Wyoming recently awarded its second special-purpose depository institution (SPDI) charter to Avanti Bank. Avanti will issue an “Avit” tokenized programmable U.S. dollar stablecoin. This arguably makes Avit more reliable than nonbank-issued stablecoins because the deposits backing Avit are held in the same state-chartered financial institution that issued the instrument. Critically, if Avit is a bank note it is also exempt from regulation as a security by the SEC. One legal wrinkle is that Article 3 of the Uniform Commercial Code (UCC), which governs bank notes, has never before been directly extended to electronic negotiable instruments such as digital bank notes. Nevertheless, there is an argument that Article 3 provides the necessary legal framework for banks to issue a variety of electronic negotiable instruments, including digital certificates of deposits. One could argue that a bank issuing a product with features similar to a stablecoin is really just a new form of a traditional bank activity.

China Construction Bank sells US$3 billion worth of debt on blockchain

China Construction Bank (CCB) launched the sale of $3 billion worth of debt backed by deposits at the bank’s Malaysian Labuan branch, on a blockchain. The three-month certificates of deposit, which are available as digital tokens, can be bought for as little as $100. The deal also allows investors to trade these CCB digital certificates using U.S. dollars and bitcoin, on Fusang Exchange, a digital exchange licensed by the financial regulator in Labuan.

Update: According to CoinTelegraph: “The listing of China Construction Bank’s blockchain-based debt issuance bonds has been delayed “at the request of the issuer” until further notice, according to a Friday statement from Fusang Exchange where they were due to be traded.”

Inside the regulatory sandbox: effects on fintech funding

Using unique data for the UK, this BIS paper provides initial evidence on the effectiveness of the world’s first sandbox in improving fintechs’ access to finance. Firms entering the sandbox see a 15% increase in capital raised post-entry, relative to firms that did not enter; and their probability of raising capital increases by 50%. The results furthermore suggest that the sandbox facilitates access to capital through two channels: reduced asymmetric information and reduced regulatory costs or uncertainty.

2020)

November 10, 2020 ~ kiffmeister

Lebanon to launch digital currency in face of economic and financial turmoil

Banque du Liban Governor Riad Salameh reportedly said that the central bank plans to launch a digital currency(CBDC) in 2021 as part of a broader effort to combat a parallel economic and financial crisis that has engulfed the country. The Governor Salameh added that a CBDC will help implement a cashless financial system to enhance the flow of money locally and abroad.

China Clampdown on Big Tech Puts More Billionaires on Notice

China’s State Administration of Market Regulation is seeking feedback on regulations that establish a framework for curbing anti-competitive behavior such as colluding on sharing sensitive consumer data, alliances that squeeze out smaller rivals and subsidizing services at below cost to eliminate competitors. They may also require companies that operate a so-called Variable Interest Entity — a vehicle through which virtually every major Chinese internet company attracts foreign investment and lists overseas — to apply for specific operating approval.

An early stablecoin? The Bank of Amsterdam and the governance of money

A BIS paper draws lessons on the central bank underpinnings of money from the rise and fall of the Bank of Amsterdam (1609-1820). The Bank started out as a “stablecoin”: it issued deposits backed by silver and gold coins, and settled payments by transfers across deposits. Over time, it performed functions of a modern central bank and its deposits took on attributes of fiat money. The economic shocks of the 1780s, large-scale lending and lack of fiscal support led to its failure. Using monthly balance sheet data, we show how confidence in Bank money gave way to a run equilibrium, where the fall of the premium on deposits over coins (“agio”) into negative territory was swift and precipitous. This holds lessons for the governance of digital money.

Binance has begun to block U.S. users from accessing its exchange platform

Binance has begun blocking U.S. users from accessing its crypto-asset platform, more than a year after first announcing that it would stop serving U.S. residents starting September 2019. Until now, a U.S. resident just had to click “I’m not [American]” to set up an account. Binance is now sending emails to U.S. residents based on their IP addresses in what appears to be a significant step toward enforcing its previously announced blockade of such users.

