announcing the joint efforts.

At a press conference, representatives from the four agencies “expressed an urgency to address both rapid developments in generative artificial intelligence, but also algorithms that have long been influencing employment, finances and other areas of the American economy.”

🔒American Banker: Banks’ fintech partnerships under scrutiny with Cross River order

The recent FDIC enforcement order against the BaaS provider Cross River Bank “puts all banks that partner with fintechs on notice,” according to an article by American Banker.

The order, the article said, alleges that Cross River “engaged in unsafe or unsound banking practices related to fair lending regulations.”

The bank partners with fintech companies such as Affirm, Upstart and Rocket Loans on lending platforms. The FDIC says that Cross River, as the loan originator, is responsible for all legal compliance. Under the order, the bank is required to implement a compliance management system.

“‘It’s a shot across the bow for every partner bank, especially small ones,’ said Todd Baker, a senior fellow at the Richman Center for Business, Law and Public Policy at Columbia University; and the managing principal of Broadmoor Consulting.”

Harvard Data Science Review: A case study of FCA’s digital transformation

Pavle Avramović, the manager of Emerging Technologies & Research at the Financial Conduct Authority, authored a paper published in the Harvard Data Science Review examining how the FCA integrated Suptech in its approach to monitoring financial markets.

The paper focused on the FCA’s use of BLENDER, its Suptech tool. “BLENDER acts as ‘middleware’ and brings together data from different data sources (trading venues), ‘blends’ the data, and feeds it into a market surveillance tool to support supervisors to see transactions from multiple sources and identify patterns and diverse types of market abuse,” the article said.

The aim of the research study, Avramović wrote, “is to understand and inform regulators of the driving factors of this novel field and how such technological approaches could be developed to support regulators.”

CoinDesk: Crypto trade group shifts focus from New York to D.C.

A crypto industry advocacy is moving resources out of New York State “as it gears up to fight against federal regulators’ increasingly stringent restrictions on the” the sector, said CoinDesk.

The Blockchain Association will “focus on federal policy” and “continue to hire and build out our full-time staff in Washington,” CEO Kristin Smith said in the article through a spokesperson. The decision comes after New York State banned certain types of crypto mining. Federal regulators, meanwhile, cracked down on some in the industry following the collapse of FTX.

“Regulators’ actions have sparked outrage among crypto advocates, fueling cries for regulators to clarify existing regulatory guidelines to allow crypto companies to register with the federal agency and stem the damage from a recent swath of high-profile crackdowns, the article said.


April 20, 2023
MDI proposals, crypto’s power pressures, debate over SEC data plan

🔒American Banker: Op-eds urge steps to help MDIs serve communities of color

A pair of recent op-eds in American Banker made policy recommendations for minority-led financial institutions. In one, the heads of the National Bankers Association and Inclusiv said Greenhouse Gas Reduction Fund resources should be directed to Minority Depository Institutions (MDIs) to include people of color in the green economy.

“An inclusive green economy requires the inclusion of communities of color, and the MDIs that serve them,” wrote NBA CEO Nicole Elam and Cathie McMahon, the CEO of Inclusiv. (AIR works with both organizations on a program to strengthen MDIs’ digital capability.)

Elam and McMahon said the gap in banking options for communities of color — evidenced by recent branch closures — means MDIs have an outsize role in ensuring those communities have access to credit.

“Part of the issue is the concentration of bank closures in minority communities. This is especially detrimental given banks are much less likely to originate small-business loans in communities where they have no branches,” they wrote. “This translates to less capital for green economy companies led by minorities, such as solar developers, energy efficiency auditors and later-stage clean-tech startups.”

William Michael Cunningham, founder of Creative Investment Research, argued in the other op-ed — published April 3 — that the Federal Reserve should create a specialized liquidity pool to benefit Black-owned banks.

Despite the recent growth in new Black-led financial institutions, Cunningham said, “the long-term presence of Black banks and credit unions remains limited, with only 21 Black banks and 33 Black credit unions in existence. Even with recent proposals for new Black-owned banks and credit unions, their overall impact remains minimal due to their small numbers.”

New York Times: A snapshot of how crypto mining puts pressure on power grid

A New York Times piece examined the energy costs of Bitcoin mining. The author traveled to Texas and North Dakota and interviewed experts in an investigation that “identified 34 large-scale [mining] operations … all putting immense pressure on the power grid and most finding novel ways to profit from doing so.”

The U.S. became the global leader in Bitcoin mining after China temporarily drove out mining operations in 2021, according to the article.

“Since then, precisely how much electricity Bitcoin mines are using in America and their effect on energy markets and the environment have been unclear. The Times, using both public and confidential records as well as the results of studies it commissioned, put the most comprehensive estimates to date on the largest operations’ power use and the ripple effects of their voracious demand.”

According to the article, “Each of the 34 operations The Times identified uses at least 30,000 times as much power as the average U.S. home. Altogether, they consume more than 3,900 megawatts of electricity.”

🔒Compliance Week: Commissioner airs concerns about SEC structured data plan

Hester Peirce, a member of the Securities and Exchange Commission, raised questions about the agency’s rollout of structured data requirements.

According to the publication Compliance Week, the SEC has embraced structured data disclosures to create standardized formats making data “identifiable and accessible by both humans and computers,” as defined by the agency.

But in remarks for the RegTech 2023 Data Summit, Peirce “questioned whether [the plan] … is being strategically implemented, adequately addresses the costs of creating structured data for smaller entities, and might create data that is not useful to the public,” article said.

“In her speech, Peirce urged the SEC and other regulators to establish a better overall plan for structured data. ‘A strategic approach to implementation also should include initiatives to improve the utility and relevance of structured data for all investors. People are more likely to use structured data filings if they are accurate and comparable,’ she said.”

PYMNTS.com: Visa launches cross-platform P2P tool

Visa launched a tool on April 11, allowing “P2P payments to be sent and received across different platforms,” PYMNTS.com reported.

“The service will initially link Venmo and PayPal and then branch out to include other Visa partners, essentially unbundling the act of moving money to and from a P2P network from any P2P network,” according to the article.

The service, Visa+, will establish a new payment credential known as a Visa+ Payname. 

“Upon sending a payment, the sender’s app ‘calls’ the Visa+ service, requests an underlying token, at which time the sender’s app ‘pushes’ payment through to the recipient’s wallet, which is then credited to their account in real time.”

Pew Research: Study finds consumers not confident crypto is safe

Pew Research Center published results of a survey on consumer attitudes toward cryptocurrencies that point to serious doubts about the industry.

“Among the vast majority of Americans who say they have heard at least a little about cryptocurrency (88%), three-quarters say they are not confident that current ways to invest in, trade or use cryptocurrencies are reliable and safe, according to a Pew Research Center survey conducted March 13-19.”

The survey found that about four in 10 adults who have heard about crypto “are not at all confident” and 39% “are not very confident in the reliability and safety of cryptocurrencies.”

“On the other end of the spectrum, few of these adults are extremely (2%) or very (4%) confident in cryptocurrencies. About one-in-five (18%) say they are somewhat confident,” according to a summary of the survey results.


March 30, 2023
Regulators speak on SVB, contrasting takes on AI, Scottish innovation lab

Various: Continued effects of SVB, Signature failures

For the third straight week, news outlets devoted ample attention to the implications of the closures of Silicon Valley Bank and the New York-based Signature Bank. Much of the coverage focused on comments from key federal regulators for congressional hearings to look at the hearings.

FDIC Chair Martin Gruenberg said in testimony that the two failures merit closer consideration of the prudential rules and resolution planning for medium-sized institutions, or those with over $100 billion of assets, according to American Banker. “The prudential regulation of these institutions merits serious attention, particularly for capital, liquidity, and interest rate risk,” he said, as quoted by the trade publication. “This would include the capital treatment associated with unrealized losses in banks’ securities portfolios. Resolution plan requirements for these institutions also merit review, including a long-term debt requirement to facilitate orderly resolution.”

Michael Barr, the Federal Reserve’s Vice Chair for Supervision, called SVB’s failure “a textbook case of mismanagement” in his testimony, CNBC reported. “The bank waited too long to address its problems, and ironically, the overdue actions it finally took to strengthen its balance sheet sparked the uninsured depositor run that led to the bank’s failure.”

Greg Ip wrote in the Wall Street Journal that while the “worst of the current turmoil may have passed,” limited to the two failures and the forced sale of Credit Suisse, the underlying causes of those discrete closures could make for a “corrosive, slow-motion crisis.” 

“SVB collapsed because of a confluence of structural factors that to a lesser extent afflict many institutions. That could force many banks in coming years to shrink or be acquired, a process that also hampers the supply of credit,” he wrote.

TechCrunch: U.K. white paper suggests support for light regulatory touch on AI

The U.K.’s Department for Science, Innovation and Technology (DSIT) issued a paper suggesting the government favors “a light-touch approach” to AI regulation, TechCrunch reported. 

The white paper is “kicking off a public consultation process — seeking feedback on its plans up to June 21 — but appears set on paving a smooth road of ‘flexible principles’ that AI can speed through,” the story said.

“Worries about the risks of increasingly powerful AI technologies are very much treated as a secondary consideration, relegated far behind a political agenda to talk up the vast potential of high tech growth — and thus, if problems arise, the government is suggesting the U.K.’s existing (overstretched) regulators will have to deal with them, on a case-by-case basis, armed only with existing powers (and resources).”

🔒New York Times: The worst-case scenario of AI’s language mastery

In the wake of the failures, banks, fintech companies and companies with large payrolls have heightened their attention on the status of their deposit protection by the FDIC. Even though all depositors were covered in the SVB and Signature collapses, a number of firms are looking more closely at services that spread deposits among bank networks to allow coverage above the FDIC’s $250,000 insurance limit, just as some call for that limit to be eliminated.

On the legislative front, even though certain lawmakers have backed unwinding Trump-era deregulation for midsize banks, the likelihood of reforms is low since Congress is so heavily divided. According to a story in Roll Call, “House Republicans, in the majority for the 118th Congress, said adequate safeguards were in place to prevent the run on SVB. They blamed lax regulators and monetary policy for the problem.”

The Fintech Times: U.K. government to fund innovation lab in Scotland

A Scottish organization focused on advancing the goals of the fintech community has secured U.K. government funding for an innovation lab to advance research on financial regulation, as reported by The Fintech Times.

FinTech Scotland aims to create The Financial Regulation Innovation Lab, which “will focus on using new technologies to accelerate efficiencies, revolutionise risk management and shape future regulatory developments,” according to the news outlet.

“The Lab enables FinTech Scotland to deliver one of the strategic recommendations laid out in the FinTech Research & Innovation Roadmap, launched in March 2022 and aligns with the recently announced UK innovation initiative, the CFIT, formed in response to the HM Treasury FinTech Sector Review.”

🔒 WSJ: Regulators are making it hard for crypto sector to obtain bank services

Katie Haun, a venture investor focusing on decentralized innovations, warned of recent regulatory policies that have “led many banks to begin steering clear of almost any business touching blockchain technologies.”

In an op-ed for the Wall Street Journal, Haun said even though the crypto sector has attracted “the brightest engineering talent in the world,” the innovators “of this computing vanguard are being lumped in with the bad actors as part of a coordinated regulatory campaign to stymie progress in the sector.”

“While other countries are putting in place laws and regulations, in the U.S. unelected officials are making major policy decisions about whether or not America should have a crypto industry,” she wrote. “These efforts are misguided, reckless and potentially unconstitutional. Most important, they put America on the dangerous path of closing off the banking system to those disfavored by a particular administration.”

🔒American Banker: CFPB issues long-awaited small-business loan reporting rule

The CFPB finalized a rule, which was a long time coming, that creates small-business loan reporting requirements for banks and other lenders.

The rule, which was mandated by Section 1071 of the Dodd-Frank Act and is intended to thwart discrimination, will make lenders start collecting data in 2024 on how many applicants are approved or denied small-business loans, according to American Banker.

“The CFPB dragged its feet for more than a decade and ultimately was forced to begin the rule after it was sued in 2019 by the California Reinvestment Coalition, a consumer advocacy group,” the trade publication said. “Under a court-ordered settlement, the CFPB was required to finalize the rule by March 31. The rule was one of the last remaining mandates of the Dodd-Frank Act.”

The rule will cover lenders that make at least 100 loans a year, which was up from the 25-loan threshold that was part of the proposal.

“Community advocacy groups are planning to use the data when it is ultimately released to publicize which banks are doing a poor job of lending to Black- and Hispanic-owned small businesses,” the story said.


March 22, 2023
More SVB fallout, tech sector weighs options, NFT tax guidance

Various: Bank-failure reverberations felt in financial, technology sectors

Concerns about the health of the banking sector continued to take up much of the news coverage this past week following the failures of Silicon Valley Bank and Signature Bank.

Among the pressure points were whether other medium-sized banks could weather the uncertainty, how policymakers will respond and how startups that rely on tech-focused banks such as SVB will maintain financial support. Commentators also hashed out how SVB got into trouble.

“I count at least four red flags of the [SVB’s] conduct that should have sent the alarm bells ringing, which the [Federal Reserve] appears to have not heard,” Brookings Institution Senior Fellow Aaron Klein wrote in an op-ed published in MarketWatch. They were “explosive asset growth,” “hyper-reliance” on large depositors, interest rate risk and heavy borrowing from the Federal Home Loan Bank system. The banking sector was further roiled by the apparent collapse of global giant Credit Suisse, which had to be bought out over the weekend by UBS, and concerns about San Francisco-based First Republic Bank. First Republic experienced sharp stock value swings and lost about $70 billion in deposits, forcing large banks to assemble a cash rescue package for the bank totaling $30 billion.

Crypto firms, tech sector weigh futures with fewer banking options

Digital-asset companies, venture capital and technology startups remain focused on finding new financial services resources after the failures. “The tech and venture community is reeling from the loss, worried that SVB’s collapse will stall America’s innovation engine,” according to a story in the Washington Post. WIRED published an opinion piece by venture capital investor Del Johnson arguing that SVB’s failure should be a wakeup call to the VC industry. He wrote: “Our laws and policies exempt VC investors from many of the rules and regulations that apply to other money managers. In the midst of SVB’s collapse, however, many people have started to question the wisdom of granting so much leeway to VC leaders.”

CoinDesk reported that crypto firms in the U.S. “are looking for bank accounts offshore following the” failures. Meanwhile, the failure of Signature Bank has stoked debate about regulators’ views of the crypto industry. According to the Associated Press, ex-lawmaker Barney Frank — who had been a member of the board — remarked that government officials’ seizure of the bank “was just a way to tell people, ‘We don’t want you dealing with crypto.’”YourStory, an online news site about business entrepreneurs started in India, captured how SVB’s failure was felt around the world. The market in the Middle East and North Africa (known as MENA) “has particularly been hit hard as there is no bank that can support venture capital in the region.” Some are looking at the bank’s collapse as an opportunity to compel regulators to help establish more local banking options.

Will crisis trigger deposit insurance and regulatory changes?

In the wake of the failures, banks, fintech companies and companies with large payrolls have heightened their attention on the status of their deposit protection by the FDIC. Even though all depositors were covered in the SVB and Signature collapses, a number of firms are looking more closely at services that spread deposits among bank networks to allow coverage above the FDIC’s $250,000 insurance limit, just as some call for that limit to be eliminated.

On the legislative front, even though certain lawmakers have backed unwinding Trump-era deregulation for midsize banks, the likelihood of reforms is low since Congress is so heavily divided. According to a story in Roll Call, “House Republicans, in the majority for the 118th Congress, said adequate safeguards were in place to prevent the run on SVB. They blamed lax regulators and monetary policy for the problem.”

eFinancialCareers: Technologists at Credit Suisse in limbo after UBS merger

A story in eFinancialCareers, a job listing and news site for financial and tech professionals, focused on what the forced merger between Credit Suisse and UBS will mean for the senior technologists that Credit Suisse had hired away from Goldman Sachs.

“As UBS cuts costs by $8bn, and mostly focuses those cuts on Credit Suisse, the next year is likely to be challenging with non-revenue generating roles at the forefront of trimming,” the article said. “Goldman’s ex-technology and risk staff may come to regret their Swiss seats.”

CoinDesk: IRS looks at stricter tax policy for NFTs

CoinDesk reported on proposed guidance suggesting that the Internal Revenue Service is considering “less favorable treatment under capital gains tax rules” for non-fungible tokens (NFT).

The proposal could put the tax treatment of NFTs “on a par with other collectibles such as stamps, works of art and fine wine,” the story said. Those with digital assets in their retirement plans could feel the biggest impact from the potential policy change.

“The proposed guidance represents the first move by the U.S. tax authority in a while to clarify the tax treatment of digital assets, addressing a vacuum that has left some taxpayers guessing about their liability.”


March 16, 2023
Shades of 2008 in bank turmoil, big impact on regulation and tech sector

Various: Shades of 2008 in trio of tech-focused bank collapses

“A week is a long time in politics.” That quote — attributed to ex-British Prime Minister Harold Wilson — may also best describe what happened in key corners of the banking and fintech spheres over just a matter of days.

In shades of 2008, the stunning failures of Silicon Valley Bank and Signature Bank, the government’s extraordinary response, and the earlier liquidation of Silvergate Bank last Wednesday dominated not just financial news coverage over the past week but also commanded the lead-story spot in all of the country’s top news outlets.

The collapse of all three banks has significant repercussions for the intersection of tech and financial services, particularly the crypto sector. On March 8, regulators had appeared to dodge a bullet. Silvergate — exposed to deposit outflows triggered by crypto volatility and the failure of exchanges such as FTX — said it would voluntarily liquidate, pay back all depositors and wind down its operations, thereby avoiding a messy takeover by the Federal Deposit Insurance Corporation.

But the Silvergate affair was just a prelude to the sudden implosion of SVB, which served VC-backed tech companies. The failure Friday afternoon was driven by a sudden markdown in the value of SVB’s portfolio of Treasury bonds and an ensuing run on deposits. Signature Bank was then shuttered Sunday after its spooked crypto customers pulled their deposits. The failures of SVB and Signature — the second and third largest U.S. bank closures, respectively — prompted Treasury, the Fed and the FDIC to exercise rarely used power to cover uninsured depositors through a “systemic risk exception.”

Various: Failures expected to have big impact on crypto industry, financial rules

An article in TechCrunch noted that the chaos in the banking sector could push the crypto sector further to decentralization. The three bank shutdowns “resulted in crypto companies and users alike scrambling to move their assets,” according to the article.

