Kiffmeister’s #Fintech Daily Digest (10/31/2020)

????Happy Bitcoin White Paper Day!!!????

Machine Learning in Credit Risk: Measuring the Dilemma Between Predictions and Supervisory Cost

The financial sector is increasingly adopting machine learning (ML) tools to manage credit risk. In this environment, supervisors face the challenge of allowing credit institutions to benefit from technological progress and financial innovation, while at the same ensuring compatibility with regulatory requirements and that technological neutrality is observed. This paper proposes a framework for supervisors to measure the costs and benefits of evaluating ML models, aiming to shed more light on this technology’s alignment with the regulation. It then compute estimates the predictive gains of six ML models using a public database on credit defaults. It then calculates a supervisory cost function through a scorecard that assigns weights to each factor for each ML model, based on how the model is used by the financial institution and the supervisor’s risk tolerance. 

Kiffmeister’s #Fintech Daily Digest (10/30/2020)

Digital money – the Riksbank’s e-krona pilot

Sweden’s Riksbank provided a brief update on the e-krona pilot it is conducting in partnership with Accenture. The pilot project’s technical solution is based on distributed ledger technology (DLT). It is based on a distribution model in which only the Riksbank can create e-kronas, which are then distributed to the general public via participants in the e-krona network, for example banks and payment service providers. The solution will be evaluated in a test environment that will simulate the Riksbank’s internal systems, participants in the network and end users, such as consumers and merchants.

ConsenSys Selected as Technology Partner by the Bank of Thailand for CBDC Project

ConsenSys has joined the Bank of Thailand to explore the potential of blockchain technology in the development of a proof-of-concept prototype for a Central Bank Digital Currency (CBDC) project, alongside SCG and Digital Ventures (DV). The private-permissioned network on Hyperledger Besu will be designed to meet both the functional and non-functional requirements of a retail CBDC. One of the business cases will test the use of a CBDC to simulate daily commerce, automate payments, and support procurement and financial management system called Procure-to-Pay (B2P) developed by DV. In the exploration, CBDC will be tested and issued using ERC20 smart contracts. In partnership with Thailand partner Atato, ConsenSys will architect a solution using its Enterprise Ethereum stack, including ​Codefi​ and ​MetaMask​. 

Leaked ‘Tai Chi’ Document Reveals Binance’s Elaborate Scheme To Evade Bitcoin Regulators

Binance, the world’s largest cryptocurrency exchange purportedly conceived of an elaborate corporate structure designed to intentionally deceive regulators and surreptitiously profit from crypto investors in the United States, according to a document thought to be created by its senior executives and obtained by Forbes. The 2018 document details plans for a yet-unnamed U.S. company dubbed the “Tai Chi entity.” While Binance appears to have gone out of its way to submit to U.S. regulations by establishing a compliant subsidary, Binance.US, an ulterior motive is now apparent. 

Ant Group could raise as much as $34.5B in IPO in what would be world’s largest IPO

Ant Group launched a $34.4 billion initial public offering, the largest in history, beating the January 2020 $29.4 billion Saudi Aramco deal. Ant’s $310 billion implied valuation of more than about $310 billion would be about the same as JPMorgan Chase’s. 

Kiffmeister’s #Fintech Daily Digest (10/29/2020)

Avanti Granted Bank Charter And Approval Of Business Plan For Digital Asset Custody And Tokenized U.S. Dollar

The Wyoming State Banking Board voted 8-0 to grant Avanti Bank & Trust a bank charter. Avanti’s approved business plan includes a tokenized U.S. dollar called Avit™*; custody services for digital assets as a “qualified custodian” under the Investment Advisers Act; API-based online banking services, where customer deposits must be 100% backed by reserves; and prime services for digital assets. Avanti plans to provide commercial accounts in early 2021 and other accounts with high minimum balance requirements soon thereafter. Avit will initially be issued on Liquid (a sidechain of the Bitcoin blockchain, in coordination with Blockstream) and Ethereum. 