MAS Offers $35 Million Grant to Ease Regulatory Reporting for Smaller Financial Institutions

The Monetary Authority of Singapore (MAS) has launched a S$35 million Productivity Solutions Grant (PSG) for the financial services sector to help smaller financial institutions adopt digital solutions for more streamlined data reporting to MAS. The grant is currently applicable to banks and will be subsequently expanded to include insurers and capital market intermediaries. The PSG provides funding support for financial institutions with no more than 200 employees, to adopt regulatory reporting solutions from pre-approved managed service providers.

OCC Finalizes True Lender Rule, Attempting to End Uncertainty around Bank-Fintech Partnership Models

The US Office of the Comptroller of the Currency (OCC) issued a final rule that creates a bright-line test to determine when a bank makes a loan and is the “true lender,” including in the context of bank-fintech partnerships. The “true lender” question arose in the context of certain lending arrangements between banks and nonbank entities, in which the nonbank entity typically markets the loan, makes the credit decision and directs its bank partner to originate and temporarily hold the loan before purchasing it from the bank.

SEC Looking at Which Firms Can Take Custody of Crypto

U.S. Securities and Exchange Commission (SEC) staff issued a public statement asking questions about the definition of “qualified custodian.” That term is traditionally applied to banks, brokerages, and futures commission merchants. The statement follows a no-action letter from the Wyoming Division of Banking to a state-chartered public trust company, Two Ocean Trust that judged it to be a “qualified custodian” and therefore eligible to provide custodial services for digital assets under Wyoming law. In response, the SEC’s statement made clear that the Wyoming letter should not be construed to represent the views of the SEC or any other regulatory agency. And nor will the SEC and its staff be “bound by statements or views expressed by state regulators,” when it comes to taking enforcement actions.

Crypto exchange FTX lists futures on tokenized stocks, with up to 100x leverage

Crypto exchange FTX has listed quarterly futures on tokenized stocks, offering up to 100x leverage. FTX partnered with German custody services firm CM-Equity, and Swiss tokenization solutions provider Digital Assets, for the new 24/7 offering. The underlying tokens, which allow traders to buy fractions of shares, are redeemable for the underlying stocks. As with FTX’s other products, its equity trading offering won’t be available in the United States.

Kiffmeister’s #Fintech Daily Digest (11/09/2020)

November 9, 2020 ~ kiffmeister

Central Bank Digital Currency: A Literature Review

The Fed published an article that compiles research exploring the potential impact of central bank digital currency (CBDC) on commercial banking and monetary policy. The review provides a theoretical underpinning for understanding how CBDC could influence consumer adoption and financial stability. It concludes that the models and assumptions in the literature so far provide streamlined frameworks to answer questions about the effects of CBDC at the micro- and macro-levels, while abstracting from many of the complex design issues of interest to policymakers. Avenues for future work include further exploring how the intrinsic features of CBDC as a means of payment and store of value affect the set of feasible allocations in the economy and, in turn, affect its value to heterogeneous households.

Correspondent banking trends and developments in 2019

Correspondent banking continues to represent an important link in the payment chain with a total average daily turnover of €686 billion, according to the Eleventh European Central Bank survey on correspondent banking in euro, 2019. It shows a decrease in the average size of transactions processed compared to the previous 2016 survey. The decrease in the average transaction size is reflected in a 37% increase in the average daily volume and a 22% decrease in the average daily value of transactions. The most frequently cited reasons for the decline in turnover as well as in the number of banks that are using correspondent banking services are increasing regulatory requirements related to anti-money laundering and combating the financing of terrorism (AML/CFT), including know your customer (KYC) procedures.

New Jersey Introduces Digital Asset and Blockchain Technology Act

New Jersey has moved closer to the implementation of a state-level regulatory framework for firms involved in cryptocurrency services. The new Senate bill has been sponsored by Nellie Pou, a Democratic Party senator serving New Jersey’s 35th Legislative District. Named as the ‘Digital Asset and Blockchain Technology Act’, the new bill requires licensing of all the businesses involved in digital asset services. Unlicensed operations of businesses in New Jersey would be liable to pay a $500 per day penalty until an application for a license is filed.