A number of stories in the past week also delved into the likelihood of policymakers toughening rules for the financial and tech industries in the wake of the banking turmoil.

President Biden said he would “ask Congress and the banking regulators to strengthen the rules for banks to make it less likely this kind of failure will happen again,” according to American Banker. The online trade publication also reported that Democrats are looking into rolling back a 2018 law that had eased certain Dodd-Frank measures for medium-sized banks. 

“Since the failure of Silicon Valley Bank on Friday, a Trump-era regulatory relief effort has come under scrutiny, with some questioning whether Silicon Valley Bank or Signature Bank would have failed had either still been subject to tougher liquidity and supervisory requirements,” the story said.

The Wall Street Journal reported that while Democrats want to tighten banking rules, Republicans “are pointing the finger at” inflation as triggering SVB’s failure. “These disagreements mean that any bipartisan legislation to get ahead of potential future bank problems faces an uphill fight.”

WIRED: SVB collapse deeply felt in Europe’s tech community

WIRED magazine warned of “a slower-burn crisis to come” for European tech startups as a result of the SVB failure.

“The reason that Silicon Valley Bank was so popular was because it filled a role that no one else would,” the article said. “It was part bank, part networking community, part venture capital firm.”

“In some countries it was a major investor,” it continued. “In Ireland, the bank had planned to invest more than $500 million in technology and life science startups by 2024. In the Netherlands, the bank was in discussions about how to finance more local companies. Europe’s tech sector was already struggling with funding shortfalls, mounting losses, and widespread job cuts. The loss of Silicon Valley Bank only deepens the gloom.”

The bank had been “embedded in Europe’s tech sector” through a series of satellite offices.

“Its Danish office, which didn’t have a banking license, focused on networking. The German branch did not offer a deposit business. But at the heart of that system was the bank’s London-based subsidiary, established in 2012, which helped startups across the EU with funding, loans, and accounts. On Friday, the Bank of England declared that Silicon Valley Bank was set to enter insolvency, before that arm of the business was acquired in a last-minute £1 rescue deal by HSBC bank.”

🔒Washington Post: How SVB deposit bailout could put tech sector in negative light

While the government’s blanket coverage of SVB depositors was a relief to tech startups and the VC industry, it could do further damage to the tech sector’s image, according to analysis by the Washington Post.

“The mythology that has made Silicon Valley start-ups the darlings of the American business world may prove harder to recoup,” the article said.

“Here we have a sector full of self-styled free thinkers — brought to its knees by groupthink. Risk-takers who valorize failure — as long as someone else is footing the bill. Meritocrats who couldn’t hack it on their own. Mavericks who scoff at the political establishment until they desperately need it.”

Many believe that the Federal Reserve did the right thing by protecting “the ability of numerous small businesses to pay their expenses and employees, along with the solvency of other midsize banks around the country.”

“Still, the government’s intervention is sitting poorly with many across the political spectrum. The resentment speaks to a growing sense that Silicon Valley, once a beacon of ingenuity and innovation, has lost the one thing banks need even more than cash: trust.”

CoinDesk: Treasury to assess money-laundering risks in DeFi

In other news besides the turmoil in the banking sector, CoinDesk previewed a coming risk assessment by the Department of the Treasury on the potential of decentralized finance (DeFi) to be used in illicit crimes.

Assistant Secretary for Terrorist Financing and Financial Crimes Elizabeth Rosenberg was quoted as saying: “Illicit actors are constantly looking for effective ways to hide criminal activity and the laundering of their proceeds. This is a threat to DeFi services or other elements of the virtual asset ecosystem.”

For example, Rosenberg said North Korea-affiliated actors have “conducted ransomware attacks, stolen hundreds of millions of dollars’ worth of virtual assets and laundered their ill-gotten funds through mixers and other virtual asset service providers to fund North Korea’s illegal nuclear and ballistic missiles programs,” according to the article.


March 9, 2023
AIR comments on digital-asset RFI, NBA’s Elam talks MDIs

AIR News: CEO Barefoot submits comment letter on digital-assets research policy

AIR CEO Jo Ann Barefoot urged White House officials to study benefits of blockchains and other distributed-ledger technologies in areas such as anti-money-laundering (AML) and financial inclusion, while cautioning them to be vigilant about risks associated with digital assets.

Barefoot outlined AIR’s views in a March 3 letter to the White House Office of Science and Technology Policy, responding to a Request for Information (RFI) on the National Digital Assets Research and Development Agenda.

“We believe that there are ample opportunities for the U.S. government and nations around the globe to employ beneficial uses of blockchain and other distributed-ledger technologies (DLT) while being vigilant about dangers associated with digital assets,” Barefoot wrote in the letter. “Potential benefits include combating illicit financial crimes, expanding financial inclusion and monitoring efforts to mitigate climate change.”

The letter laid out key research topic areas in digital assets; the risks and opportunities of blockchain technology for regulators and law enforcement; and a case for a holistic approach to managing technologies underlying digital assets. It also detailed the potential impact of those technologies on financial stability, AML, financial inclusion and climate change.

“Digital currencies, blockchains and other distributed-ledger technologies are increasingly part of the mainstream economy despite turmoil in the crypto market and remaining skepticism about their applicability for the consumer,” Barefoot wrote. “Technology innovators, investors and an array of both startups and established companies are devoting a tremendous amount of resources to developing beneficial use cases for these technologies as well as solutions for addressing the related risks.”

Barefoot also stressed the importance of equipping regulators with the technological expertise and capability to manage the digital transformation of financial markets.

“A key focus of federal R&D efforts should be how to strengthen human-capital resources across the regulatory agencies to ensure that the government can manage rapid digital change,” she wrote.

Read AIR’s full comment letter here.

Various: Silvergate’s troubles are the latest sign of crypto turmoil

Several news outlets reported on the troubles of Silvergate Capital Corp., with some suggesting the crypto-focused bank was struggling to remain in operation.

Bloomberg News reported that FDIC “officials have been discussing with management ways to avoid a shutdown, according to people familiar with the matter.”

“One possible option involves lining up crypto-industry investors to help Silvergate shore up its liquidity, said one of the people.”

Reuters said the company’s problems were hurting crypto stocks amid continued uncertainty and volatility in the digital-asset sector. “The firm has been struggling to stay afloat after the collapse of Sam Bankman-Fried’s crypto exchange FTX in November drove investors to pull out $8 billion in deposits from the bank in the last three months of the year.”The matter of Silver’s struggles has even been on the White House’s radar, CoinDesk reported, citing comments by White House press secretary Karine Jean-Pierre. “Silvergate announced last Friday it would shutter its Silvergate Exchange Network (SEN), a 24/7 internal settlement tool the bank’s customers could use to conduct transactions between each other on weekends or times when normal banking services may be closed,” CoinDesk said.

Shoppe Black: NBA’s Elam discusses efforts to help MDIs ‘bridge the digital divide’

Shoppe Black, a website focused on news about Black entrepreneurship, featured a Q&A with National Bankers Association (NBA) CEO Nicole A. Elam about efforts to assist Minority Depository Institutions in modernizing their digital technology, among other things.

AIR is partnering with the NBA on MDI ConnectTech, which aims “to bridge the digital divide and support the continued growth and success of these critical institutions,” Elam said in the article.

“With $10 million in leading grant support from the Citi Foundation’s Community Finance Innovation Fund, MDI ConnectTech works with MDIs to develop and integrate technology solutions that multiply their lending capacity and effectively increase the accessibility and affordability of financial services to underserved customers,” she said.

“These efforts enable minority banks to remain sustainable financial epicenters for economically vulnerable consumers and small businesses.”

HBR: Business-process improvement via AI is now mainstream

The Harvard Business Review published an article on how advances in AI are making it possible for companies to improve data-related business processes at a relative low cost.

“While the methods fueling this growth of AI have been around for decades, the cost of implementing them has dropped precipitously,” the authors — Thomas Davenport of MIT, Matthias Holweg of Oxford and Dan Jeavons of Shell — wrote.

“Previously the domain of data scientists only, modern AI-based solutions are now mature enough to be offered ‘off the shelf,’ greatly lowering the technical barriers to entry. Falling computing costs — driven by the wide availability of the cloud, the growth of low-cost bandwidth, and reduced cost of sensors — have drastically lowered the price of model-driven prediction.”

The results of “this AI-driven reengineering” are already noticeable in numerous sectors. “Banks are using it to transform wealth management advice for clients. Insurance companies are using AI to make client onboarding and underwriting much easier, and automating claims estimates for auto and home damage with deep learning analysis of photos taken by the insured.”

CoinDesk: Federal oversight would improve trust of crypto firms, Hsu says

Acting Comptroller of the Currency Michael Hsu made a pitch for formal federal supervision of the crypto sector, saying that regulatory oversight is the only way to give consumers peace of mind that they can trust a crypto company.

“We won’t be able to know which players are trustworthy and which aren’t until a credible third party, like a consolidated home country supervisor, can meaningfully oversee them,” Hsu said at a conference in Washington D.C., as reported by CoinDesk.

Hsu compared the collapse of FTX to that of Bank of Credit and Commerce International (BCCI), where there was “a ‘complex web’ of cross-border activity with no single regulator in charge of the big picture,” the news outlet reported.

“The bank’s 1991 implosion offers ‘striking similarities’ to FTX, Hsu said, and a lesson for governments to insist that a single regulatory entity can see a whole institution.”

🔒WIRED: City’s anti-fraud effort led to discriminatory machine learning algorithm

WIRED magazine reported on its investigation with Lighthouse Reports on troubling findings about the machine learning algorithm in the Dutch city of Rotterdam used by officials to flag fraud risk among welfare recipients.

The story profiled complaints from residents who find the risk-scoring system too heavy-handed, and other critics who say the city’s algorithm is potentially discriminatory. Journalists involved in the investigation obtained data about the risk-scoring system to assess it.

“With this data, we were able to reconstruct Rotterdam’s welfare algorithm and see how it scores people. Doing so revealed that certain characteristics—being a parent, a woman, young, not fluent in Dutch, or struggling to find work—increase someone’s risk score. The algorithm classes single mothers like Imane as especially high risk. Experts who reviewed our findings expressed serious concerns that the system may have discriminated against people.”

The article cast the concerns about Rotterdam’s system as a cautionary tale for other jurisdictions.

“The pattern of local and national governments turning to machine learning algorithms is being repeated around the world. The systems are marketed to public officials on their potential to cut costs and boost efficiency. Yet the development, deployment, and operation of such systems is often shrouded in secrecy. Many systems do not work as intended, and they can encode troubling biases. The people who are judged by them are often left in the dark even as they suffer devastating consequences.”


March 2, 2023
Tech gap for MDIs, digital dollar update, Nigerian cash crisis

🔒American Banker: Research highlights tech gap for Black financial institutions

A story in American Banker zeroed in on the technology gap for Black-owned financial institutions, citing new research by the Urban Institute and referencing a program spearheaded by AIR to help Minority Depository Institutions improve their digital capability.

“While around 80% of the nation’s non-Black credit unions provide an informational website and online banking services, only about half of Black credit unions do the same, according to new research from the Urban Institute that looked at regulatory disclosures by federally insured credit unions.”

According to the research, “just 36% of Black credit unions offer a mobile app to their customers, compared with roughly 70% elsewhere.”

AIR has partnered with the National Bankers Association on MDI ConnectTech. “Supported by a $10 million grant from the Citi Foundation, the program helps minority depository institutions develop and integrate technology so that they can boost their lending capacity and roll out more digital banking services, the article said.

CoinDesk: Treasury official gives update on CBDC discussions

A senior official in the Treasury Department indicated that discussions about the potential creation of a digital dollar are picking up, CoinDesk reported.

Nellie Liang, the Treasury undersecretary for domestic finance, signaled in her remarks that officials have not made a decision but they are “actively evaluating whether a [central bank digital currency] is in the national interest,” according to the news outlet.

“Setting up a digital dollar, she said, ‘could help preserve the dollar’s global role’ and possibly reduce frictions in cross-border transactions.”

Regardless of whether the U.S. issues “one, she said, government officials are exerting influence with U.S. allies toward ‘responsible development of CBDCs’ in other places, noting that 11 jurisdictions have already moved ahead with their virtual currencies.”

Forbes: Nigerians flock to digital currencies in wake of cash shortage

A story in Forbes provided a detailed look at the economic challenges in Nigeria that resulted from a redesign of the naira, the country’s national currency.

“Against this backdrop of economic challenges, Nigerians have continued to flock to cryptocurrencies, mainly USD stablecoins and bitcoin, to hedge against current inflation and circumvent the various limitations on naira transactions in online payments,” according to the article.

The Nigerian central bank issued new notes of certain denominations last year. But the change led to a cash shortage and the central bank then limited cash withdrawals.

“The redesign is also facing a logistical nightmare as there are only two printing locations for the naira in Nigeria (in Lagos and Abuja), which need to distribute the new notes across the nation,” the story said. “The current insecurity issues in specific locations across the country, the short timeline and the increasing demand for the new notes are huge logistical burdens with considerable financial costs.”

The central bank launched a digital currency in 2021 but efforts to make the nation cashless “continues to draw criticism for its potential to be used to clamp down on freedoms, especially financial freedom, through intrusive surveillance programs.”

🔒American Banker: McHenry’s privacy bill faces uphill climb in Senate

The financial data privacy bill spearheaded by House Financial Services Committee Chair Patrick McHenry, R-N.C., was approved in a vote by the panel, “but lack of support from Democratic lawmakers means it’s unlikely to have a bright future in the Senate,” according to a story published by American Banker.

Industry groups have expressed support for certain provisions in the bill but Democratic critics raise “concerns that it would set a ceiling, rather than a floor, on data privacy legislation across different states,” the publication reported.

“‘The bill includes a broad preemption of state laws,’ said Rep. Maxine Waters of California, the ranking Democrat on the committee. ‘Republicans often like to tout the importance of empowering states to make decisions and to be the laboratory for innovation, but when Wall Street or payday lenders come knocking, Republicans are quick to preempt any state law that provides greater protections for their constituents.’”

McHenry has argued that the bill would provide clarity for consumers and companies by establishing a consistent standard, the story said. “‘There should be consistency across the country,’ McHenry said. ‘If a family moves from, say, California to Texas, it doesn’t make sense for the guardrails around their personal financial data to change. A national standard will provide certainty to both consumers and the entities that handle their data.’”

S&P Global: Regulators step up enforcement over ESG misstatements

S&P Global’s Market Intelligence reported that a “regulatory crackdown on greenwashing” could result in fines and other penalties for banks in the U.S. and abroad.

“European and U.S. regulators are expected to more aggressively scrutinize financial institutions’ environmental, social and governance claims as they introduce new disclosure and labeling rules, and ramp up enforcement. It comes amid mounting fears that firms are exaggerating their sustainability credentials to capitalize on surging demand for green investments.”

Authorities in the U.S. and Europe have already taken action against certain banks for ESG misstatements, the story said. Greenwashing complaints have also caught the attention of nonfinancial regulators for issues regarding misleading advertising. Some agencies are writing new rules. “The U.K.’s Financial Conduct Authority in October proposed a new anti-greenwashing law and said it was enhancing its enforcement strategy, with investigations expected to follow.”

“New or upcoming legislation across jurisdictions will further expand the legal framework against which regulators can take action. The EU’s Sustainable Finance Disclosure Regulation, or SFDR, has already introduced stricter disclosure requirements and criteria for investments classified as sustainable, essentially putting into law what financial firms can claim to be green.”


February 24, 2023
Regulating ChatGPT, FTC launches tech unit, struggles for crypto miners

Brookings Institution: How regulators should combat generative AI risks

Alex Engler, a fellow in governance studies at the Brookings Institution, offered some “early thoughts” on ways to effectively regulate generative AI models such as ChatGPT, DeepMind’s Sparrow and OpenAI’s DALL-E 2. 

These models offer “impressive mimicry,” which “is not the same as comprehension,” Engler wrote. A “sense of authenticity” that is not consistently backed up with accurate information means generative AI could be deployed in commercial business applications that are unreliable. Or worse, these models could be tapped “for malicious use where the truth is less important than the message it advances, such as disinformation campaigns and online harassment.” Some mistakes made by a generative AI may be relatively benign, such as poor clothing recommendations or in cases “where there is a human reviewing the result.” 

“However, if these trends extend into generative AI systems used for impactful socioeconomic decisions, such as educational access, hiring, financial services access, or healthcare, it should be carefully scrutinized by policymakers,” Engler wrote.

In the case of malicious use, it may be difficult for regulators to crack down on bad actors directly. “However, it might be reasonable to require a certain degree of risk management, especially by commercial operations that deploy and profit from these cutting-edge models. This might include tech companies that provide these models over API (e.g., OpenAI, Stability AI), through cloud services (e.g., the Amazon, Google, and Microsoft clouds), or possibly even through Software-as-a-Service providers (e.g., Adobe Photoshop).”

Washington Post: FTC launches office to focus on risks in technology sector

The Federal Trade Commission announced the formation of its new Office of Technology to “strengthen the agency’s ability to enforce the nation’s competition and consumer protection laws.”

According to the Washington Post’s Technology 202 column, the FTC is looking to accelerate “efforts to rein in the fast-moving tech sector, which has emerged as a major focus under Democratic Chair Lina Khan.”

“FTC leaders are hoping combining and expanding their forces into a dedicated tech unit will help them keep up with the rapid advancements across the industry — and to keep it in check,” according to the newspaper.

Creation of the new office will more than double the FTC’s technologists on staff. (There are currently only 10.)

A press release said the new technology unit “will better equip the agency to approach current and future tech threats by building a team of technologists with deep expertise across a range of specialized fields, including data security, software engineering, data science, digital markets, artificial intelligence, machine learning, and human-computer interaction design.”

WIRED: Struggling crypto miners look to survive another ‘halving’

Crypto-mining companies have not been immune from the significant challenges facing the embattled crypto industry, according to WIRED Magazine in a wide-ranging article.

“Over the past year, the sector has been battered by a slump in the price of bitcoin, combined with a spike in the cost of energy and an increase in mining difficulty—a reflection of the amount of computing power directed at the bitcoin network, which dictates the proportion of coins miners are able to win.”

In contrast to skyrocketing profit margins in 2021, miners are now scrambling “to cut costs,” the magazine said. Meanwhile, in a little over a year, the industry will undergo another scheduled “halving” — when the quantity of coins awarded through the bitcoin system will be cut in half. As a result, “miners are playing a high-stakes game of chicken,” according to the story.