CBDC architectures, the financial system, and the central bank of the future

This column updates a recent BIS Quarterly Review article on central bank digital currency (CBDC) architectures, how they could complement existing payment options, and what they imply for the financial system and central bank of the future. They pinpoint the key trade-off for central banks in the digital era: they can operate either complex technical infrastructures (in the single-tier business model) or complex supervisory regimes (two-tier). There are many ways to do so, but all will require the central bank to develop substantial technological expertise. 

CBB launches the Bahrain Open Banking Framework

The Central Bank of Bahrain (“CBB”) launched the Bahrain Open Banking Framework (Bahrain OBF) to ensure holistic implementation of Open Banking services by the industry. This framework includes detailed operational guidelines, security standards and guidelines, customer experience guidelines, technical open Application Programming Interface (API) specifications and the overall governance framework needed to protect customer data. These standards follow the comprehensive rules on Open Banking which were previously issued in December 2018. 

Legal Aspects of Blockchain Technology — Does a Smart Contract Replace a Physical Contract?

This article analyzes from a German legal perspective whether a smart contract can replace a physical contract set up between various business parties. The legal assessment is differentiated between 1) the smart contract itself being the text of the contract, and 2) the smart contract only being used to execute a contract concluded elsewhere. Furthermore, it offers suggestions for the practical implementation. 

AWOL Founder Controls Single-sig OKEx Bitcoin Wallet: Report

The Bitcoin cold wallet for crypto-asset exchange OKEx is single-signature, with founder Xu Mingxing reportedly holding the private key. That is problematic for OKEx users, given that Xu was “taken away by police” in China several weeks ago. As a result, on October 16, OKEx said it had halted withdrawals, which continue to be unavailable. 

Kiffmeister’s #Fintech Daily Digest (10/28/2020)

Madagascar considering retail central bank digital currency

The Central Bank of Madagascar is considering issuing retail central bank digital currency (CBDC). The e-Ariary project will be carried out in two phases; (i) analysis, design work and experimentation, and (ii) deployment and production, the launch of the second phase conditioned by the results of the experimental phase. 

Cambodia officially launches digital currency backed by central bank

The National Bank of Cambodia officially launched its blockchain-based retail payment system, which it had been piloting since July. Bakong, which supports transactions in the dollar and riel, will allow Cambodians make payments and transfer money between individuals using their smartphones. The World Economic Forum has mischievously labeled it as being based on a “quasi-form” of central bank digital currency (CBDC) which it is definitely not.   

Two Ocean Trust Receives First-Ever Regulatory Clearance From A Banking Regulator To Operate As A Digital Asset Qualified Custodian

The Wyoming Division of Banking has granted “no-action” relief to Two Ocean Trust, a Wyoming-chartered trust company that provides wealth management services to high-net worth individuals, family officers and advisers. This regulatory clearance enables the company to provide custody services for both digital and traditional assets under Wyoming law and serve as a “qualified custodian” under the Investment Advisers Act of 1940. This is a potential game changer because under the SEC Custody Rule, investment advisers are required to store customer assets with a “qualified custodian.”  

Coinbase Card launches in the US

Customers in the US can now join the waitlist for Coinbase Card, a Visa® debit card that allows crypto to be used for payments and purchases online and in-store as well as for ATM cash withdrawals. Coinbase Card also introduces new opportunities for customers to earn up to 4% back in crypto rewards. 

DBS Bank Is Launching Crypto Exchange with Multi-Fiat Support

Singapore’s DBS is launching a digital currency exchange allowing both institutional and retail customers to trade crypto-assets against multiple fiat currencies. The bank updated its website showing the upcoming crypto exchange services but later took the page down. The cached version of the now-deleted webpage is still available. Dubbed DBS Digital Exchange, the crypto trading platform is planning to list four top cryptocurrencies, Bitcoin, Ether, Ripple, and Bitcoin Cash, against multiple fiats, including the Singapore dollar, US dollar, Hong Kong dollar, and Japanese yen. 