Kiffmeister’s #Fintech Daily Digest (11/08/2020)

November 8, 2020 ~ kiffmeister ~ 1 Comment

Exploring the Need for a CBDC Universal Access Device

This paper explores the arising legal and economic issues around the adoption of central bank digital currency (CBDC) universal access devices (UADs), single key tools for protecting and representing users, and the organization for supporting it from a network. There’s no single punchline, but lots of food for thought, particularly for the European context.

This Bank of Canada paper gets into some of the technicalities in this paper. For those who doubt that such a device is plausible, check out this WhisperCash presentation.

Kiffmeister’s #Fintech Daily Digest (11/07/2020)

November 7, 2020 ~ kiffmeister

BitMint Digital Payment Without Network Communication

BitMint identity-bearing digital money can be paid in a private transaction between payor and payee without reliance on network authentication. The payee must trust that the paid digital coin is bona fide, presenting a hard wallet (HW) to generate the required trust. Payment issued from the HW can be taken in by a second hard wallet, which will further pay to a third hard wallet, creating a payment ecology of digital money for long periods without the benefit of a communication network. Payment may be tethered to eventual terms of redemption. The hard wallet may be personalized — fitted with ownership security capability. The HW may be engineered in conjunction with a smart phone, so people can use a single device as a phone and as an off-line wallet.

MMA signs agreement with TietoEVRY to implement an Instant Payments System in the Maldives

Maldives Monetary Authority (MMA) has signed an agreement with TietoEVRY, to implement an Instant Payments System. The project also involves developing a digital bank solution with a mobile application to enable the creation of new services, promote innovation and increase competition in the Maldives. Also it will give nonbank payment service providers access to the account-to-account domestic payments scheme using open APIs, thus enabling digital and integrated payment services.

Kiffmeister’s #Fintech Daily Digest (11/06/2020)

November 6, 2020 ~ kiffmeister

Central bank digital currency and real-time payments

Norges Bank published a third report on central bank digital currency (CBDC) and the Bank will publish another report early next year, after which it will decide how to proceed with its CBDC work. However, the prospective introduction of a CBDC is still some way off. The lack of urgency reflects the Bank’s view so far that there is no acute need to introduce it. The latest paper considers the potential impact on the stability of the financial system through the effect of CBDC issuance on bank funding markets. It concludes that CBDC has the potential to substantially crowd out bank funding instruments due to its superior safety features.

NPCI gives approval for WhatsApp to ‘Go Live’ on UPI in a graded manner

Facebook is rolling out its WhatsApp payment service for users in India after receiving approval from the National Payments Corporation of India (NPCI). It will use India’s Unified Payments Interface (UPI) multi-bank real-time payment system. The UPI allows interoperability between different apps and is also used by Walmart’s PhonePe and Google Pay that control around 40% of the market. However, WhatsApp can only expand its UPI user base in a graded manner starting with a maximum registered user base of 20 million.

Google and Walmart face growth hurdles as India caps payments transactions

The NPCI also said that with the UPI reaching 2 billion transactions a month and with potential for future growth, it has issued a cap of 30% of total volume of transactions processed in UPI, applicable on all Third Party App Providers (TPAPs). It will help to address the risks and protect the UPI ecosystem as it further scales up. The existing TPAPs exceeding the specified cap, will have a period of two years from January 2021, to comply with the same in a phased manner.

DoJ sues to block Visa’s Plaid acquisition

The U.S. Justice Department has sued to block Visa’s $5.3 billion acquisition of bank data sharing startup Plaid, citing competition concerns. It claims that “Visa is a monopolist in online debit transactions, extracting billions of dollars in fees annually from merchants and consumers. Plaid, a financial technology firm with access to important financial data from over 11,000 U.S. banks, is a threat to this monopoly: it has been developing an innovative new solution that would be a substitute for Visa’s online debit services. By acquiring Plaid, Visa would eliminate a nascent competitive threat that would likely result in substantial savings and more innovative online debit services for merchants and consumers.

