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


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.”


Back to Top

Get involved

Stay informed by joining our mailing list