“The goal for miners is to ensure they are in a strong enough financial position to survive the fall in profits longer than anyone else; as miners give in and drop from the network, the share of coins won by the rest will increase.”

CoinDesk: U.S. banks warned of liquidity risks from serving crypto firms

The U.S. federal bank regulators issued a joint statement warning financial institutions under their watch of liquidity risks from providing banking services to crypto-asset companies.

The agencies — including the Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation and Federal Reserve Board — specifically warned banks about uncertainty around deposits placed by a crypto-asset firm for the benefit of the firm’s customers and deposits tied to stablecoin reserves.

“Such deposits can be susceptible to large and rapid inflows as well as outflows, when end customers react to crypto-asset-sector-related market events, media reports, and uncertainty,” the agencies said in the statement, according to CoinDesk.

CoinDesk reported: “The U.S. regulators had already formally warned the banking industry about significant involvement in virtual currencies and contend that banks that rely on crypto activity as a significant portion of their business would draw heightened scrutiny over safety-and-soundness concerns.”

The agencies advised banks “to actively monitor the liquidity risks inherent in such funding sources and establish and maintain effective risk management and controls commensurate with the level of liquidity risks from such funding sources.”

However, the guidance notably sought to dispel any notion that the regulators want to eliminate such banking relationships.

“Banking organizations are neither prohibited nor discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation,” the agencies said.


February 16, 2023
SEC crackdown continues, U.K. vision of digital pound, BNPL’s troubles

Various: SEC expands crypto crackdown to Paxos stablecoin, custody rules

The Securities and Exchange Commission’s aggressive moves against the crypto industry continued with a pair of high-profile actions: a broad swipe at Paxos over its Binance-branded stablecoin, and a proposal that would make crypto-related assets subject to the agency’s “qualified custodian” rules.

The SEC notified Paxos, which issues and lists the Binance USD, of plans to sue the crypto firm alleging that the stablecoin is operating as an unregistered security, according to the Wall Street Journal. Paxos received a so-called Wells Notice, which is used to inform companies of a possible enforcement action.

Then, on Wednesday, the agency unveiled a proposal expanding “qualified custodian” requirements to include a longer list of assets, including crypto.

“Under the new rules, in order to custody any client asset — including and specifically crypto — an institution would have to hold the charters, or qualify as a registered broker-dealer, futures commission merchant, or be a certain kind of trust or foreign financial institution,” CNBC reported. The requirements would force several crypto firms to “face annual evaluations from public accountants, as well as have to provide account statements and turn over records upon request,” said Bloomberg News, which previewed the proposal days before it was released.

In the wake of the agency’s most recent actions, CoinDesk’s David Z. Morris asked whether the SEC is overreaching or merely responding to the industry’s failures.

“While the SEC’s crackdown is likely to put a lot of misplaced burdens on entities that are substantially blameless, the crypto industry as a whole still needs to look inward and reckon with its own responsibility – and ask how it can better marginalize frauds on the front lines the next time mass crypto-mania returns. Clearly, we can’t rely on regulators to get it right for us.”

🔒BankThink: FDIC’s methodology in unbanked survey needs an update

AIR board member Tracy Basinger coauthored an op-ed, published in American Banker, that questions some of the FDIC’s methodologies in its survey of unbanked and underbanked households.

Basinger and Mary Dent wrote that if they “ran the FDIC, we’d reassess whether there really is an ‘unbanked’ problem. We’d dig deep into the frustrations people feel, and why. And, most importantly, we’d focus on whether people are ‘saved’ — not just ‘banked’ — as a more meaningful measure of financial health.” (Both authors are senior advisors at the Klaros Group. Basinger is former head of bank supervision at the Federal Reserve Bank of San Francisco.)

They said the FDIC’s focus on whether consumers have traditional checking or savings accounts at a bank or credit union — leaving out prepaid cards and nonbank services such as PayPal and Venmo — misses the rest of the picture. 

“Historically, that may have made sense, since at least some of these products didn’t offer the full functionality and consumer protections that consumers deserve. But it doesn’t make sense today, since neobank and nonbank debit cards are issued by banks and have the full array of protections,” they wrote.

Reuters: U.K. offers glimpse of what a digital pound could look like

The British government and the Bank of England detailed their ongoing discussions about the potential creation of a digital pound.

No final decision has been made on whether the U.K. will ultimately issue a digital currency, Reuters reported. But if the plan were to go into effect, British citizens would be limited to 20,000 pounds ($24,000) each and the digital pound would likely enter circulation in the second half of this decade.

“‘We propose a limit of between 10,000 pounds and 20,000 pounds per individual as the appropriate balance between managing risks and supporting wide usability of the digital pound,’” said Bank of England Deputy Governor Jon Cunliffe in a speech.

TechCrunch: Buy Now Pay Later may be losing its luster

Job cuts and stock value declines at buy-now-pay-later providers had TechCrunch asking: “Is this the end of the BNPL boom?”

“When the economy was booming, the buy now, pay later space thrived. But as inflation and interest rates climbed, consumer-focused players in the space have struggled with increased defaults amid less discretionary spending,” the article said.

Affirm said it will reduce staff by 19% and close a crypto unit, as its valuation has plunged to under $3.7 billion. Klarna’s valuation is down 85% compared with June of last year.

In September, the Consumer Financial Protection Bureau issued a report suggesting that companies like Klarna, Affirm and Afterpay, which all allow customers to pay for products and services in installments, must be subjected to stricter oversight. The report may have been too little, too late; many are concerned that BNPL does not constitute responsible lending, and it’s hard to tell whether the model itself is sustainable in the long term.

Reuters: FCA readies plan to make synthetic data available

The U.K. Financial Conduct Authority said it will move forward with a plan to make synthetic data available to help spur financial services innovation, Reuters reported.

“Synthetic data refers to customer data that has been stripped of some information or encrypted to preserve privacy, making it easier to share between companies, such as fintechs, that want to offer competing financial services,” the article said.

Respondents commenting on an FCA consultation published last year said having access to synthetic data “would be useful as a supplement to efforts to combat financial crime, and for environmental, social and governance (ESG) purposes.”

“‘Based on the feedback to the Call for Input and previous research, our current position is that synthetic data can potentially make a significant contribution to beneficial innovation in UK financial markets,’ the FCA said in a statement.”


February 2, 2023
U.K. crypto framework, NIST guidance on AI, pushback over CFPB data rule

Various: U.K. government introduces plan to regulate cryptoassets

Receiving wide coverage, the U.K.’s finance ministry released a much-anticipated public consultation laying out a sweeping plan to regulate cryptoassets. The proposals strike a balance, according to Cointelegraph, seeking “to place the U.K.’s financial services sector at the forefront of crypto and avoid hardline control measures that have gained momentum globally amid the crypto winter.” Rather than create a separate crypto regime, the new set of rules “would fall under the framework of the U.K.’s Financial Services and Markets Act 2000 (FSMA),” the news outlet said. The Financial Conduct Authority will adapt the FSMA for digital-asset firms.

Reuters reported: “The new rules would cover crypto-related admission to a trading platform, making a public offer, executing payment transactions or remittances, arranging deals, operating a platform, custody, and mining transactions, or operating a node on blockchain.”

CoinDesk, which previewed the rules one day before their public release, noted that “the U.K. is trying to catch up with the European Union, which is in the last stages of approving its landmark Markets in Crypto Asset regulation that focuses heavily on stablecoins and will set up a licensing regime for service providers.” After the U.K. document was released, CoinDesk said the plan “would require crypto companies to register” with the FCA “and to meet anti-financial crime rules that are tougher than the money laundering regulations (MLR) under which firms are approved now.”

“The Treasury also wants to include a market abuse regime to prevent illicit activity from happening and to sanction practices that manipulate prices via pump and dump schemes, fake activities such as wash trading or anticipating trades through front running.”

NIST: U.S. standards agency issues guidance on managing AI risks

The U.S. Department of Commerce’s National Institute of Standards and Technology issued a voluntary guidance document for organizations that are “designing, developing, deploying or using AI systems to help manage the many risks of AI technologies.”

NIST’s risk management framework, which was directed by Congress, “is intended to adapt to the AI landscape as technologies continue to develop, and to be used by organizations in varying degrees and capacities so that society can benefit from AI technologies while also being protected from its potential harms,” the agency said.

The framework “promotes a change in institutional culture, encouraging organizations to approach AI with a new perspective — including how to think about, communicate, measure and monitor AI risks and its potential positive and negative impacts.”

The RMF is divided into two sections. The first “discusses how organizations can frame the risks related to AI and outlines the characteristics of trustworthy AI systems.” The second section is “the core of the framework,” describing “four specific functions — govern, map, measure and manage — to help organizations address the risks of AI systems in practice.”

🔒American Banker: Banks sound alarm over CFPB’s data-access rules

Banks are complaining to the Consumer Financial Protection Bureau about a potential uneven playing field resulting from a pending data-access rule, American Banker reported in a story on Jan. 30.

The rule will govern how much control consumers can have over their own financial data, and aim to clarify how nonbank fintech firms can access bank-account data in order to offer certain services.

“Banks say the rule could create an uneven playing field because financial firms are supervised and examined by regulators for compliance with consumer protection laws while hundreds of large technology and nonbank fintechs are not,” according to the story. “The explosive growth of data aggregation services has created risks for consumers that could result in uneven enforcement, banks say.”

Bitcoin.com: Financial firms invited to apply to Ghanaian and Nigerian sandboxes

The central banks of Ghana and Nigeria have invited financial startups to apply to be part of the nations’ respective regulatory sandboxes.

The Ghanaian central bank issued a statement on Jan. 26 saying both registered financial institutions and unlicensed fintech firms could apply, according to a writeup on the Bitcoin.com website. Ghana’s sandbox was launched in August. “The bank said the process to admit the first cohort of participants will open on Feb. 13 and close on March 14.”

“According to the Bank of Ghana (BOG), the sandbox will support innovations that include ‘new digital business models not currently covered explicitly or implicitly under any regulation.’ The sandbox will also support innovations that attempt to solve the financial exclusion challenge as well as ‘new and immature digital financial service technology.’”

The Central Bank of Nigeria “said interested innovators can now submit ‘expressions of interest to participate in the regulatory sandbox to explore novel applications of technology and innovation on behalf of our customers and stakeholders.’”

Axios: Fed’s rejection of Custodia spells trouble for other digital-assets firms

The Federal Reserve’s denial of the application by the digital-asset provider Custodia Bank to access a Fed “master account” means other crypto firms seeking entry “are likely to be disappointed, regardless of standing,” wrote Axios.

“‘We’re the ones coming through the front door, asking for permission rather than forgiveness,’ Caitlin Long, chief of Custodia tells Axios. ‘That’s what regulators say they want, but their actions prove otherwise.’”

A master account would give Custodia access to traditional payment rails that regulated banks use.

“Posture from federal agencies, regulators and the White House, as indicated by their latest missives, show that any enthusiasm for allowing crypto into the broader financial system has been blunted by FTX’s collapse,” the news site said.


January 25, 2023
FTX explores reopening, McHenry hits ground running, crypto subcommittee

🔒WSJ: New FTX CEO leaves door open to bankrupt exchange resuming operations

John H. Ray III, the new CEO of FTX, told the Wall Street Journal in an interview that he has created a task force to examine the feasibility of restarting the company’s main international exchange.

“‘Everything is on the table,’ Mr. Ray said. ‘If there is a path forward on that, then we will not only explore that, we’ll do it.’”

FTX is one of numerous defunct crypto companies using the bankruptcy process to explore whether it makes sense to restart operations or close their doors for good, the newspaper reported.

“Mr. Ray said he would look into whether reviving FTX’s international exchange would recover more value for the company’s customers than his team could get from simply liquidating assets or selling the platform.”

“‘There are stakeholders we’re working with who’ve identified what they see is a viable business,’ he said.”

Various: House Financial Services Chair McHenry already leaving imprint

Rep. Patrick McHenry, R-N.C., the newly appointed chair of the House Financial Services Committee, has grabbed several headlines in the past month, due in part to interest over how he will lead the panel as well as to his growing profile within the Republican caucus.

Before taking the gavel, McHenry enjoyed a significant legislative victory in December when the Financial Data Transparency Act — a bill he cosponsored to establish smarter financial data reporting standards — was passed into law. He also has emerged as a leadership figure in the congressional fight over the U.S. debt limit.

McHenry recently moved to eliminate a subcommittee focused on diversity and inclusion that had existed under former Democratic Chair Maxine Waters. However, his alternative approach of including diversity as an agenda item at every other subcommittee has triggered concerns from conservatives, according to Politico’s Morning Money

“The move on Friday triggered a rebuke from the conservative FreedomWorks, which blasted the decision as ‘advancing the left’s woke ESG agenda,’” according to the morning newsletter. “The criticism was notable as McHenry and other senior Republicans on the committee plan to push back on the ESG agendas at the regulators and big Wall Street firms.”

CNBC: Rep. French Hill appointed chair of House subcommittee on digital assets

Rep. French Hill, R-Ark., will chair the new House Financial Services Subcommittee on Digital Assets, Financial Technology, and Inclusion.

“Hill, who was also appointed vice chair of the broader committee, said in a statement that a bipartisan effort is needed for ‘FinTech innovation to flourish safely and effectively in the United States,’” according to CNBC.

“The unregulated nature of the crypto industry emerged as a pressing concern late last year after the collapse in November of crypto exchange FTX. Sam Bankman-Fried, FTX’s founder, was arrested last month on fraud charges and was released on a $250 million bond while he awaits trial.”

The BaaS Association: Ex-SBA official announced as first CEO of industry group

The Banking-as-a-Service (BaaS) Association, which represents companies that form digital banking relationships with fintech partners, named former SBA official Bill Briggs to serve as the group’s first CEO.

Briggs previously oversaw the Paycheck Protection Program as an official in the U.S. Small Business Administration (SBA) Office of Capital Access. 

“The Paycheck Protection Program was the watershed moment for bank partnerships with fintech companies,” said the association’s co-founder, Dave Mayo, in a press release. “Bill has seen firsthand how powerful these partnerships can be in meeting the financial needs of Americans.”

The industry group was founded in 2022. “As this industry practice takes shape, it is important that we set standards for safe and compliant practices in BaaS to ensure the protection of consumers and the soundness of every participating bank,” Briggs said in the press release.


January 19, 2023
Japan’s crypto stance, DOJ warns tenant screeners, disclosures for Gen Z

Bloomberg News: Japan urges regulators in U.S. and Europe to get tough on crypto exchanges

A senior official at Japan’s Financial Services Agency is urging regulators in the U.S., Europe and elsewhere to impose tougher rules on cryptocurrency exchanges, similar to the restrictions placed on banks and brokerages.

Mamoru Yanase, who is deputy director-general of the agency’s Strategy Development and Management Bureau, said the FTX scandal was not the result of crypto technology but rather “loose governance, lax internal controls and the absence of regulation and supervision,” according to Bloomberg News.

“Japan’s regulator has ‘begun to urge’ counterparts in the US, Europe and elsewhere to subject cryptocurrency exchanges to supervision that’s similar to those faced by banks and brokerages, according to Yanase. The country has been making its voice heard through the Financial Stability Board, an international body that’s working on global regulation of crypto asset activities, he said.”

“Countries ‘need to firmly demand’ from cryptocurrency exchanges measures to protect consumers and prevent money laundering, on top of having strong governance, internal controls, auditing and disclosure, Yanase said.”

WIRED: DOJ issues warning for providers of tenant-screening algorithms

The Department of Justice has made clear that software companies using algorithms to assign scores to potential apartment tenants are subject to anti-discrimination provisions of the Fair Housing Act, according to a story in Wired.

DOJ and the Department of Housing and Urban Development filed a court brief last week “to send a warning to landlords and the makers of tenant-screening algorithms.” A class-action lawsuit filed by tenant applicants “alleges that SafeRent scores based in part on information in a credit report amounted to discrimination against Black and Hispanic renters in violation of the Fair Housing Act.”

“Like in many areas of business and government, algorithms that assign scores to people have become more common in the housing industry. But although claimed to improve efficiency or identify ‘better tenants,’ as SafeRent marketing material suggests, tenant-screening algorithms could be contributing to historically persistent housing discrimination, despite decades of civil rights law,” the article said.

SafeRent has claimed that its algorithms could not be subject to the Fair Housing Act “because its scores only advise landlords and don’t make decisions.”

But the DOJ brief “dismisses that claim, saying the act and associated case law leave no ambiguity.”

Politico: Crypto firms see overreach in SEC’s stance toward the industry

Securities and Exchange Commission Chair Gary Gensler’s tough stance toward crypto companies’ compliance with securities laws is getting industry pushback, Politico reported.

“Crypto companies are poised to resist SEC supervision, setting up one of the most consequential battles of the Gensler era,” the article said.

The SEC recently charged the digital asset companies Gemini Trust and Genesis Capital with selling unregistered investment products, thereby issuing “a stark warning to crypto exchanges, lenders and other platforms that they need to follow U.S. securities laws.”

But some argue the SEC’s recent moves go too far.

“Coinbase CEO Brian Armstrong accused the regulator of ‘some really sketchy behavior’ after it effectively blocked the launch of a lending product. Terraform Labs founder — and now crypto fugitive — Do Kwon fought off SEC subpoenas for months through court challenges, including an unsuccessful appeal to the U.S. Supreme Court.”

“And in the latest instance, Gemini cofounder Tyler Winklevoss called the SEC’s charges against Gemini and Genesis ‘totally counterproductive.’”

🔒The Banker: How to tailor disclosure regulations for tech-savvy Gen Z investors

The Banker magazine (owned by the Financial Times) published an op-ed on how regulators should tailor investment rules for tech-savvy Gen Z investors. For example, these younger investors may be even less likely to read long paper-based disclosures.   

“Gen Z provides regulators an opportunity to completely rethink the current disclosure regime and instead provide more streamlined, readable and potentially powerful options for providing material information to investors,” wrote Amy Caiazza, Neel Maitra and Jess Cheng of the law firm Wilson Sonsini Goodrich & Rosati. “Disclosure might, for example, allow the use of emojis to indicate the importance of a few key risk factors in a shortened disclosure document, or it could make liberal use of links allowing investors to explore topics in more depth.”