A single Eurosystem oversight framework for electronic payment instruments, schemes and arrangements

The Eurosystem published the oversight framework for electronic payment instruments, schemes and arrangements (“PISA framework”) for public consultation. The Eurosystem establishes oversight requirements in the form of generic principles to assess the safety and efficiency of the entities that fall within the scope of its oversight and to induce change where shortcomings are identified. The PISA framework sets out those oversight principles in a single, future-proof and harmonised manner for electronic payment instruments, schemes and arrangements.

Fidelity Digital Assets’ Hiring Initiative

Fidelity began researching blockchain technology and digital assets in 2014. Following its preliminary exploration, it invested in a mining operation and developed wallet and custody solutions for bitcoin. In 2018, Fidelity Digital Assets launched to build an enterprise-grade custody and execution solution for institutional investors. Its team now consists of more than 100 professionals and it is now planning to hire more than twenty engineers across the full spectrum of its technology stack to capitalize on increased market demand and to expand its overall capabilities.

OKEx lockdown likely not a scam, but a CCP power play

Investigations by Brave New Coin (BNC) indicate that the current issues with OKEx customers being unable to withdraw their assets are not a criminal scam or hack – but instead are a show of force by the Chinese Communist Party – designed to ensure China’s new wave of billionaire entrepreneurs tow the party line. BNC thinks it unlikely that the Chinese state will seize user’s funds. Although China’s attitude to crypto has been mostly negative, it has never moved to mass confiscation before.

Kiffmeister’s #Fintech Daily Digest (11/05/2020)

November 5, 2020 ~ kiffmeister

Crypto-powered prediction market flourish during US presidential election

The 2020 U.S. presidential election has driven significant action across crypto-powered predictive markets. The election markets on major crypto-asset derivatives exchange FTX saw wild volatility in the wake of election day. For example, TRUMP tokens, redeemable for $1 each should the incumbent president secure re-election, swung from $0.38 prior to the close of polls to less than $0.09 the next day. Ethereum-powered decentralized predictions platform Augur also saw significant action, as did Matic-powered decentralized prediction platform Polymarket.

South Korea Will Ban Domestic Circulation of Privacy Coins

South Korea’s Financial Services Commission (FSC) will ban anonymous digital currencies that possess a high-risk of money laundering. Furthermore, the FSC will mandate KYC and AML policies on all domestic crypto-asset exchanges. Additionally, the exchanges need to report their operational activities with the regulator. The new rules will come into force in March next year, barring all domestic crypto-asset exchanges from offering services with such privacy coins.

Blockchain and DLT in Trade: Where Do We Stand?

The World Trade Organization and Trade Finance Global have published their latest taxonomy of blockchain projects in international trade. Many projects that were at an exploratory stage a year ago have matured and reached the production stage. This publication maps 44 projects related to trade finance, insurance, know your customer, shipping/logistics and supply chain, digitalization of trade documents and trade processes, among others, and assesses their level of maturity. A new section provides an overview of projects that work towards creating digital standards relevant for trade to drive digital interoperability.

The dawn of fintech in Latin America: landscape, prospects and challenges

A BIS paper took stock of how Latin America fintech is transforming financial services in the region. It found that fintech has quickly gained traction in Latin America, mainly in the areas of payments and alternative finance. Second, it showed that fintech regulation in the region takes an activity-based approach rather than an entity-based one, except in Mexico. Finally, it presented the challenges that fintech faces in becoming a game changer for the region. The paper concluded that fintech can be a strong catalyst to improve financial and social conditions in Latin America by incorporating the unbanked into the financial system and providing alternative sources of finance to firms.