ASX yet again delays blockchain transition until 2023

Australian ASX bourse operator has yet again pushed back the launch date of its blockchain-based clearing system until April 2023. ASX had flagged a delay to the project, which was scheduled for 2021, amid market turmoil in March. A proposed target of April 2022 has now been moved to 2023 after consulting market participants. “The industry … requested substantially more post-trade processing capacity than what had been contemplated pre-COVID-19,” the company said.  

Visa’s Planned Purchase of Plaid Faces Antitrust Scrutiny at the Justice Department

Visa’s $5.3 billion deal to buy Plaid is reportedly in jeopardy because of U.S. Department of Justice antitrust concerns. Plaid makes software that allows banks and fintechs to plug into consumers’ various financial accounts, enabling those companies, with users’ permission, to aggregate spending data, look up balances and verify other personal financial information. Its clients and partners include digital money-transfer service Venmo and stock-trading app Robinhood. 

Brazil’s central bank approves regulatory sandbox rules

Banco Central dos Brasil and Brazil’s National Monetary Council approved the implementation of a regulatory sandbox. It will offer central bank-authorized entities the opportunity to test, for a specified period, innovative projects in the financial or payment areas, while subject to fewer rules and less monitoring in a limited environment. 

Central bank digital currencies: Drivers, approaches, and technologies

Central bank digital currencies are in the limelight. Yet the motives for issuance and, relatedly, the policy approaches and designs differ. This column surveys the drivers, policy approaches and technical designs, based on a comprehensive and publicly available database. It finds that all Central bank digital currency projects aim to complement cash rather than replace it. Many projects would allow for an important role of the private sector in the payment system. (This is a summary of a previously-published working paper).  

Two Types of Postal Banking

U.S. Senators Kirsten Gillibrand and Bernie Sanders introduced the Postal Banking Act to better reach the 8.4 million unbanked American households via the U.S. Postal Service (USPS). But why does the U.S. Postal Service (USPS) need to be involved at all in reaching the unbanked if a brick & mortar branch network isn’t important? It doesn’t. Any government agency could probably fill the role. In fact, the U.S. Treasury is already a major provider of a limited range of banking services via its Direct Express prepaid debit card. Rather than starting a new government debit card program from scratch, building off of and improving the Direct Express card would probably make more sense. On the other hand, USPS is a well-known brand. A prepaid card with the USPS logo on it would probably better stand out on a card rack than the Treasury’s brand. 

Wirecard scandal drives German coalition to tighter oversight

The German finance ministry has unveiled a reform of financial regulation in the country in the wake of the Wirecard scandal. The Federal Financial Supervisory Authority (BaFin) will be given further powers, including the right to get information from third parties and conduct ad-hoc and suspicion-based inspections to be financed by the companies concerned. Companies would be obliged to replace their auditor every ten years, and accounting firms to establish a stricter separation between their auditing and consulting services and be subject to higher liability for breaches of duty.  

Kiffmeister’s #Fintech Daily Digest (10/27/2020)

JPMorgan creates new unit for blockchain projects, says the technology is close to making money

JPMorgan Chase’s JPM Coin digital currency JPM is being used commercially for the first time this week by a large technology client to send payments around the world. That development, along with other behind-the-scene moves, persuaded JPMorgan to create a new business to house its blockchain and digital currency efforts called Onyx

Kiffmeister’s #Fintech Daily Digest (10/26/2020)

Here’s Why Ethereum’s DEX Volume Crashed in October

Weekly trading volume on decentralized exchanges (DEXs) exploded over the summer, peaking at over $8 billion in late August, thanks in large part to decentralized finance (DeFi) protocols offering new incentives with the potential for huge returns. Sam Bankman-Fried, the CEO of crypto exchange FTX, claims that the summer surge was due to “fake volume” caused by trading between “trans miners” aimed at earning reward tokens that most DEXs were paying. Once they stopped paying people to fake volume all the volume went away. 

RBI Bars Payments Firms From Issuing Proprietary QR Codes

The Reserve Bank of India barred payment firms from issuing proprietary quick-response (QR) codes and asked them to switch to at least one interoperable QR code to improve ease of use by March 31, 2022. At present, only two interoperable codes exist: the Unified Payments Interface and Bhara. Payments firms also issue proprietary QR codes to merchants that accept digital payments from specific mobile applications, making them unusable for other customers. To curb this, the central bank said no new proprietary QR codes shall be launched by any payment system operator. 