ESG disclosures, they said, could be an area where Gen Z investors may favor a different approach. “This could mean, for example, a significant reduction of carbon emissions being indicated by three tree emojis. The text companies provide could be short – perhaps limited in length, much like tweets are. These could be accompanied by linked text, to provide more information where investors seek it, but would allow a generation that scans to find relevant metrics quickly and easily.”

Harvard Business Review: We need better metrics to assess value of crypto technology

Writing in the Harvard Business Review, Christian Catalini of MIT and Jane Wu of UCLA argue that the frenzy over crypto values “however untethered they might be from reality” is the result of “a premature financialization of the crypto innovation process.”

“For the crypto industry to have a positive impact on society, we need to first overhaul how it measures progress — and success,” they wrote. Those metrics should not be based on factors like price, market capitalization and trading volume.

“These metrics have distorted the incentives of well-meaning crypto entrepreneurs, and made it easier for bad actors to blend in, attract capital, and generate hype around their scams. For crypto to truly go mainstream, the industry needs to stop blindly trusting these metrics of convenience and pay more attention to dimensions that closely track progress against actual consumer and business needs.”

An alternative approach would be to focus on the convenience factor underlying crypto technology, they said.

“Like the internet, crypto networks are open networks, and that openness brings to consumers and businesses more choice, lower prices, and novel products and services. … Entrepreneurs and investors need to reject current metrics and develop new ones. These new metrics need to be closely aligned with the impact a crypto application hopes to have on the world. … By obsessing about the problem to be solved, rather than about early crypto prices and volatility, entrepreneurs can go back to identifying metrics that track progress towards a solution.”


January 11, 2023
Bank-fintech fight over SBA, crypto compliance costs, AI predictions

Politico: Banks riled by Biden administration support of fintechs in SBA program

Politico’s Morning Money newsletter focused on an “under-the-radar fight” between banks and fintech companies in which the Biden administration is appearing to take the fintechs’ side.

Last year, the Small Business Administration proposed allowing startups — that “tout algorithms and digital-native operations as boons to borrowers” — to offer loans through the SBA’s 7(a) program. The plan has the backing of Vice President Kamala Harris, who “included it in a slate of actions announced in October to help entrepreneurs — particularly people of color — underserved by banks.”

But the 7(a) loan program is more typically the “domain of traditional lenders,” and the “proposal is emerging as a major new front in a banks-versus-fintech lobbying war that is playing out across the financial policy space.”

Banking groups warn “that the SBA is ill-equipped to regulate the fintech firms that would want to participate,” while “fintechs counter that banks are just trying to protect their turf and have done a bad job serving the smallest businesses.”

“The Biden administration’s implementation of the proposal will be a key indicator of the fintech world’s political capital in Washington.”

Axios: Crypto firms’ compliance costs spike thanks to new regulatory scrutiny

In the wake of the FTX collapse, other cryptocurrency failures and Coinbase’s $100 million settlement with New York regulators, crypto “executives see compliance costs rising across the board,” according to a story from Axios.

An expected “torrent of enforcement action” resulting from U.S. agencies’ “hawkish stance on the industry” threatens smaller firms whereas “the major exchanges might be able to withstand” the new compliance costs. Kraken, a crypto exchange, says it increased its compliance work force 55% over the last year.

“Driving the news: Coinbase, the U.S.’s largest centralized crypto exchange, agreed to a $100 million settlement with New York state regulators last week over accusations that its failed to conduct sufficient background checks for new customer account applications.”

“Larger exchanges are already building their own systems or expanding their compliance-dedicated headcount, even in the face of companywide layoffs,” the story said.

🔒American Banker: Future of CBDCs could rest on interoperability question

A story in American Banker looked at how the issue of interoperability is the key factor determining whether central bank digital currencies will get off the ground.

“The argument in favor of central bank digital currencies increasingly hinges on whether different ones can play nicely with one another — a concern that is as much about politics as it is about technology,” the article said.

The question of how well varying CBDCs issued by different countries would interact has made some authorities indecisive about whether to launch a digital currency effort. “Interoperability is a vexing and often politically charged concern that has delayed decisions on whether to move forward with CBDCs in many countries.”

“Different currency options will need to work together, and across borders. There are still concerns over how digital currencies will impact traditional currencies and commercial banks.  As such, the organizations testing CBDCs are reporting to authorities that still haven’t made up their minds over whether a government digital currency is even necessary.”

Washington Post: Regulatory guardrails, more chatbots among ’23 predictions for AI

In 2023, the “courts and regulatory bodies could start establishing guardrails on” the use of artificial intelligence, according to a rundown of 2023 predictions for AI released by the Washington Post.

This year could see an expansion of more chatbot providers such as ChatGPT hitting the market, the story said.

“The breakthroughs were the result of years-long research in the field of generative artificial intelligence — where software creates content like texts or images based on descriptions — and came due to advances in math, computing power and new ways to train software. This year, multiple AI experts said, people will probably see more of these public-facing products come out. AI companies could also move on from mimicking human language through text into speech, trying to build bots that could be marketed as smarter helplines or virtual assistants, they said.”

Another prediction is that, “Artificial intelligence may get some guardrails in 2023.”

The E.U. is developing the first set of government standards to regulate and ban certain types of A.I. “It could help define standards for the rest of the world, experts said, and put guardrails around how the government can use the software to dole out citizen services or notify people they are interacting with a computer and not a person.”

CoinDesk: U.K. backs idea for stablecoin in wholesale payments

U.K. Economic Secretary Andrew Griffith told members of Parliament that the government is “fully behind” there being a stablecoin issued by a non-government provider to facilitate wholesale settlements between banks, according to CoinDesk.

The crypto-focused news outlet quoted Griffith as saying: “I want to see us establish a regime, and this is within the FSMB (Financial Services and Markets Bill) for the wholesale use for payment purposes of stablecoins.”

The FSMB “would give regulators more power over crypto, including stablecoins,” the story said.

Several banks around the world, including Japan’s Mitsubishi UFJ Trust, are implementing plans to issue stablecoins for settlements. “In the U.S., a group of larger banks in November began working with the Federal Reserve Bank of New York to test using digital tokens that represent the dollar for settlements.”


January 5, 2023
MDI initiative launched, more criticism of crypto, NCUA fintech hire

🔒American Banker: AIR launches initiative to boost MDIs’ digital game

American Banker ran a story on the effort spearheaded by the Alliance for Innovative Regulation (AIR), National Bankers Association (NBA) and Inclusiv to help Minority Depository Institutions improve their digital offerings. 

“There is no shortage of technology available to small banks hoping to compete with larger institutions with heftier budgets. But the challenges in adopting it include and extend beyond cost,” story said.

The article spotlighted AIR’s event held last year at the U.S. Capitol that focused on the tech challenges facing MDIs.

The “new initiative … is exploring ways to upgrade technology stacks and digital capabilities at minority depository institution banks and credit unions. At an event on November 30 announcing the project, along with follow-up interviews with bankers and stakeholders, a clearer picture of the challenges facing MDIs emerged, as did possible solutions.”

Various: More negative headlines for crypto

The legal drama over the FTX collapse remained in the news as Sam Bankman-Fried pleaded not guilty in U.S. court to charges ranging from conspiracy to wire fraud, setting up a high-profile trial set to begin in October.

The saga about the failure of the cryptocurrency exchange accompanied other negative headlines about the crypto sector. Financial services consultant and commentator Todd Baker wrote in the Wall Street Journal that the crypto trading system is “purposeless” and imposes significant risks on the financial system. It should not be regulated like traditional finance, he said. “Crypto trading should be regulated for what it is—a form of gambling that emulates finance—and not what its advocates tell you it is.”

That criticism was echoed in a joint statement by the federal bank regulators warning traditional financial institutions not to get too wrapped up in the risks of fraud and legal uncertainty tied to the crypto industry. “It is important that risks related to the crypto-asset sector that cannot be mitigated or controlled do not migrate to the banking system,” said the Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency.

Meanwhile, foreign regulators are also urging caution about crypto. In its latest financial stability report, the Reserve Bank of India “again expressed concerns about the burgeoning crypto ecosystem and suggested parts of it could be banned,” Cointelegraph reported.

“The report saw three options for crypto regulation. The first was ‘the same-risk-same-regulatory-outcome principle.’ Second, it suggested the possibility of a prohibition of crypto assets ‘since their real-life use cases are next to negligible.’ This option would be complicated by ‘different legal systems and individual rights vis-à-vis state powers’ globally. A third option, ‘let it implode’ without regulatory action, was considered too risky for mainstream finance to pursue.”

Nextgov: Credit union regulator announces hire to advise agency on tech policy

The National Credit Union Administration announced the hiring of Charles Vice as the agency’s new Director of Financial Technology and Access.

Vice, previously the commissioner of the Kentucky Public Protection Cabinet’s Department of Financial Institutions and the treasurer of the National Association of State Credit Union Supervisors, will serve as the NCUA’s principal advisor on “fintech, fintech developments and transformation initiatives in the financial services sector—like cryptocurrency, blockchain and distributed ledger technology,” Nextgov wrote. 

“His position will also be responsible for looking at ways to improve the virtual examination and supervision process, among other things.”

New York Times: Rise in holiday BNPL loans prompts consumer protection concerns

A story in the New York Times highlighted the “downsides” of the boom in Buy Now Pay Later loans offered by companies such as Affirm and Klarna, which spiked during the holiday shopping season.

“The lightly regulated services have caught on because shoppers can quickly get approved for a loan at the point of sale with a cursory credit check. … Most people who have used the services say they are satisfied, Consumer Reports found.”

Yet there is rising concern among regulators and consumer advocates that the loans lack important customer protections and that borrowers may be getting in over their heads. Some Americans who have been hit hard by inflation are using the services to pay for groceries and other necessities.”

TechCrunch: Twitter, PayPal, Walmart jockey for creation of financial super app

Benjamin Larssen, AI Project Lead for the World Economic Forum, wrote a sweeping review for the Brookings Institution of the different approaches to data regulation and AI governance favored by the three economic powers: the U.S., Europe and China.

Larssen described the EU as the “frontrunner” in writing data-related rules and establishing a “holistic AI governance regime.” This is highlighted by the General Data Protection Regulation (GDPR), AI Act (which he said could go into effect by 2024), Digital Markets Act and Digital Services Act. The U.S. government, meanwhile, has taken a relatively hands-off approach to regulating AI, with proposed legal frameworks yet to replace “the idea that companies, in general, must remain in control of industrial development and governance-related criteria.”

China is quickly developing an authoritarian approach “heavily based on central government guidance,” Larssen wrote. This includes “China’s ‘social credit’ system, a big data system that uses a wide variety of data inputs to assess a person’s social credit score, which determines social permissions in society, such as buying an air or train ticket.”

The differences in philosophy for three powers “could have broader geopolitical consequences for managing AI and information technology in the years to come,” he wrote. While the U.S. and Europe are trying to coordinate on developing tools such as privacy-enhancing technologies, the future of AI governance could be in the form of “technological decoupling,” Larssen wrote.


December 15, 2022
Cloud over FTX, decarbonizing crypto, AI divergence

Various: Bankman-Fried’s arrest complicates lawmakers’ scrutiny of FTX failure

Just as House and Senate committees were preparing to discuss the FTX collapse in a pair of hearings this week, former CEO Sam Bankman-Fried was arrested by Bahamian authorities on fraud charges brought by U.S. authorities. His indictment meant Bankman-Fried declined invitations to testify to Congress this week.

The Washington Post highlighted how politicians in Washington, once the beneficiaries of FTX’s political giving, are now seeking to separate themselves from the disgraced company and its CEO.

“Two of Bankman-Fried’s biggest beneficiaries in 2022 were the House Majority PAC and the Senate Majority PAC, which help elect Democrats to their respective chambers. Those organizations alone received about $7 million from him over the past two years, federal data shows,” the article said. “Yet neither group — along with a raft of other Democratic and Republican organizations — would say Tuesday whether they planned to return the cash.”

While all the focus has been on Bankman-Fried, law enforcement agencies are signaling that more individuals involved in FTX could be charged, wrote TechCrunch.

“When asked whether the entities will bring charges against other individuals allegedly involved in the FTX collapse, Damian Williams, the U.S. attorney for the Southern District of New York, said, ‘I can only say this: Clearly, we are not done.’”

American Banker focused on the testimony of John J. Ray, a bankruptcy specialist and FTX’s new CEO who appeared before lawmakers to speak for the company in the absence of Bankman-Fried. Ray told the House Financial Services “panel that FTX’s shoddy accounting practices has made the bankruptcy proceedings uniquely difficult.”

“Overall, Ray painted a grim picture of the state of FTX, mirroring lawmakers’ anger with the spectacular dissolution of Bankman-Fried’s crypto empire.”

The Atlantic: Is tax on ‘proof-of-work’ mining the key to decarbonizing crypto sector?

Christos Porios and Bruce Schneier of the Harvard Kennedy School published an article in The Atlantic exploring “how to decarbonize” the cryptocurrency sector.

Among the potential alternatives for the carbon-intensive concept for crypto mining known as “proof of work” are: a “proof-of-stake” system, banning crypto mining altogether or prohibiting proof-of-work mining. But any kind of ban, they wrote, would be “viewed as paternalistic and difficult to implement politically.”

“Employing a tax instead of an outright ban would largely skirt these issues. As with taxes on gasoline, tobacco, plastics, and alcohol, a cryptocurrency tax could reduce real-world harm by making consumers pay for it,” the article said.

Most ways of taxing cryptocurrencies would be inefficient, because they’re easy to circumvent and hard to enforce. To avoid these pitfalls, the tax should be levied as a fixed percentage of each proof-of-work-cryptocurrency purchase. Cryptocurrency exchanges should collect the tax, just as merchants collect sales taxes from customers before passing the sum on to governments.”

🔒Wall Street Journal: Crypto firms’ public accounting triggers concerns about internal controls

While recent failures of crypto firms such as FTX and Celsius Networks pointed to undisclosed problems that could have been a signal to investors, some publicly traded crypto companies do disclose information that is also troubling, the Wall Street Journal reported.

“The blowups of FTX and Celsius Network LLC exposed hidden risks that might have raised red flags for investors, including related-party transactions, commingled customer funds, sketchy record-keeping and questionable accounting,” the article said. “Some of these problems often appear in disclosures by public crypto companies, including weak systems used to keep numbers accurate.”

The newspaper reviewed statements for 19 publicly traded crypto minors and found “that 16 disclosed significant internal-control weaknesses in the past four years.”

But without common accounting standards for cryptocurrencies, “even audited financial statements might fail to convey the true state of a company’s finances,” the story said.

“Regulators and accounting rule makers are working to fill the void in crypto accounting standards. The Financial Accounting Standards Board, the U.S. standards setter, aims to issue proposed rules next year.”

World Economic Forum: How Regtech tools can address policy uncertainty over new technologies

Paul Klimos of Orrick, Herrington & Sutcliffe LLP, published a piece for the World Economic Forum discussing how Regtech tools can help address uncertainty related to the government’s oversight of newer technologies.

“To alleviate uncertainty and reduce undue variability, regulation should become anticipatory, dynamic and designed to facilitate interpretation and compliance by all stakeholders,” he wrote. “That being said, which tools can help regulators advance regulation that is easy to interpret and implement and agile enough to efficiently face uncharted technological frontiers?”

“Paired with agile governance techniques, RegTech can contribute to the simplification of regulation and the streamlining of compliance through the use of technologies, such as data analytics, artificial intelligence, machine learning and distributed ledgers or blockchain.”

Brookings Institution: Global powers are diverging on AI governance

Benjamin Larssen, AI Project Lead for the World Economic Forum, wrote a sweeping review for the Brookings Institution of the different approaches to data regulation and AI governance favored by the three economic powers: the U.S., Europe and China.

Larssen described the EU as the “frontrunner” in writing data-related rules and establishing a “holistic AI governance regime.” This is highlighted by the General Data Protection Regulation (GDPR), AI Act (which he said could go into effect by 2024), Digital Markets Act and Digital Services Act. The U.S. government, meanwhile, has taken a relatively hands-off approach to regulating AI, with proposed legal frameworks yet to replace “the idea that companies, in general, must remain in control of industrial development and governance-related criteria.”

China is quickly developing an authoritarian approach “heavily based on central government guidance,” Larssen wrote. This includes “China’s ‘social credit’ system, a big data system that uses a wide variety of data inputs to assess a person’s social credit score, which determines social permissions in society, such as buying an air or train ticket.”

The differences in philosophy for three powers “could have broader geopolitical consequences for managing AI and information technology in the years to come,” he wrote. While the U.S. and Europe are trying to coordinate on developing tools such as privacy-enhancing technologies, the future of AI governance could be in the form of “technological decoupling,” Larssen wrote.


December 8, 2022
Bowman speech, SBF media tour, PPP lessons for fintech

🔒American Banker: Fed’s Bowman sounds alarm on nonbank competition

Federal Reserve Board Gov. Michelle Bowman aired concerns about nonbank fintech firms competing in activities that are traditionally the specialty of regulated banks.

One day after appearing at the Alliance for Innovative Regulation’s event on Minority Depository Institutions, “Bowman said the growth of the nonbank sector — sometimes referred to as shadow banking — is the result of regulatory changes that have made it harder for banks to engage in certain activities.”

“‘In my mind, it’s important that we work to specifically further the ability for banks to participate in those traditional activities that they have been very successful in providing services in and not unintentionally or intentionally push those services outside the regulated banking sector,’ Bowman said,” according to American Banker.

Various: Sam Bankman-Fried’s media tour

The typical strategy for business executives accused of wrongdoing and blamed for misgivings that destroyed value is to stay as far away from media requests as they can. Former FTX CEO Sam Bankman-Fried didn’t get that memo.

In the wake of the crypto exchange’s bankruptcy and allegations that Bankman-Fried improperly commingled funds, he has seemed all too willing to share his side of the story.

He agreed to be interviewed in public by Andrew Ross Sorkin at the New York Times’ DealBook Summit, where he acknowledged “there are things I would do anything to do over again.”

“His appearance at the DealBook Summit comes after weeks in which Bankman-Fried has issued several public apologies and comments to the press on the demise of his companies — something that has left legal experts gobsmacked,” according to CNN Business.

Writing in CoinDesk, David Z. Morris said Bankman-Fried launched what “may be a genuinely unprecedented media tour, sitting for a series of extended interviews, even in the face of his likely imminent arrest for criminal financial fraud.”