Kiffmeister’s #Fintech Daily Digest (10/25/2020)

SOV Foundation Announces Final Steps for Public Auction on Algorand Blockchain

In February 2018, The Republic of Marshall Islands (RMI) Nitijela passed the Declaration and Issuance of the Sovereign Currency Act 2018. The purpose was to declare and issue a digital blockchain-based crypto-asset (the “SOV”) as the RMI’s legal tender, which is currently the U.S. dollar (the RMI does not have a central bank). There have been a number of false starts since then, but in September 2020, The RMI SOV Development Foundation announced the launch of a public auction of Sovereign Subscription Rights to international investors.  According to Peter Dittus, Chairman of the SOV Development Foundation’s advisory committee, the SSRs will be sold by auction over a period of 18 months, giving the government time to judge how the SOV works within the current market and assess demand for the instrument, before deciding whether or not to go ahead with a full-scale launch. 

Co-Chains: Bridging Public and Private chains as a way to interoperability?

If it ever launches, the SOV will be run on the Algorand open-source, proof-of-stake blockchain protocol. The SOV won’t be built on the public Algorand blockchain but a permissioned version, known as a “co-chain” that is interoperable with the public blockchain and other private chains, as needed. This will give the SOV Development Foundation greater oversight of the network.  By making the public and private blockchains interoperable, organizations can isolate and control sensitive data on a private blockchain, while still safely interact with the world at larger scale, through an interoperable public blockchain. Co-chains are totally independent from the associated public chains, shielding all transactions from all outsiders, chooses its own validators, and runs its own consensus algorithm. And co-chains automatically inherit the characteristics of the associated public chains. 

Iceland-based Monerium, which has a European Economic Area e-money license, had previously entered into a partnership with Algorand.

Kiffmeister’s #Fintech Daily Digest (10/24/2020)

US Moves to Cast a Wider Net for Catching Money Launderers, Crypto or Otherwise

The U.S. Federal Reserve and the Financial Crimes Enforcement Network (FINCEN) proposed reducing the thresholds at which banks must collect and store fund transfer information, from $3,000 to $250 for any transfers that go outside the United States. The proposal would also widen the agencies’ definition of “money” to explicitly include crypto-assets (“convertible virtual currencies”).  

Kiffmeister’s #Fintech Daily Digest (10/23/2020)

PBoC seeks to revise banking law to legalize digital yuan and ban yuan-pegged tokens

The Peoples’ Bank of China has included the digital yuan in the latest version of a proposed banking law, giving more legal clarity to the regulation of its national digital currency. The proposed law recognizes the renminbi in both physical and digital form. The new version will essentially also clear the way for the digital yuan to be the one and only official yuan-pegged token in mainland China by prohibiting circulation of any other yuan-pegged digital assets. Violators of the regulation would have to forfeit any proceeds from issuing and selling of such yuan-backed digital tokens and face fines of up to five times the involved proceeds. 

Towards a solid, innovative and accessible Payment System in Uruguay

The Banco Central del Uruguay committed to continuing its analysis and study of central bank digital currency issuance (CBDC) in its 2020-2022 national payment systems roadmap.  

PayPal in Talks to Buy Crypto Firms Including BitGo

PayPal is reportedly exploring acquisitions of crypto-asset companies including custodian BitGo, which offers digital wallets that require multiple signatures for transactions, as well as offline vaults for storing crypto-assets. PayPal has announced that it has partnered with BitGo competitor Paxos Trust to allow its customers can buy, sell and hold crypto-assets, as using the virtual money to shop at the 26 million merchants on its network. 