“One of those interviews, with the New York Times’ Andrew Ross Sorkin, was already scheduled before the unmasking of FTX and Alameda in November. But Bankman-Fried also sat for a surprise interview with George Stephanopoulos at ABC’s ‘Good Morning America.’ On Thursday night, he subjected himself to a sometimes hapless but undeniably intense grilling in a Twitter Space. We also got a new interview with Jen Wieczner over at New York magazine. A novice crypto enthusiast named Tiffany Wong released a prior conversation. There’s probably more to come.”

“Bankman-Fried may think he’s insulating himself by couching these admissions with caveats like ‘I believe’ and ‘that’s my impression,’” Morris wrote. “But given he was the CEO, with ultimate oversight responsibility, these hedges may not accomplish much in court.”

🔒Wall Street Journal: Recommendations for regulating the crypto market

Two former regulators — ex-SEC Chair Jay Clayton and ex-CFTC Chair Timothy Massad — made three recommendations for immediate, incremental regulatory action following the failures of FTX and other crypto firms.

In an op-ed, they wrote that the “SEC and the CFTC should publish a core set of standards” for all crypto intermediaries that “could easily be drawn from existing requirements for our securities and derivatives exchanges.”

They also recommended that the banking regulators write new rules for stablecoin use, and that enforcement steps should be broadened.

“Crypto proponents complain about ‘regulation by enforcement,’ but enforcement is necessary when many in the industry will use any colorable claim to avoid or delay compliance,” they wrote.

Bloomberg News: Lawmakers question fintechs’ eligibility for federal relief after PPP errors

A congressional report said fintech companies that distributed loans through the Paycheck Protection Program practiced weak oversight that enabled fraud and allowed aid to be received by those who were ineligible.

The report by the House Select Subcommittee on the Coronavirus Crisis “recommended that Congress and the Small Business Administration should consider carefully whether “unregulated businesses” such as fintechs should be allowed to participate in future federal lending programs,” according to Bloomberg News.

“‘While the PPP delivered vital relief to millions of eligible small businesses, at least tens of billions of dollars in PPP funds were likely disbursed to ineligible or fraudulent applicants, often with the involvement of fintechs, causing tremendous harm to taxpayers,’ lawmakers wrote in the report issued Thursday.”

Fintech Brain Food: Weighing benefits of a payments-focused Twitter

In his Fintech Brain Food blog, Simon Taylor speculated about the potential benefits if Twitter under Elon Musk ventured deeper into the payments sphere.

“Objectively Twitter should start small with tips and help creators monetize as Instagram and Tiktok do,” Taylor wrote. “But a universal, human-readable address for money feels like a thing the world needs.”

In addition to the turmoil at Twitter over layoffs, content moderation policies and the like, Musk turned some heads in the payments and fintech world when he cited payments among strategic priorities.

“Twitter could be the juggernaut of global payments if it leans into the simplicity and protocol-like experience the product had at its inception,” Taylor wrote.


November 23, 2022
More FTX fallout, Treasury fintech report, pre-Merge carbon mitigation

Various: More fallout from FTX debacle

News outlets continued to devote ample coverage to what happened at FTX and the impact of the exchange’s collapse.

Kelsey Piper of Vox published details of her Nov. 13 Twitter exchange with Sam Bankman-Fried in which the FTX founder tried “to explain himself.” He said regulators “make everything worse,” he regretted declaring Chapter 11 bankruptcy, and it still “was factually accurate” that FTX didn’t invest customer deposits, among other things.

“As we messaged, I was trying to make sense of what, behind the PR and the charitable donations and the lobbying, Bankman-Fried actually believes about what’s right and what’s wrong — and especially the ethics of what he did and the industry he worked in,” Piper wrote. “Looming over our whole conversation was the fact that people who trusted him have lost their savings, and that he’s done incalculable damage to everything he proclaimed only a few weeks ago to care about.”

A story in the Washington Post discussed how the FTX episode casts a new light of scrutiny on the crypto exchange model. “Like other crypto exchanges, FTX operated outside the traditional banking system, and this created enormous risks,” the article said. “Though they act like banks and brokers, crypto exchanges typically are not subject to the same type of regulation, insurance and disclosure rules that protect customers of traditional banks.”

WIRED, meanwhile, provided illustrations of FTX customers and crypto traders who are “paying the price” — from a man between jobs who is located in Southeast Asia whose $25,000 nest egg is locked up by the exchange, to a “trader has the equivalent of $350,000 locked up in FTX, which they say amounts to 97 percent of their liquid net worth and represents 15 years’ worth of savings and investment gains.”

The Wall Street Journal noted that the bankruptcy, which is the largest for a crypto-related company, “has rattled the crypto world.” The Atlantic agreed that the collapse of the seemingly stable company has sent shockwaves through the industry.

CoinDesk’s Nikhilesh De wrote about how FTX’s efforts to embed “itself into the broader world … could drive some of the response to its collapse.” Whereas previous failures of crypto-related firms such as Terra were viewed as relatively benign, he wrote, “FTX is something new.”

“Partly because of how ridiculously this whole thing fell apart, partly because of just how insane some of what’s been reported seems and largely because of how much FTX tried to become a part of the broader world, everyone is paying attention,” De wrote.

🔒American Banker: What the FTX collapse means for crypto reforms in Congress

American Banker reported that the demise of FTX “has only made has only made the existing factions dig their heels in deeper” over how Congress should legislate crypto reforms, making a congressional breakthrough still elusive.

“The precipitous collapse of the cryptocurrency platform FTX has given Congress the imperative to take action on the digital-asset industry, but done little to foster consensus about what a bill should do and how far it should go,” according to the trade publication.

The FTX bankruptcy has highlighted the looming issue over whether digital-asset firms should have access to Federal Reserve master accounts. Such access would be granted in one proposed bill.

“Bank advocacy groups are not pleased with the idea of granting master accounts to groups that deal in crypto or other digital assets,” the article noted. “In the immediate aftermath of the FTX collapse, the Bank Policy Institute said keeping such groups out of the regulated banking system prevented more serious fallout from the episode.

Treasury Department: Report urges regulators to address competition from fintechs

A Treasury Department report called on regulators to mount a policy response in the face of growing fintech firms and other non-bank entrants.

The report, a byproduct of President Biden’s July executive order on promoting competition, said even though “new entrant non-bank firms appear to be contributing to competitive pressures, they are generally not subject to the same oversight for safety and soundness or consumer protection as [insured depository institutions], which raises various public policy considerations.”

“New entrant non-bank firms have augmented consumer finance markets, with their entry accelerating an evolution in consumer financial products and services and the ways in which they are delivered,” the report said. “These changing dynamics, as noted above, are contributing to a quickly changing marketplace, making assessments of competition in core consumer finance markets more difficult.”

Among the report’s recommendations are that regulators should take a “coordinated approach” to promoting competition and innovation in credit underwriting, establish effective guidance on bank-fintech partnerships, and encourage competition in responsible small-dollar lending.

“While these fintech firms are enabling new capabilities, they are also creating new risks to consumer protection and market integrity, such as risks related to data privacy and regulatory arbitrage,” according to a press release accompanying the report. “To protect consumers in these rapidly changing markets and enable sustainable competition, among other recommendations, the report calls for enhanced oversight of the consumer financial activities of non-bank firms.”

CoinDesk: Ethereum platform unveiled to address pre-Merge carbon impact

The Ethereum-software firm ConsenSys is unveiling an effort to address the excess energy use in the Ethereum network prior to the Merge.

Through the Merge, Ethereum switched from a proof-of-work (PoW) to a less energy-intensive proof-of-stake (PoS) model. But the new Ethereum Climate Platform, launched by ConsenSys and 18 other firms at COP27’s UN Climate Change Global Innovation Hub, is intended to make up for the carbon impact of the earlier model.

“The platform is built for the Ethereum ecosystem, and will aim to mitigate the excess energy consumption that the blockchain used before it went through the Merge in September,” according to CoinDesk.

“‘The idea is to gather a bunch of capital and invest the capital into technologies that can have a significant positive impact,’ Joseph Lubin, the founder of ConsenSys and a co-founder of the Ethereum blockchain told CoinDesk. ‘I anticipate that this group will want to fund projects that are not old style, legacy technology projects but do think about how they build systems.’”

PYMTS: Visa unveils contactless payments options at World Cup

Visa is making contactless payments available at all eight stadiums throughout Qatar that are hosting World Cup games, the company said.

This includes installing over 5,000 contactless payments terminals, “making it ‘the most payment-enabled FIFA tournament ever,’ the company said in the release.”

The company is also piloting a facial recognition payments option along with Qatar National Bank, developing a “Tap to Phone” tool for small businesses with three Qatar-based banks, and allowing contactless payments on taxis servicing the tournament.

“Earlier this month, Visa announced another World Cup-related project, teaming with Crypto.com to create and promote NFTs inspired by the tournament,” according to PYMTS.


November 16, 2022
FTX debacle, Twitter payments plan, banks waver on climate pledge

Various: FTX collapse sends reverberations through crypto world

The stunning collapse of the crypto exchange FTX dominated business news during the week and over the weekend.

FTX’s massive bankruptcy was a sudden reversal for a firm that along with its now-former CEO, Sam Bankman-Fried, were formerly seen as pillars of stability in a tumultuous sector. But with FTX’s value having plummeted and Bankman-Fried being investigated for allegedly using customer funds to plug a financial hole, the crypto industry’s future is as uncertain as ever.

“The entire $16 billion fortune of former FTX co-founder Sam Bankman-Fried has been wiped out, one of history’s greatest-ever destructions of wealth,” wrote Bloomberg News.

Signs of financial trouble emerged in a Nov. 2 story by CoinDesk suggesting close balance-sheet connections between FTX and the affiliated hedge fund Alameda Research. That led Binance to liquidate its holdings of the token issued by FTX, an announcement that Binance would buy FTX in a bid to save the exchange, a subsequent announcement that that deal was being scrapped and ultimately the news of FTX’s bankruptcy, with Bankman-Fried stepping down as CEO. Control of company was handed over to John J. Ray III, who had helped oversee the liquidation of Enron.

The situation appeared to worsen for Bankman-Fried after Reuters reported that he had secretly moved $10 billion in funds to Alameda, according to sources. According to the news service, sources also allege that at least $1 billion of those funds had gone missing. The company and Bankman-Fried are reportedly under investigation by multiple jurisdictions.

The Wall Street Journal noted that the bankruptcy, which is the largest for a crypto-related company, “has rattled the crypto world.” The Atlantic agreed that the collapse of the seemingly stable company has sent shockwaves through the industry.

“Crypto collapses have become par for the course. But even for an industry known for its volatility, the downfall of SBF came as a cascade of cold water,” the magazine wrote. “Bankman-Fried, after all, was supposed to be crypto’s good-guy wunderkind, the pro-regulation prophet who would finally lead crypto into the mainstream. Indeed, SBF put particular emphasis on the idea that you could trust his exchange in an industry notorious for its gamblers and grifters.”

In an interview with CoinDesk, SEC Commissioner Hester Peirce said the collapse could help spur legislative talks in Congress about a crypto regulatory framework.

“In the midst of the debacle, Peirce said for crypto it’s a strong ‘reminder’ for people to take into account some of the ‘basic lessons from traditional finance,’ adding that things such as counterparty risks and who is in charge of handling a user’s assets is a ‘real thing.’”

“‘This is not a great moment and it’s attracting a lot of negative attention,’ Peirce said. ‘But at the same time, it can be a catalyst for us to sit down and do some of the regulatory work.’”

TechCrunch: Musk’s vision for Twitter includes new payments business

Among the changes Elon Musk aims to make at Twitter is “a plan to enter the payments market,” according to TechCrunch.

“The new Twitter owner suggested that, in the future, users would be able to send money to others on the platform, extract their funds to authenticated bank accounts and, later, perhaps, be offered a high-yield money market account to encourage them to move their cash to Twitter,” the article said.

The social media company reportedly submitted an application to the Financial Crimes Enforcement Network that would enable it to process payments.

Musk has said Twitter’s plans for paid verification and a new Twitter Blue subscription option “could pave the way for a payments system on its platform.”

“In the longer term, however, Musk appeared to be toying with the idea of establishing bank accounts on Twitter’s platform that would pay a high-interest rate to attract users,” the story said. “This could become a competitor, perhaps, to Apple’s recently launched Savings Account for its cardholders, various fintechs or other payment providers, like PayPal and Venmo, which encourage their users to retain cash balances within their own ecosystems.”

🔒New York Times: What’s behind banks’ reticence to end fossil-fuel relationships?

The Climate Forward newsletter, published by the New York Times, looked at what may be behind reluctance of some of the largest financial institutions to commit to ending business relationships with the fossil fuel industry.

Last year, financial institutions in the Glasgow Financial Alliance for Net-Zero pledged to end or offset their contributions to climate change by 2050.

“But just ahead of this year’s summit, the group … dropped what climate activists say is a critical part of the alliance’s commitment: that its more than 550 members would adhere to United Nations criteria requiring them to phase out fossil fuels,” the article said. “Instead, the alliance is supporting the creation of a separate accountability tool.”

According to one analyst, just 60 of the 240 largest members of the alliance had a policy “excluding support for coal companies developing new projects.”

“Mark Carney, a co-chairman of the Glasgow alliance, has said that financial institutions fear that banding together to end support for fossil fuel projects would make them susceptible to antitrust action. And companies face pressure from Republican lawmakers, who have targeted financial services firms that make moves to reduce their emissions.”

WIRED: Twitter’s ‘ethical AI’ department fired as part of mass layoffs

The U.K. Financial Conduct Authority is looking into potential competitive issues posed by giant tech firms increasing their interest in payments, lending and other financial products.

The regulatory agency has launched an inquiry “into moves by Apple, Amazon, Google and Facebook’s parent Meta into retail financial services,” the Financial Times reported.

The FCA is seeking feedback from the tech firms, their partners as well as possible competitors “on Silicon Valley’s expansion into payments, deposits, credit and insurance.”

“While acknowledging that consumers may benefit in the short term, the FCA suggests that Big Tech companies might be able to ‘exploit their ecosystems’ and large data stores to ‘lock consumers in’, as in other markets where they already face regulatory scrutiny, such as mobile app stores,” the FT article said.

Apple, Amazon, Google and Meta all “hold FCA permits for payment processing in the UK and their pace of expansion in financial products appears to be accelerating. Amazon last week launched a new insurance portal in the UK, while Apple’s acquisition of London-based fintech start-up Credit Kudos earlier this year was seen as deepening its push into payments and consumer lending.”


November 1, 2022
OCC fintech unit, scrutiny of crypto’s inclusion impact, CFPB data rule

Protocol: OCC to launch new financial technology unit

The Office of the Comptroller of the Currency announced it will launch a unit next year focused on financial technology. The Office of Financial Technology “will provide strategic leadership, vision, and perspective for the OCC’s financial technology activities and related supervision,” the agency said in a press release. The new unit will be led by a Chief Financial Technology Officer.

The OCC said the office will “build on and incorporate” the existing Office of Innovation, which was created in 2016.

The story by Protocol noted that the OCC’s announcement comes amid debate over how entangled traditional financial institutions should be in newer technologies. Under the Trump administration, the agency signaled openness to banks offering crypto services. But current acting Comptroller Michael Hsu has been more cautious.

“Some progressive senators have been urging the OCC to change its previous guidance, which gives chartered banks the ability to provide crypto custody, hold cash reserves backing stablecoins, and use blockchain and stablecoins to verify bank-to-bank payments,” the article said. “The senators say that the guidance exposes banks to ‘unnecessary risk.’”

“Meanwhile, more Wall Street firms and large banks are moving further into the use of cryptocurrencies.”

Brookings Institution: Claims that crypto expands financial inclusion need more study

Tonantzin Carmona of the Brookings Institution warned policymakers and other stakeholders to “be wary of claims that crypto will bolster financial inclusion.”

She wrote that more evidence is needed to support such claims and that the primary narratives pointing to a financial inclusion benefit from crypto conflict with each other.

The author raised the notion of “crypto’s potential to exacerbate unequal financial services to historically excluded groups.”

Two false and competing narratives that stand out, she wrote, are that crypto provides easy access for unbanked and underbanked households to a mechanism for making financial transactions, and that crypto is more beneficial as a means of building wealth. “By emphasizing low barriers to entry and promises of high returns, this narrative targets Black and Latino or Hispanic individuals who seek upward mobility.”

“When we examine the two narratives together, we can see that they have two competing objectives in direct conflict with each other,” Carmona wrote. “Thus, when it comes to crypto and financial inclusion claims, it is not entirely clear which problem we are trying to solve.”

🔒American Banker: CFPB chief details next steps on open-banking rule

Addressing the Money 20/20 conference in Las Vegas, CFPB Director Rohit Chopra said the consumer bureau plans to propose its much-anticipated open-banking rule next year with the goal of finalizing it in 2024.

The Dodd-Frank Act “required the CFPB to create a rule that requires financial institutions to give consumers access to their account data, but it took until 2020 for the CFPB to address the matter with a preliminary rulemaking process,” according to American Banker. “Chopra’s announcement this week continues that rulemaking process and gives it a timeline for completion.”

The rule is expected to establish guardrails for how large financial institutions share consumer data through application programming interfaces. Chopra said one aim of the rule is to make it harder for companies that utilize APIs to “‘play games on availability, latency and critical data points, like price.’”

“The process will kick off this week, when he said the CFPB will release a discussion guide for small businesses to consider as they provide the bureau some of the first formal comments on the matter,” the article said.

🔒Financial Times: FCA to examine competitive threat from Big Tech

The U.K. Financial Conduct Authority is looking into potential competitive issues posed by giant tech firms increasing their interest in payments, lending and other financial products.

The regulatory agency has launched an inquiry “into moves by Apple, Amazon, Google and Facebook’s parent Meta into retail financial services,” the Financial Times reported.

The FCA is seeking feedback from the tech firms, their partners as well as possible competitors “on Silicon Valley’s expansion into payments, deposits, credit and insurance.”

“While acknowledging that consumers may benefit in the short term, the FCA suggests that Big Tech companies might be able to ‘exploit their ecosystems’ and large data stores to ‘lock consumers in’, as in other markets where they already face regulatory scrutiny, such as mobile app stores,” the FT article said.

Apple, Amazon, Google and Meta all “hold FCA permits for payment processing in the UK and their pace of expansion in financial products appears to be accelerating. Amazon last week launched a new insurance portal in the UK, while Apple’s acquisition of London-based fintech start-up Credit Kudos earlier this year was seen as deepening its push into payments and consumer lending.”