Bitcoin Is Helping Undocumented Immigrants Send Money Home

An Arcane Research report explains how Bitcoin (BTC) peer-to-peer (P2P) exchanges like Paxful and Localbitcoins are helping undocumented U.S. immigrants transfer money abroad using gift cards gift cards, since they circumvent banking limitations and KYC requirements. A P2P exchange is essentially a platform that allows users to exchange crypto-to-fiat directly and on their own terms. In the cross border use case, gift cards are purchased by the immigrant at a local store. This gift card is then photographed, and the photo sent to a recipient abroad, who later sell those gift cards for BTC on a P2P exchange like Paxful or Localbitcoins. Then, they convert the BTC to local currency by selling the BTC to a buyer in the local market via one of the P2P-platforms there. 

 Central Bank of Bahrain launches ‘FinHub

The Central Bank of Bahrain, in cooperation with the Bahrain Economic Development Board, Bank ABC, ila Bank, BENEFIT, National Bank of Bahrain and Bahrain Islamic Bank launched FinHub 973, the first comprehensive digital fintech lab in the region. FinHub 973 will enable financial institutions to organize virtual hackathons and challenges to accelerate innovation and business growth. The platform will also provide content on the fintech sector financial and the relevant laws and regulations in the Kingdom of Bahrain, through an interactive chatbot. 

Kiffmeister’s #Fintech Daily Digest (10/22/2020)

BSP says more groundwork needed before it can issue digital currency

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno reportedly said that the central bank recently completed its study on issuing central bank digital currency (CBDC). It recommended continuing research, capacity-building, and the establishment of networks with central banks and institutions that are also conducting research on this scheme. The Governor said it is unlikely than one will be introduced in the near term. The study is exploratory in nature, and is in line with BSP’s Digital Payments Transformation Roadmap which aims to convert at least 50% of retail payments into digital form and that at least 70% of adult Filipinos should have a bank account by 2023. 

Unpopular Opinion: Why PayPal Enabling Bitcoin Purchases Isn’t All Positive

PayPal supporting major crypto-assets undoubtedly buoy the image of the sector and the asset class. It further strengthens the perception of Bitcoin as an established store of value and crypto-assets as recognized assets. But this comes with a catch. At least in the near term, it would not allow users that buy crypto on PayPal to transfer outside of their accounts. In the words of Ripple CEO Brad Garlinghouse, “2 steps forward, 1 step back… Great to see a payment pioneer leaning in, BUT disappointing some fundamental tenets / benefits of crypto are spurned. I suspect PayPal is concerned about the regulatory uncertainty, impacting its roll-out on a number of levels”. 

Accelerating the BitMEX User Verification Programme

Bitmex is fast-tracking its user verification program in order to comply with regulatory requirements. Users must now be fully verified by November 5, 2020 to continue trading on the platform. The original deadline was February 21, 2021. Unverified users will not be able to open new positions after this date. They will also“not be able to withdraw funds from their Bitmex account without completing verification beginning December 4, 2020. 

Sales soar at Klarna rival Laybuy as buy-now-pay-later sector hots up

New Zealand-based buy-now-pay-later (BNPL) platform Laybuy has seen a 162 per cent increase in the total amount spent through its platform over the past year. Laybuy’s customers have spent over NZ$508m (~£238m) through its platform and the BNPL fintech has also seen a 48 per cent increase in the number of active merchants using its financing options since the end of September last year. 

HSBC installs contactless poppy boxes across Canadian branch network

Another chapter in the death of physical cash… “HSBC is to install contactless donation boxes in all of its 250 bank branches across Canada to honour veterans in the run up to Remembrance Day. The Pay Tribute Poppy Box enables HSBC customers to tap their card of phone against a glowing poppy motif to make a $2 donation and take a badge to pin to their lapel.” 

On the edge of a new frontier: European payments in the digital age

The Eurosystem is pursuing a new strategy to respond to the rapid digitalisation of the eurozone’s payments market, partly in response to the Covid-19 pandemic. Fabio Panetta, of the European Central Bank’s executive board, said the strategy would increase the provision of cash and instant payments. It would also include new supervisory methods and work on the digital euro. He said that European authorities must ensure that digital payments are underpinned by a competitive and innovative market capable of meeting consumer demand, while preserving European sovereignty.