CoinDesk: Digital bank Revolut to roll out new crypto spending feature

After being approved for registration by the Financial Conduct Authority, the digital banking company Revolut is rolling out a feature allowing consumers to use their cryptocurrency balances to make everyday purchases.

The new service will launch on Nov. 1. The company said customers will temporarily be able to earn 1% cash back what they spend from their crypto balance.

“The platform offers in-app trading of more than 30 digital currencies for its more than 20 million personal users, according to its website,” CoinDesk reported.


October 26, 2022
DeFi hacking threats, bank-fintech ‘playbook,’ premature Web3 obit

🔒Bloomberg News: Hacking incidents put DeFi platforms at legal ‘crossroads’

Decentralized finance services are grappling with a new challenge posed by recent “financial hacking” incidents, according to a report by Bloomberg News.

“After hackers for years sought to exploit coding flaws to siphon funds from crypto projects, more assailants are now using the automated software programs that power DeFi platforms to manipulate transactions to gain control of the millions of dollars in assets locked in various protocols that allow users to borrow and lend without intermediaries,” the news wire service said.

The article cited a recent incident by a “self-proclaimed trader” who was able to hold on to almost half of $100 million in assets he seized through the DeFi application Mango DAO. Similar attacks were reported at Harvest Finance, Beanstalk and the decentralized credit platform Moola Market.

“The rising trend appears to fall into a gray area legally, putting the industry at a crossroads,” according to the article. “Transgressors and other hardcore crypto enthusiasts consider these maneuvers, as the Mango exploiter wrote, ‘a profitable trading strategy.’ That’s leading … industry participants to call for greater regulatory clarity to quash the practice, which risks further eroding investor confidence as the blockchain sector contends with a steep market downturn. Others are calling it outright financial manipulation.”

🔒American Banker: Alloy Labs consortium members draft bank-fintech partnership ‘playbook’

Bank members of the Alloy Labs Alliance technology consortium have developed a playbook to establish best practices for partnering with fintech firms, according to a story by American Banker.

“The playbook lays out which parties are responsible for different aspects of compliance, customer service, data stewardship, disaster recovery and more,” the article said.

Banks providing back-end support to fintechs seeking “banking-as-a-service” relationships have begun raising concerns about the incentives in such partnerships.

As one banker put it, “new fintech partners are ‘pushing aside the noble pursuit of broadening financial access for the customer to drive fundraising capital,’ and other less honorable purposes.”

Members of the “consortium started talking about this and agreed that banks not maintaining a standard of conduct could harm the whole ecosystem,” the article said.

“In recent months, banks and fintechs have felt the harsh glare of regulatory scrutiny on their relationships. In September, acting Comptroller of the Currency Michael Hsu called bank-fintech partnerships a systemic risk. That same month, the OCC penalized Blue Ridge Bank for compliance issues with fintech partners.”

CoinDesk: It’s too soon to write Web3 obituary

An opinion piece by Jesse Morris laid out why it is wrong to proclaim an early death for Web3.

Morris, CEO of the nonprofit blockchain platform Energy Web, argued “it would be a mistake to move on so soon when the solutions represented by Web3 are only getting started.”

Web3 is a decentralized concept for the Internet, incorporating blockchain technologies, cryptocurrencies and NFTs. Morris’ organization is focused on using digital operating systems for energy grids to help decarbonize the economy. Last year, Energy Web and AIR were two of the partners that launched the Crypto Climate Accord.

“Web3 applications in real business settings have already shown themselves to be quietly transformational,” Morris wrote in the op-ed. “For large banks, blockchain can make same-day international payments simpler and cheaper by reducing intermediaries in the process, a streamlining that couldn’t be achieved without a trusted technological infrastructure between parties. The rise of Web3 has also led to innovation in the peer-to-peer financial services space, enabling neobanks to offer services to the traditionally underbanked.”

ICIJ: Swiss government considers ‘true owner’ registry to fight money laundering

The International Consortium of Investigative Journalists ran a story looking at efforts by the Swiss government to create a registry identifying true owners of companies and partnerships.

The consortium — known for investigations such as the Panama Papers and Pandora Papers — described the move as “an incremental but important anti-money laundering reform for the longtime bastion of financial secrecy.”

“The country’s Federal Council, Switzerland’s cabinet, has asked the government’s finance ministry to draft a law to create the new registry by next June.”

The proposal follows a similar legislative effort in the U.S. to require companies to report their “beneficial owners” to the Financial Crimes Enforcement Network. Last year, the ICIJ worked with media organizations on the Pandora Papers investigation, which “exposed the especially active role of Swiss wealth advisors in helping suspected financial criminals hide wealth.”

“The Pandora Papers investigation found that, from 2005 to 2016, at least 26 Swiss firms appearing in the documents provided services to clients whose offshore companies were later investigated by authorities looking for evidence of money laundering and other financial crimes.”


October 20, 2022
EU DeFi project, OCC’s Hsu speaks, rise of data-product managers

Decrypt: EU studying how to monitor DeFi apps through Ethereum data

The European Commission has submitted a contract bid “for a project to monitor the world of decentralized finance by looking at Ethereum data,” according to the Decrypt news site.

“The goal is to develop a tool that can adequately track trading activity on DeFi apps in real-time, presumably as a way to better assess the need for regulatory measures,” the story said.

The commission, which is the executive arm of the European Union, released a document specifying that the aim of the project is “to develop, deploy and test a technological solution for embedded supervision of decentralized finance (DeFi) activity.”

The article noted that while DeFi apps seek to “replace banks and other financial services by automating them and cutting out the middle-man,” they have prompted concerns about data security and other regulatory issues.

“Go-to applications include Uniswap, a decentralized exchange—or ‘DEX’—which allows anyone to exchange crypto tokens without providing any personally identifiable information to an intermediary. Regulators and lawmakers around the world are growing increasingly concerned that such tools are being used to circumvent existing laws and tax liabilities.”

🔒Various: OCC’s Hsu makes waves on crypto, bank-fintech partnerships

Acting Comptroller of the Currency Michael Hsu was busy making news this past week with a slew of public appearances during which he weighed in on issues related to cryptocurrency and other regulatory matters.

Hsu — whose agency, the Office of the Comptroller of the Currency, oversees all U.S. firms with a federal bank charter — gave remarks at the DC Fintech Week conference on Oct. 11 warning of the risks of crypto firms becoming too entangled with the traditional banking system.

Some regulators have recommended reforms that would limit stablecoin issuance, for example, to FDIC-backed institutions. But Hsu “said that bringing crypto into the regulatory perimeter would only help tame crypto’s risks depending ‘on whose terms it is brought in,’” as reported by American Banker.

“‘Using the familiar to introduce something novel can downplay or mask the risks involved and establish false expectations,’ Hsu said. ‘In time, people get hurt.’”

A day later he gave an interview to Reuters in which he sought to alleviate concern that the OCC is aiming to stifle bank-fintech partnerships. He “also told Reuters … that policymakers may be devoting too much time and energy to thinking about cryptocurrency, at the expense of figuring out the best way to police other types of financial technology.”

“‘We’re spending too much time on crypto,’ he said. ‘It’s interesting, it has thorny issues… but relative to other technology and banking issues, I think we’re now kind of overweight crypto.’”

On Oct. 13, Hsu said in an appearance on CoinDesk TV’s “First Mover” that crypto companies looking to expand still lack clarity about what they offer the financial services landscape.

“‘Part of this confusion is because there are parts of the crypto industry that don’t know what they want to be when they grow up,’ Hsu said … on Thursday. ‘They [crypto companies] want to be a little bit of everything to everyone. And at some point you have to decide.’”

Hsu said the OCC “is open to discussions on ‘controlled and disciplined’ ways of enabling growth for crypto companies.”

“‘What we are allergic to is, “Give me a license and let me do whatever I want.” That’s not something that’s safe and sound,’” Hsu said.

HBR: Legacy companies create new positions focused on data products

A piece in Harvard Business Review looked at how some companies are going beyond hiring data scientists by establishing the position of “data-product manager.”

Digital-native firms tend to have a better handle at creating data products with “reusable datasets that can be analyzed in different ways by different users over time to solve a particular business problem,” according to the article, authored by Thomas H. Davenport, Randy Bean and Shail Jain.

“But as legacy companies start to adopt them, many are struggling with implementing the idea — both internally and for customers,” they wrote. “For one, they typically sell tangible products, and may struggle with data products as a result. And while many large companies are naming chief data officers, product management disciplines aren’t generally inherent in CDO roles.”

Among the examples of companies cited in the piece that are looking at hiring data-product specialists is Regions Bank. Chief data and analytics officer Manav Misra created “the role of ‘data product partner,’ which functions as a data product manager for a specific part of the bank.”

“His data project partners are very focused on how the product is adopted and used, what the user interface looks like, how many people use it, and how it creates value for the bank,” the authors wrote. “They sit in staff meetings, understand the priorities of that part of the business, and do bi-directional translation between business needs and opportunities and the solutions that can address them. Most came from the business side, but have a technical and analytical orientation as well.”

🔒Economist: Higher interest rates result in collapse of fintech funding

A story in the Economist magazine looked at the impact of fintech investors — “spooked by rising interest rates — tightening “their purse strings,” which has resulted in the sudden collapse of funding for new startups.

“As investors demand a path to profitability, founders’ wings are being clipped. Employees, meanwhile, are heading elsewhere. Whizz kids previously up for a gamble are slinking off to consultancies and banks. Many need a new job anyway: fintechs have sacked 7,300 staff since April.”

As the bank began reaching data-sharing agreements with key fintech players in 2017, it also built an API system allowing customers to share data more securely.

“Customers using a third-party app that needs access to Chase will log in and authenticate themselves directly with the bank,” the story said. “The customer can choose which accounts and data to share with the third party, as well as turn off access via the Security Center dashboard on Chase’s website or app.”

In public markets, the 10 largest fintechs have lost $850 billion in value in the past year.

“As the route to initial-public offerings became more difficult, the biggest private firms began to be affected,” the article said. “Some cash-strapped giants, including Klarna, a buy-now-pay-later lender, have seen their valuations slashed by more than 80% in ‘down’ funding rounds. Those still closing ‘up rounds’, including Acorns, an investing app, are often doing so on tough terms, guaranteeing that new backers will double their money even in the ‘worst-case’ forecasts.”

🔒Bloomberg News: Crypto mining expansion in Texas stokes power-grid worries

Bloomberg News ran a feature story on how “low-cost power and light regulations” have helped transform Texas “into one of the world’s biggest centers for crypto mining.”

“The Bitcoin buildup in Texas has been so massive and so fast that it’s like adding entire cities’ worth of electricity consumption in just a couple of years. Texas utilities have gotten proposals for multiple Bitcoin mines that would require an additional 33,000 megawatts of electricity, or enough to power all of New York state,” the article said.

“But the rapid expansion is piling on risk to one of the largest and most unstable power grids in the US. Electricity is a finite commodity, and the humming servers are competing with 30 million Texas residents who need it, too. The state’s Bitcoin miners are already using as much power as 300,000 homes, taxing a grid that has a track record of sometimes failing when temperatures rise or fall significantly.”

Crypto miners are offering a novel argument that their energy consumption “is actually good for the climate and good for Texas’ power grid.”

“By consuming voracious amounts of power, Bitcoin mining can help balance the grid and provide a market for underused solar and wind resources. And when blackouts loom, they simply switch off, helping avert disaster.”


October 12, 2022
Climate coalition, ‘crypto bros,’ regtech for EU standards

World Economic Forum: Coalition to explore use of blockchain to combat climate change

The World Economic Forum announced a new coalition made up of 30 organizations to explore the potential of crypto, blockchain and other web3 technologies to support efforts to fight climate change.

One area where blockchain tools could be useful is in making improvements in the global carbon credits market. The Crypto Sustainability Coalition will also examine the crypto industry’s energy consumption “to build a clearer picture of its impacts on climate and nature,” the World Economic Forum said in a press release.

“The coalition launch is timely as there is an urgent need to support the decarbonization of cryptocurrency and ensuring the industry is part of the climate solution. Furthermore, there needs to be regulatory clarity that promotes web3 innovation, protects consumers, and improves financial inclusion,” according to the press release.

The coalition’s launch comes amid heavy scrutiny of the “proof-of-work” models often used to validate crypto transactions. Those models, in which miners require ample amounts of computer processing power to solve mathematical problems, is a drain on electricity grids. Ethereum’s recent Merge transitioned the blockchain network to a “proof-of-stake” model, which drastically reduced carbon usage.

Bloomberg News: Case of ‘literal crypto bros’ highlights law enforcement challenges

Bloomberg News did a deep dive on the story of brothers Larry and Gary Harmon, whom the news service referred to as “literal crypto bros.” Their criminal cases “show how the IRS and the FBI are succeeding in collecting evidence but still face challenges on the blockchain frontier,” the story said.

Larry was arrested in February 2020 and has since pleaded guilty to laundering over $300 million through crypto transactions. He was the first defendant that was accused of crimes related to “mixing,” which is when someone “makes it much harder to trace transactions by jumbling together tokens from different owners.”

“In 2014, Larry created a search engine called Grams, which helped users scour the darknet for illegal drugs, guns, and hacking services. Then users could pay via a mixing service he ran called Helix, earning Larry 2.5% of each transaction.”

Authorities apprehended Larry with help from Chainalysis, a blockchain analytics firm. They had seized Larry’s computer hardware but were not able to retrieve the digital assets from the password-protected device.

“As authorities watched helplessly, 713 digital tokens—then worth almost $5 million—were somehow spirited away from the ‘hardware wallet’ they were holding in an evidence locker.” His brother Gary was accused of remotely swiping them.

PYMNTS: Regtech providers helping firms meet EU’s evolving E.S.G. standards

A story in PYMNTS.com focused on how regtech providers are helping European companies meet fossil fuel-related disclosure and investment requirements resulting from the European Union’s more complicated ESG regulations.

“While the rise of environmental, social and governance (ESG) investing has been instrumental in the success of the fossil fuel divestment movement so far, critics argue that recent changes to the European Union’s ESG taxonomy threaten the current momentum,” the article said.

Changes to the designation of natural-gas investments has made “it easier for funds exposed to the fossil fuel industry to be designated as Article 8 or Article 9 compliant under the EU’s Sustainable Finance Disclosure Regulation (SFDR).”

“But if ESG funds can’t guarantee that money isn’t being used to finance the fossil fuel industry, how can environmentally-conscious investors looking to decarbonize their portfolios avoid investments that are exposed to these carbon-emitting sectors?” the story continued. “Thankfully, providers of regulatory technology (RegTech), often the very same companies that help financial institutions manage their compliance procedures, also have a set of tools that can be applied to the challenge of fossil fuel disclosure.”

🔒American Banker: Chase eliminates screen scraping thanks to API agreements

JPMorgan Chase announced that it had completely eliminated screen scraping thanks to data-sharing agreements with fintech firms and data aggregators, American Banker reported.

“JPMorgan Chase has reached a milestone five years in the making — the bank says it is now routing all inquiries from third-party apps and services to access customer data through its secure application programming interface instead of allowing these services to collect data through screen scraping,” according to the trade publication’s reporting.

As the bank began reaching data-sharing agreements with key fintech players in 2017, it also built an API system allowing customers to share data more securely.

“Customers using a third-party app that needs access to Chase will log in and authenticate themselves directly with the bank,” the story said. “The customer can choose which accounts and data to share with the third party, as well as turn off access via the Security Center dashboard on Chase’s website or app.”


October 5, 2022
AI Bill of Rights, FSOC crypto worries, Circle steps up

Protocol: White House floats AI ‘Bill of Rights’

The Biden administration released the much-anticipated White House Bill of Rights for AI, “which is intended to be used as a handbook and a ‘guide for society’ that could someday inform government AI legislation or regulations,” Protocol reported.

The AI Bill of Rights offers five guidelines for protection of individuals as it relates to AI, according to the news site’s writeup. Those guidelines include: protection from unsafe or ineffective automated systems; protection from discrimination caused by an algorithm based on race, color, ethnicity or sex; protection from abusive data practices and unchecked surveillance; notification when an AI system is in use; and the ability to opt out of using an AI system.

Yet Protocol pointed out that the document is legally non-binding and excludes more concrete legal clarity that many had desired.

“While the document provides extensive suggestions for how to incorporate AI rights in technical design, it does not include any recommendations for restrictions on the use of controversial forms of AI such as systems that identify people in real time using facial images or other biometric data, or for use of lethal autonomous weapons,” according to the article. “In fact, the document begins with a detailed disclosure noting that the principles therein are ‘not intended to, and do not, prohibit or limit any lawful activity of a government agency, including law enforcement, national security, or intelligence activities.’”

Wall Street Journal: Crypto industry growth could be systemic risk, council warns

The government issued another warning regarding risks from the cryptocurrency activities, this time from the Financial Stability Oversight Council, the Wall Street Journal reported.

The panel, which was established by the Dodd-Frank Act to flag systemic risks that could precipitate crises, said even though the crypto industry remains relatively small, its continued growth would result in greater concerns about its impact on financial markets.

“‘The financial stability risks of crypto-assets would be substantial if those vulnerabilities were to remain in place while the scale of crypto-asset activities and interconnectedness with the traditional financial system were to grow rapidly,’ the risk panel said in a 120-page report.”

The article said the report was another product of the Biden administration’s executive order on digital assets issued in March, “which called [on] a number of federal agencies to evaluate the risks and opportunities posed by cryptocurrencies.”

Crypto Briefing: How crypto community can engage with policymakers on new rules

Jacob Oliver, the U.S. editor for Crypto Briefing, wrote that as U.S. policymakers take “a series of escalating actions … to regulate the crypto industry,” the digital-asset sector should “meet them on their playing field.”

“We’ve known for a long time that there would come a day in which the semi-utopian, radically-libertarian ideology that drives so much of the cryptocurrency narrative would come face-to-face with stone-faced regulators,” Oliver wrote in the publication. “We are about to find out, in a very tangible way, what happens when an unstoppable force meets an immovable object.”

He advised against panic or rage. “Go scream at the sky to get it out of your system if you need to, but put it behind you as soon as possible. There is work to do.”

Instead, Oliver said, crypto enthusiasts should take more constructive measures to engage in the political process as Congress weighs more lasting reforms of the industry. This includes contacting their elected representatives in Congress, donating to political action committees or even running for office.

“When the rules are written, the crypto community will need strong advocates in the room where it happens. Ultimately, what we should want from this moment is not to dissuade lawmakers and regulators from making rules to govern the space. There is little chance of avoiding the government’s say-so in how the crypto world will operate, so let’s not waste time pretending we can. Instead, let’s focus on getting what will really benefit us in the long run—a seat at the table.”

Asian Development Bank: Tech ‘ecosystems’ needed in regulatory frameworks

A paper published by the Asian Development Bank discussed the importance of building “technology ecosystems” in the design of regulation, compliance and financial infrastructure on the continent.

The paper argues that transformation of the financial services sector resulting from the 2008 crisis, heightened regulation and new technology such as AI and blockchains have created regulatory challenges that call for new approaches to ensure effective regulation.”

“The emergence of a range of new entrants and new business models covered by the term financial technology (fintech) driven by these new technologies and innovations has challenged not only incumbent participants but also policy makers and regulators who have been pressed to readjust their approaches as a result of the opportunities and risks of new entrants, technologies, and strategies,” wrote the paper’s authors.

“The integration and embedding of technology expose financial industry participants to technology risks (techrisks), requiring strong oversight of the key vulnerabilities and data gateways through mature and proven solutions.”

Fortune: How Circle aims to be major stablecoin player

Fortune magazine’s newsletter devoted to the digital-asset sphere highlighted a recent high-profile event hosted by Circle, which served “as a charm offensive as Circle tries to reassure skittish regulators that crypto is respectable.”

“But it’s also a victory lap of sorts for Circle, which now holds around $50 billion in reserves for its USDC stablecoin, and is poised to be a major player in the next era of global finance,” the article said.

The piece suggested that Circle has made choices with respect to USDC that could give the company a leg up in competing with other stablecoin players.

“While Circle’s main stablecoin rival Tether still enjoys a larger market share, the latter’s fast-and-loose approach to auditing and compliance has made it radioactive to regulators, and it’s hard to see how Tether can be much more than a tool for offshore crypto casinos,” the article said. “Meanwhile, Circle’s efforts to make inroads with mainstream finance are likely to be turbocharged thanks to the rate for T-bills (where Circle parks most of its reserves) climbing toward 4%—a development that will translate into more than $1 billion in pure profit for the company.”


September 28, 2022
One week after Merge, ‘greenwashing’ crackdown, DARPA investigates crypto

CoinDesk: Assessing impact of Ethereum’s Merge one week later

CoinDesk published an assessment of the impact on Ethereum and the broader cryptocurrency community “one week after the Merge.”

“In crypto circles, the occasion of the Merge was observed like a holiday — celebrated virtually and in person at watch parties complete with music, speeches and even some special guests,” the article said.

With the move, Ethereum converted from a proof-of-work processing model to the less energy-intensive proof-of-stake, thereby significantly reducing the carbon footprint and climate impact of the blockchain network.

“The first and most obvious immediate impact of the Merge was the one that it had on the network’s energy usage. Switching from mining to staking meant ripping out precisely the component of blockchain tech that gives it a bad environmental reputation.”

Yet the new processing system for Ethereum has prompted centralization concerns.

“A few entities like Lido, Coinbase, Kraken and Binance have amassed more than 50% of the resources required to secure the network,” according to the story.

Another consequence of the Merge is a reduced “issuance rate of ETH, the network’s native currency.”

“With Ethereum’s update to proof-of-stake, the network has drastically reduced the amount of new ETH issued with every block.”

New York Times: Regulators look to crack down on E.S.G. ‘greenwashing’

A “trend du jour on Wall Street” is financial firms — in a bid to improve their own E.S.G. standing — structuring investment funds with companies boasting stellar “environmental, social and governance” records, according to the New York Times.

But as sustainable funds and E.T.F.s have nearly tripled since 2017, regulators are cracking down on “greenwashing,” or the practice by some firms of “using misleading claims to make their investment funds or strategies appear to be E.S.G.-compliant.”

“What may have seemed like a harmless marketing move is now causing some eyebrow raising: Securities regulators are starting to question whether their do-gooder claims are real or fraudulent, at the same time that regulators are seeking to enact new rules and guidelines for what constitutes an E.S.G. investment product or strategy.”

Washington Post: Pentagon to investigate national security threat of digital assets

The Department of Defense’s innovation office is conducting a “sweeping review” to evaluate the national security and law enforcement threats resulting from the growth in cryptocurrencies, according to the Washington Post.

The review is being launched by the Defense Advanced Research Projects Agency, which is known for developing technology behind the internet. DARPA has hired Inca Digital, a crypto intelligence firm, to help lead the year-long project.

“The company will develop tools that give the Pentagon a granular view of crypto markets’ inner workings, in part to help authorities crack down on illicit uses of digital assets,” the story said.

DARPA’s program manager, Mark Flood, told the newspaper: “‘The program underway here involves mapping out the cryptocurrency universe in some detail.’”

“Beyond fighting illicit finance, the office aims to use the data for insights into dynamics shaping traditional financial markets, where detailed information is harder to gather.”

🔒American Banker: How big banks are utilizing quantum computing technology

American Banker reported that some banks — including JPMorgan Chase, Ally Bank and Credit Agricole — are “actively testing and in some cases using” quantum computing technology, according to speakers at a recent conference in New York.

“These banks are not attempting to buy and use quantum computers directly. They are using cloud-based quantum-computing-as-a-service offerings from companies like D-Wave, IBM, Google, Amazon, Rigetti, Microsoft and QC Ware. They’re testing the advanced computer power for complex problems like portfolio optimization and index tracking.”

Quantum computing uses quantum mechanics to carry out functions that are too difficult for traditional computers. Some functions include fraud detection or improving the security of information-sharing systems.

Marco Pistoia, head of quantum computing at JPMorgan Chase, said, “‘We want to be ready when quantum advantage becomes possible on a higher level.’”

According to the article, “The banks are seeking improvements in speed, as well as greater precision in simulations and calculations for risk analysis, fraud detection and pricing of complex derivatives.”

Albany Times Union: N.Y. state financial regulator goes on a hiring spree

The New York State Department of Financial Services is expanding staff under Superintendent Adrienne Harris, which could lead to shorter turnaround times for firms seeking cryptocurrency licenses, according to the Albany Times Union.

“The agency, which oversees state-chartered banks and insurance companies, is on a hiring spree.”

Speaking before the New York City-based Citizens Budget Commission, Harris “said she spent the first six months on the job conducting a staff analysis, prompting her to conclude that the agency is understaffed, especially considering its regulatory reach.”

She mentioned the concerns of some crypto firms “that have complained about the length of time it takes to get a license.”

“Part of the slow licensing process, she said, is due to staff shortages.”


September 21, 2022
White House crypto report, post-Merge questions, fintech ‘bright spot’

Various: Takeaways from Biden administration reports on crypto policy

Several publications attempted to unpack a series of White House-sanctioned government reports on regulating digital assets.

The findings by the Department of the Treasury, Department of Justice, Department of Commerce, and Office of Science and Technology Policy were in response to a March executive order by the Biden administration for government agencies to develop a comprehensive policy framework for cryptocurrencies.

“The reports from the Treasury Department — three of them released Friday — largely recommend the government continue assessing crypto risks, keep up enforcement actions and push forward with work on a digital dollar (without recommending the U.S. should have one),” according to CoinDesk. The Justice Department report also previewed the launch of a “Digital Asset Coordinator Network” to position 150 prosecutors nationwide focusing on crypto-related investigations.

Yet the crypto news site observed that the reports left a lot unanswered about the future digital asset regulation. “After six months of study, the federal agencies made it clear that they’re devoting a lot of attention to crypto, but they aren’t ready to declare a definite course of action. Still unanswered is the single biggest U.S. question in crypto: What makes a token a security, and which ones should be regulated as commodities?”

A story in Cointelegraph agreed that “some of the sections don’t contain any particularly new information, emphasizing one more time the principles and policies to which the present administration has been sticking.”

“For example, to protect consumers and investors, the reports urge regulators — the Securities and Exchange Commission and Commodity Futures Trading Commission — to ‘aggressively pursue investigations and enforcement actions against unlawful practices in the digital assets space.’ At the same time, they don’t say anything about the segregation of regulators’ duties, which remains one of the country’s main regulatory problems.”

The Washington Post detailed Treasury’s emphasis on regulators and law enforcement using existing authorities to crack down on crypto-related scams.

Fortune: What comes next after Ethereum’s Merge

Ethereum won plaudits for successfully pulling off the Merge — the blockchain network’s conversion to a proof-of-stake processing model — without a hitch, thereby drastically reducing carbon emissions in one fell swoop. The switch from a proof-of-work model was intended to reduce the climate impact of mining for the ether cryptocurrency.

“This was no fluke: the reason the process went so smoothly was because the Ethereum community carried out the upgrade with the same sort of meticulous planning and rigorous testing that takes place at companies like Apple and Sony,” wrote Fortune Magazine in a deep dive on the conversion.

But the magazine pointed out that, despite Ethereum’s well-deserved victory lap, the Merge will not solve all of the network’s problems.

“After the feel-good moment passes, the Ethereum community is going to have to address major challenges that are slowing the mainstream adoption of crypto,” Fortune wrote. “The top priority should be the exorbitant gas fees that make legacy payment and computer networks look cheap in comparison—Ethereum is never going to catch on if the first time someone tries it, the network dings them for $50 or more in fees. And while Layer 2 blockchains offer a way to avoid most of these fees, the reality is that using the likes of Polygon adds an unwelcome element of complexity that is off-putting to casual users.”

Protocol: Popularity of corner store around globe suggests demand for fintech

New data from the venture capital firm Flourish Ventures — a funder of the Alliance for Innovative Regulation (AIR) — suggests there is an opportunity for fintech startups in emerging markets thanks to the persistent popularity of the corner store, according to the technology news site Protocol.

“According to the report, 94% of customers plan to use their corner shop the same amount or more in the future, despite global macroeconomic conditions,” the story said. “Additionally, 71% of those surveyed purchased a larger portion of their groceries from corner stores during COVID-19 lockdowns, showing the businesses are particularly resilient during downturn.”

This retail “bright spot” could increase demand for fintech services, “from companies that can help the often cash-based businesses transition to digital payments to those that make short-term credit easier to manage.”

“There were already some early indicators that this is a need fintech can fill. UN Global Pulse, a United Nations initiative to collect data on emerging areas of innovation, conducted research in 2018 that suggested fintech can accelerate financial inclusion by serving ‘micro-merchants’ who lack sufficient access to traditional banking services.”

Brookings Institution: Paper proposes stablecoin regulatory framework without new legislation

A recent paper published by the Brookings Institution proposes a regulatory construct for issuing stablecoins through depository institutions that would not require any statutory changes. The proposed framework follows previous recommendations by policymakers that stablecoin issuance be limited to FDIC-backed institutions.

Under the proposal, the Office of the Comptroller of the Currency would be able to approve national trust bank charters as operating subsidiaries of FDIC-insured banks. The OCC could also issue standards limiting stablecoin reserves to high-quality assets, among other restrictions.

“The creation of this federal regulatory structure puts the ‘stable’ in stablecoins, offering consumers a far higher level of protection than the state-level regulatory frameworks that currently govern most stablecoin issuers while providing protection against financial stability risks should the stablecoin market continue to grow,” according to an abstract. The paper was authored by former Commodity Futures Trading Commission Chair Timothy Massad, Harvard law professor Howell E. Jackson and Cornell law professor Dan Awrey.

They recommended that the Financial Stability Oversight Council oversee coordination of the new stablecoin framework among the federal banking agencies.

“Our proposal is self-consciously incremental and cautious, imposing stringent and overlapping safeguards and preserving the separation of banking and commerce,” the authors wrote.

🔒Politico: Banking trade, consumer group urge CFPB to crack down on fintech lenders

A consumer advocacy group and the Consumer Bankers Association are “jointly petitioning” the CFPB to establish rules toughening oversight of nonbanks that provide consumer credit.

“Banks have repeatedly complained that nonbank fintechs and firms offering Buy Now Pay Later loans are not held to the same regulatory standards as traditional lenders,” according to the story by Politico.

The CBA and the Center for Responsible Lending sent a letter to CFPB Director Rohit Chopra asking him to use powers granted by the Dodd-Frank Act to subject “larger participants” in certain nonbank sectors to bank-like supervision.

“‘Although our views on consumer financial regulatory issues often diverge, CRL and CBA share a common belief that the absence of a rule defining larger participants in the market for personal loans has created an unlevel playing field and a large risk to consumers,’ the organizations wrote in the letter obtained by POLITICO.”


September 14, 2022
Crypto mining report, digital yuan, Hsu questions fintech partnerships

🔒American Banker: OCC chief raises concerns about bank-fintech partnerships

The head of the Office of the Comptroller of the Currency warned at an industry conference “that widespread and increasingly complex relationships between banks and fintechs could set the stage for a financial crisis,” reported American Banker.

Acting Comptroller Michael Hsu raised concern about new business models tied to mobile payments, online lending and deposit-taking, the article said.

“‘The “de-integration” of banking services that is taking place now has its roots in technology, data, operations,’ Hsu said. ‘It is affecting all banks, not just the large money-center banks. My strong sense is that this process, left to its own devices, is likely to accelerate and expand until there is a severe problem, or even a crisis.’”

Hsu noted that banks and fintechs rely on each other in order to scale up online banking operations.

“‘By partnering, banks can gain speed to market and access to technological innovation at lower cost, while fintechs seek to benefit from banks’ reputations for being trustworthy, longstanding customer bases, and access to cheaper capital and funding sources,’ Hsu said. ‘As a result, bank-fintech partnerships have been growing at exponential rates and have gotten more complicated.’”

Various: White House examines heavy climate impact from crypto mining

A number of publications reported on new White House findings that cryptocurrency miners’ energy usage could harm efforts to combat climate change.

The White House report, “Climate and Energy Implications of Crypto-Assets in the United States,” said global electricity use associated with crypto-assets “is comparable to the annual electricity usage of all conventional (i.e., non-crypto-asset) data centers in the world.”

Bloomberg News noted that even though the White House Office of Science and Technology Policy did not go so far as to issue new regulations, the report said U.S. policymakers “must take action to mitigate pollution tied to crypto production.”

“The federal government should collect more data on power usage and work with states and the crypto industry to set standards, the office said,” according to the wire service.

The report is one of the first public policy responses to President Biden’s recent executive order calling for government agencies to develop a plan of action in response to growth in the crypto markets.

“The report calls on federal agencies including the Environmental Protection Agency and the Department of Energy to work with states and local officials to develop standards for the industry’s impact on the environment; the intensity and source of energy that goes into it, noise pollution, water usage as well as how to build carbon-free energy to balance out crypto mining’s consumption,” wrote CoinDesk.

Meanwhile, Jacob Oliver, the U.S. editor for Crypto Briefing, urged the crypto community not to overreact to the White House report. He rejected any assertions that the Biden administration is seeking to ban proof-of-work mining, a means of validating blockchain transactions tied to heavy energy consumption.

“Far from making a policy recommendation to ban Proof-of-Work mining, the report points out that any such ban would be a last resort—advancements in ASIC technology, migration to greener energy sources, and even building blockchains specifically for tracking and mitigating environmental impact are all mentioned in the report as alternatives to banning Proof-of-Work consensus mechanisms. In fact, they are considered as the things to try first,” Oliver wrote.

🔒Economist: Some see bigger ambitions for China in pilot of digital yuan

The Economist did a deep dive on China’s digital currency, sometimes known as the e-cny, which some observers in the country hope could threaten the “monopolistic status” of the U.S. dollar.

“The e-cny could help internationalise the yuan in several ways,” according to the magazine. “It could make it easier and cheaper for foreigners to make cross-border payments—and harder for America to block those transactions for geopolitical purposes. That would increase the appeal of the yuan, even if China’s capital controls remained in place.”

China has been “experimenting” with the digital currency since May 2020, the story said. It is being piloted in 23 zones across 15 provinces, where users “can download ‘e-wallets’ onto their phones.”

“Some of the biggest believers in the e-cny’s potential seem to be wary observers in America. A recent book published by the Hoover Institution, a think-tank, argues that the e-cny could play an important role in internationalising the yuan and ‘transforming the geo-economic landscape’. In particular, ‘it is likely that countries seeking to circumvent us sanctions will explore using the e-cny as an alternative channel for cross-border transactions,’ it noted.”

🔒Wall Street Journal: Citigroup rolls out effort to expand access in underserved communities

The Wall Street Journal reported on a pair of pilot programs introduced by Citigroup intended to expand financial services access in underserved areas.

In one move, the company is joining other major banks to share account data, such as income and spending habits, to make it easier for consumers without credit scores to obtain credit cards, the paper reported. The plan is part of the Office of the Comptroller of the Currency’s Project REACh, or Roundtable for Economic Access and Change.

“Project REACh is part of a broader push in the banking industry to find ways to lend to a broader set of customers,” the article said. “Bank of America Corp. earlier this week said it was launching a pilot program in some cities to lend to minority home buyers with no down payments or minimum credit scores.”

The other program piloted by Citigroup is intended to “funnel more loans to small businesses owned by women, minorities and veterans” through 20 branches located in Los Angeles. “To do so, the bank will lower its threshold for acceptable credit scores and tinker with other underwriting standards.”

Protocol: SEC’s Gensler calls on crypto firms to register with agency

Securities and Exchange Commission Chair Gary Gensler urged companies that help carry out crypto transactions to register with the agency, but he “indicated he is open to the view that some cryptocurrencies are commodities that should be regulated elsewhere.”

“Speaking to a conference of attorneys, Gensler made clear his view that most crypto tokens are securities that fall under the SEC’s jurisdiction. The SEC’s oversight role ‘should not change just because the issuance and trading of certain securities is based on a new technology,’ he said,” according to reporting by Protocol.

But he acknowledged that Bitcoin “may be an exception,” the article said. “Next week a Senate committee will hold a hearing on a bill that would declare both bitcoin and ether as commodities, under the purview of the Commodity Futures Trading Commission.”


September 7, 2022
FedNow skepticism, CBDC sandbox launched, necessity of AI explainers

🔒American Banker: Why some banks may be on the fence about joining FedNow

A story in American Banker suggested that banks may think twice about joining the Federal Reserve’s real-time payments network set to launch next year. In a recent speech, Fed Vice Chair Lael Brainard “said the availability of instant payments to consumers will depend on how many banks invest in becoming interoperable with the service ahead of its launch next summer.”

“Banks will have to weigh the cost of these changes not only against the benefits offered by FedNow, but also against the alternative: The Clearing House’s RTP Network,” the article said.

The largest banks rolled out RTP in 2017 and is operational for more than 60% of U.S. demand deposit accounts, according to the service.

Over 120 institutions entered a FedNow pilot program and will be able to connect to the new service once it is launched.

“There is a skepticism within the banking industry that FedNow will be able to catch up with RTP, and some see the race as a zero-sum game, given that the two systems, at least initially, will not be interoperable with one another,” according to the American Banker article.

Cointelegraph: Digital Dollar Project unveils ‘sandbox’ to explore mechanics of U.S. CBDC

The Digital Dollar Project announced the creation of a “technical sandbox” to dig deeper into the mechanics of launching a central bank digital currency in the U.S.

“The Technical Sandbox Program aims to give the federal government, policymakers and the private sector a clearer understanding of how a potential CBDC would be rolled-out,” according to Cointelegraph. “This includes the potential implications to retail and wholesale and international use cases such as cross-border payments.”

The Federal Reserve has been exploring the possibility of launching a CBDC but has yet to decide whether to implement such a plan. Participants in the sandbox “include crypto-firm Ripple, financial technology company Digital Asset, software platform Knox Networks and banking solutions firm EMTECH,” the article said.

A January discussion paper released by the Fed “suggested that CBDCs could act as digital money free from credit and liquidity risks, improve cross-border payments, help preserve the dominance of the U.S dollar, promote financial inclusion and extend public access to safe central bank money.”

Harvard Business Review: When explaining your AI system is the right thing to do

An article in Harvard Business Review outlined four instances in which companies should explain how their artificial intelligence systems work.

“While we understand the variables we put into the AI (mortgage applications, medical histories, resumes) and understand the outputs (approved for the loan, has diabetes, worthy of an interview), we might not understand what’s going on between the inputs and the outputs,” wrote Reid Blackman, CEO of the consultancy Virtue, and Beena Ammanath, executive director of the global Deloitte AI Institute. “The AI can be a ‘black box,’ which often renders us unable to answer crucial questions about the operations of the ‘machine’: Is it making reliable predictions?”

One such instance is when regulators require explainability, they said.

“Companies in the payments industry are looking outside of their traditional hiring pools as pressure builds in a challenging economy.”

“Someone denied a loan or a mortgage deserves an explanation as to why they were denied. Not only do they deserve that explanation as a matter of respect — simply saying ‘no’ to an applicant and then ignoring requests for an explanation is disrespectful — but it’s also required by regulations.”

Other reasons for firms to explain their AI is to help end users get the most out of an AI-powered tool, to improve the AI system itself and when explainability can help assess fairness.

CoinDesk: California’s tough new ‘Bitlicense’ bill awaits Newsom’s signature

A bill passed in California — awaiting Gov. Gavin Newsom’s signature — would impose an array of new restrictions on cryptocurrency and stablecoin firms.

The legislation would require licensing for digital-asset companies, ban state-licensed entities from dealing with stablecoins not issued by a bank or licensed by state regulators, and stipulate that stablecoin issuers holding securities as a reserve must set aside “not less than the aggregate amount of all of its outstanding stablecoins issued or sold in the United States.”

“The Digital Financial Assets Law, dubbed California’s ‘BitLicense,’ takes after New York’s BitLicense regulation, which came into effect in 2015,” CoinDesk reported. “California’s law, if signed by Newsom, a Democrat, would go into effect in January 2025.”

The reforms have drawn immediate criticism from the industry.

“The Blockchain Association, an industry trade group, tweeted that the bill would ‘create shortsighted and unhelpful restrictions that would impede crypto innovators’ ability to operate and push many out of the state.’”


August 31, 2022
Encryption advances, FedNow readies launch, payments sector hiring trends

Fast Company: Startup touts progress in making new privacy tech “scalable”

Fast Company magazine focused on fully homomorphic encryption, or FHE, “a technique that could let tech firms analyze your personal data without being granted access to the original data itself.”

Homomorphic encryption is seen as a privacy-enhancing technology with several practical applications, including analyzing data to combat money laundering without compromising the privacy of parties involved in a financial transaction.

“Among cryptographers, and for anyone who cares about privacy, the technology is considered a ‘holy grail,’” the article said.

The technology “received a jolt of fresh attention” recently when the French startup company Ravel Technologies said it had made progress toward making FHE “scalable.”

“‘We have successfully overcome FHE’s biggest challenges,’ says Mehdi Sabeg, the CEO and founder of Paris-based Ravel Technologies. He declined to share details about the advances; amid a fierce race in research funding, the company is seeking patents for its technology. But he says tests showed that, for certain operations, the system operates at four orders of magnitude faster than current state-of-the-art approaches, with a data requirement only 33 times larger than plaintext.”

“A breakthrough in FHE could be a boon for personal privacy. Banks could use the technology to perform fraud detection and Know Your Customer screenings without the need to see or store a customer’s raw data, or to process data in foreign jurisdictions that have stricter data rules.”

🔒Wall Street Journal: Fed eyes mid-2023 launch for real-time payment service

The Wall Street Journal gave a preview of the Federal Reserve’s planned launch next year of the real-time payments system FedNow.

“The new system would allow bill payments, paychecks and other common consumer or business transfers to be available quickly and round-the-clock, a change from an existing system that is closed on weekends and can at times take several days before funds become available. Last year, those older rails handled more than 29 billion payments, valued at close to $73 trillion,” the article said.

FedNow will compete with a private-sector real-time payments network launched in 2017 by the biggest banks.

“The Fed has said its system … would provide a second option in the market that would lower costs, improve efficiency and reduce the vulnerability of the financial system. That could be attractive to some smaller lenders that have been reluctant to use the big-bank system.”

Some have criticized the Fed for taking too long to launch a faster payments system relative to other countries.

“Aaron Klein, a senior fellow at the Brookings Institution, said the Fed’s slowness in setting up FedNow—the project has been in the works for more than seven years—has cost consumers hundreds of billions in the form of overdraft fees, check-cashing fees and late fees.”

Fed Vice Chairwoman Lael “Brainard, who has led the Fed’s work on payments in recent years, said the service would launch between May and July of 2023, after a testing phase beginning next month.”

🔒American Banker: Payments firms hire outside the financial sector

A story in American Banker focused on a new hiring trend in the payments industry: seeking job candidates from non-financial sectors.

“While some firms in the payments industry are cutting staff — notably in the buy now/pay later sector — others are rapidly expanding to meet the demand for digital experts, creating competition for talent,” the article said.

For example, the sales director at VizyPay, which offers in-store and payment solutions for small businesses, was formerly an “assistant restaurant manager” at a supermarket chain.

“Companies in the payments industry are looking outside of their traditional hiring pools as pressure builds in a challenging economy.”

“‘The bulk of our employees do not have payment experience,’ said Frank Pagnano, VizyPay’s managing partner. ‘But how can we change the industry if we keep hiring people who do things the way they have always been done?’”

NPR: Why underserved communities are drawn to cryptocurrency market

National Public Radio’s Morning Edition featured an interview with Cleve Mesidor, the executive director of the nonprofit Blockchain Foundation and author of “THE CLEVOLUTION: My Quest For Justice In Politics & Crypto.” Mesidor outlined the reasons why those left out of the traditional financial system have been attracted to the cryptocurrency market.

“If the traditional financial system has worked for you, if you’ve benefited from traditional markets, you are probably cool to crypto,” she said. “That’s why we’ve seen Black and Latino communities lead adoption.”

She also noted that recent volatility in the crypto markets has coincided during a time of general economic uncertainty. “Every American right now, regardless of what their portfolio includes, their portfolio does not look good,” she said. “They’re not happy. So it’s not crypto. Crypto is not happening in isolation.”

“As a Black woman who has a master’s degree, who’s middle class, the traditional financial markets [are] riskier to me than cryptocurrency is. I have never been able to fully participate,” Mesidor explained. “So it depends on your vantage point. That’s why you see Black, Latino, Asian communities are leading adoption. And that’s not just in the U.S., that’s happening abroad in Latin America and the continent of Africa and India. Those who have been locked out globally are gravitating towards this new strategy.”

TechCrunch: Digital lenders, other fintechs feel pressure from interest rates

Real estate-focused fintech startups are feeling the heat as rising interest rates and inflation have led to struggles in the housing market, according to TechCrunch.

Recently, the company Reali, which offers homeowners “buy before you sell” and “cash offer” programs, announced that it would wind down and lay off most of its workforce. The digital mortgage lender Better.com planned to conduct multiple rounds of layoffs.

“In 2020, historically low interest rates led to a surge in both rates and purchases,” leading to a “boom in business startups catering to home buyers” and growing venture capital for “proptech” firms.

“Then 2022 came.”


August 24, 2022
Smaller core providers, Ethereum’s Merge, Celsius depositors in court

🔒American Banker: Community banks look beyond big core providers, consider smaller vendors

An article in American Banker said small core-processor vendors are emerging as a potential partner for community banks, providing an alternative to the big three firms that manage banks’ core services.

“The advent of smaller or ‘next generation’ providers, many of which are based in the cloud, are broadening the options for banks beyond the legacy providers. But movement to adopt these cores is still slow.”

In addition to the largest core providers — FIS, Fiserv and Jack Henry — smaller institutions are considering lesser-known companies that offer more flexibility and an easier time connecting to application programming interfaces, the story said. Many of the newer providers are based in the cloud.

But some institutions are being cautious about making the switch. “Rather than transitioning to a lesser-known company, some banks are testing the waters by launching standalone digital banks with a separate “sidecar” core to assess whether they want to make the move later on,” the article said.

“There are pros and cons to going with less-tested core technology. A McKinsey article, for example, points out that core banking systems are expensive and difficult to migrate, and that next-gen systems are still maturing.”

🔒WIRED: Ethereum readies proof-of-stake model to cut energy consumption

A story in WIRED magazine previewed the upcoming launch of the Merge, which is an effort by the Ethereum network to switch from a “proof-of-work” to “proof-of-stake” model for rewarding miners. The transition, which Ethereum is set to make on Sept. 14, is meant to “substantially reduce [the network’s] environmental impact.”

“[S]pecialized computers powered by eye-popping amounts of electricity are needed to process and verify transactions of cryptocurrencies like bitcoin or Ethereum’s ether on blockchains, via a process called proof-of-work mining,” according to the article.

To reduce the energy consumption used by ether miners, Ethereum will fuse its current “proof-of-work blockchain with the Beacon Chain, a proof-of-stake blockchain that was launched in December 2020 but so far has not processed any transactions.”

A researcher for the Ethereum Foundation “says the way the process has been structured can be compared to a car switching from an internal combustion engine to an electric one.”

“Proof of stake is predicated on the idea of securing a network through incentives rather than hardware,” the magazine said. “In this scenario, you don’t need an expensive mining computer to partake in the network: You can use your laptop to put down a “stake”—a certain amount of cryptocurrency locked in the network.”

New York Times: Celsius depositors turn toward bankruptcy courts to recover lost funds

Following the bankruptcy of Celsius Network, hundreds of former depositors of the crypto bank have turned toward the Bankruptcy Court to try to recover their lost funds, according to reporting by the New York Times. One group hired a law firm to press their case.

“Celsius depositors are scrambling to salvage even a portion of their savings, congregating in online forums to debate legal strategy and offer emotional support,” the story said.

“For weeks, they have flooded the Bankruptcy Court with hundreds of impassioned letters detailing their losses and proposing ideas to maximize recoveries.”

Efforts by crypto investors to recover funds they lost as a result of volatile markets is not limited to Celsius customers “as the amateur traders who bet on a range of failed crypto projects seek compensation, file lawsuits and mobilize online. At the same time, some of the industry’s most powerful firms are examining what’s left of the distressed companies in a hunt for potential deals.”

Reuters: Firm gets FCA approval to offer digital-asset services in United Kingdom

The Financial Conduct Authority has granted approval to the Singapore cryptocurrency platform Crypto.com to offer digital asset services in the United Kingdom while complying with anti-money laundering rules.

“The United Kingdom is a ‘strategically important market for us’, said Crypto.com CEO Kris Marszalek, citing an increase in crypto adoption in the country and the government’s agenda to make Britain a hub for crypto assets.”

According to the article, the FCA “previously faced a backlash in the crypto sector after turning down registration applications from scores of crypto companies.”

🔒Economist: Retailers eye fintech payment apps as alternative to major card networks

A story in the Economist suggested that the rise of nontraditional payment options for retail purchases could pose a threat to the leading credit card networks Visa and MasterCard.

The article said several merchants encourage customers to use non-credit card options such as fintech payment apps to avoid having to pay card interchange fees. Some alternatives include “buy now pay later,” cryptocurrencies and the Federal Reserve’s real-time payments system currently in development.

“Stripe, a large payments-infrastructure firm, says it is working to provide merchants with payment methods that will lower their costs. Current options include a box for customers to enter card details, but also Klarna, a ‘buy-now-pay-later’ provider through which customers can pay for purchases using bank transfers, thus avoiding the card networks,” the story said. “It could soon include things like FedNow, a real-time bank-transfer system being built by the Fed, which is due to be launched next year. In time, it could even include central-bank digital currencies or cryptocurrencies.”

Card networks have the advantage of offering consumers rewards, meaning “meaning competitors might make little headway.” But alternative providers are trying to offer their own incentives. The article mentioned how the fintech app Catch can link to a bank account via the payments startup Plaid to enable merchants to give customers retail credits.

“Catch has signed up a handful of fashionable, millennial brands including Pacsun, another clothing retailer, and Farmacy, a skincare firm.”


August 16, 2022
Fed crypto bank guidance, new fair-lending approach, Web3 identity firm

CoinDesk: Fed establishes process for crypto banks to gain system access

The Federal Reserve finalized guidance on the process for “novel” financial institutions to obtain access to Fed accounts and payment services.

The guidelines, largely similar to those publicized in a 2021 proposal, open the door for state-chartered crypto banks “to participate in the global payment system,” according to reporting by CoinDesk.

“Monday’s announcement would seemingly move the U.S. central bank one step closer to possibly allowing Wyoming special purpose depository institutions (SPDI), like Custodia (formerly Avanti) and Kraken Bank, access to these accounts so they would not need intermediary banks,” the article said.

The guidance creates a three-tiered evaluation process with procedures tailored to different types of financial institutions: federally insured banks, banks that are not federally insured but are supervised by a federal regulatory agency, and companies that are neither insured nor federally supervised. The third tier “would most likely apply to the Wyoming crypto banks,” the article said.

Forbes: Adding race and gender information may lead to fairer lending models

In commentary published by Forbes, FairPlay CEO Kareem Saleh takes issue with the longstanding legal doctrine preventing lenders from considering factors such as race and gender in evaluating applications.

The restrictions date back to the Equal Credit Opportunity Act, “passed in 1974 to stop lenders from deliberately denying loans to Black applicants and segregating neighborhoods—a practice called redlining,” he wrote.

“The assumption behind ECOA was that if decision makers—be they humans or machines—are unaware of attributes like race or gender at decision-time, then the actions they take will be based on ‘neutral’ and ‘objective’ factors that are fair.”

But that assumption is “wishful thinking,” Saleh argued. “In fact, building models that are ‘blind’ to protected status information may reinforce pre-existing biases in the data.”

“If we want to improve access to credit for historically underrepresented groups, maybe we need to try something different: Fairness Through Awareness, where race, gender and other protected information is available during model training to shape the resulting models to be fairer.”

🔒American Banker: Banking groups offer advice to Biden administration on crypto policy

Banking trade associations are weighing in on the Biden administration’s efforts to craft regulatory policy for the crypto sector, according to American Banker.

The industry groups submitted comment letters for a Treasury Department request in which they lay out “an argument that banks have made for years: that the highly regulated banking sector is one of the safest places to experiment with crypto, rather than its less-regulated nonbank counterparts.”

“Banks are betting their industry’s stricter oversight and stability will appear more enticing for regulators in the wake of the market turmoil that’s wiped a huge amount of value from the crypto sector,” the article said.

Still, the caution regulators have shown in allowing banks to engage in the digital asset sector “to date may have played a key role in insulating the traditional financial industry from digital assets’ plunging volatility, analysts say.”

“Balancing the banking system’s more robust supervision against its broader exposure to the U.S. economy will be key as regulators consider just how involved they want banks to be in the potentially lucrative future of crypto.”

TechCrunch: Startup aims to build new identity system for Web3 users

A startup founded by veterans of the Chinese conglomerate Tencent has raised $13 million to develop what they hope will be the universal identity system for Web3.

As reported by TechCrunch, .bit aims to rival the leading blockchain name system Ethereum Name Service (ENS).

“Tim Yeoh, one of .bit’s co-founders, said his company provides a ‘neutral’ and ‘chain-agnostic’ solution whereas .eth interacts with only Ethereum,” the article said. “‘In real life, your houses and financial assets are all tied to your unique ID number. .bit serves as the digital ID for all your assets in the web3 world,’ said the founder.”

Identities powered by .bit could become as prevalent in Web3 as email addresses and phone numbers are in Web2.

“Say you need to receive cryptocurrencies from someone. Instead of giving them your 35-character wallet address, you could give them something as simple as claire.bit.”

FinReg Lab: Research shows potential of AI to improve accuracy of algorithms

In a Brookings Institution policy brief, FinRegLab CEO Melissa Koide presented research on the benefits of using artificial intelligence and machine learning in financial services.

“The risk that these algorithms make unreliable, unfair, or exclusionary predictions is a foundational concern for a variety of highly sensitive use cases. Furthermore, it raises core questions about whether we can sufficiently understand and manage these models in the immediate and the longer term,” Koide wrote. “Yet artificial intelligence (AI) and machine learning (ML), if carefully overseen and deployed with representative data, also have the potential to increase accuracy and fairness over current models by identifying data relationships that current models cannot detect.”

She noted that financial services is an important use case “for AI and ML adoption because access to responsible financial products and services—from payments to credit to savings and investment—is elemental to financial stability and economic mobility.”

While older underwriting systems focus on “regression techniques” Koide wrote, “machine learning techniques can find and map more complex relationships in the data, such as situations in which variables interact with each other in complex ways or do not have a consistent straight-line relationship with the predicted outcome.”

“Machine learning models’ ability to detect these complex relationships and to analyze large volumes of diverse types of data can heighten both their predictive power and their potential to better assess the credit risk of people who have been excluded under more traditional data and underwriting models.”


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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