Kiffmeister’s #Fintech Daily Digest (11/04/2020)

November 4, 2020 ~ kiffmeister

Payments go (even more) digital

This commentary looks at the payments landscape through the lens of the Committee on Payments and Market Infrastructures (CPMI) 2019 Red Book statistics. It shows how consumers are increasingly shifting from physical to digital instruments, promoting efficient, faster and more convenient payments. However, cash, and in some jurisdictions, other paper-based payments such as cheques remain important payment instruments. In more than half of the CPMI jurisdictions, “cash is still king” and its circulation continues to grow. In the same time frame, more than half of the CPMI countries have experienced a switch from physical payment instruments to digital payments.

A model for central bank digital currencies: Do CBDCs disrupt the financial sector?

While central bank digital currency (CBDC) offers several benefits, many suggest they might disintermediate commercial banks and facilitate bank runs. To analyze these concerns, this paper uses a New Keynesian DSGE framework to study the effects of interest- and non-interest-bearing CBDCs in times of financial crises and their interaction with the zero lower bound (ZLB). Additionally, it studies the role of central bank funding and a rule-based interest rate on CBDCs. It finds that CBDCs indeed crowd out bank deposits and affect bank funding. However, this crowding-out effect is not necessarily a threat to financial stability and a cause for economic disturbances when the central bank chooses an adequate policy.

Financial Services Leads The Development Of Enterprise Blockchain

This Global Digital Finance paper reflects on the evolution of the enterprise blockchain ecosystem, assesses the current state of the industry, and explores the key trends that will shape its future trajectory. Findings are based on research conducted in June and July 2020, which involved desktop research and semi-structured interviews with key decision-makers from the ecosystem’s leading companies. It also provides a conceptual framework for how to approach the blockchain ecosystem that categorises projects into four layers. The framework can be equally applied to public blockchains and crypto-assets.

6 Bitcoin Debit Cards To Use In 2020

Crypto debit cards enable you to pay using cryptocurrency at any store that accepts debit cards. You can use crypto debit cards at ATMs, in shops, and on online merchants. Each crypto debit card is different: these cards differ in which cryptocurrencies they support, the fees they charge, and the incentives they offer to users. Some of them are only available to people from certain countries, too.

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Hong Kong FinTech Week 2020

The Hong Kong Monetary Authority (HKMA) co-organised with InvestHK Hong Kong FinTech Week 2020, and announced a range of initiatives to further foster the fintech ecosystem and support corporates, particularly small and medium-sized enterprises (SMEs).

Facilitating the digitalisation of trade finance

To provide importers and exporters with more convenient trade finance services, the operators of eTradeConnect and the People’s Bank of China Trade Finance Platform announced in November 2019 that a PoC would be conducted to explore connecting the two platforms. Phase 1 of the PoC was completed successfully, and a pilot run was initiated in October 2020 for banks in both places to execute cross-border trade finance transactions. Seven banks have already successfully used the connection to conduct trade financing transactions, with the total trade value exceeding HK$26 million. Phase 2 of the PoC, tentatively scheduled for early 2021, is expected to cover more types of trade activities and financing products.

The HKMA is exploring the use of the Commercial Data Interchange (CDI)

The Hong Kong Monetary Authority (HKMA) is exploring the use of the Commercial Data Interchange (CDI) to enable more efficient financial intermediation in the banking system, and to enhance financial inclusion in Hong Kong. The CDI is a consent-based financial infrastructure that would enable more secure and efficient data flow between banks and sources of commercial data. It has the potential of solving long-standing pain points in SME financing by allowing SMEs to use their own data to enhance their access to financial services. To study the technical feasibility of the CDI, the HKMA is conducting a Proof-of-Concept (PoC) study in collaboration with banks. The PoC focuses on using trade-related data to facilitate trade finance application process and is expected to be completed by the end of 2020.

Alternative Credit Scoring of Micro-, Small and Medium-sized Enterprises

To develop the related technology for alternative credit scoring, the HKMA has commissioned the Hong Kong Applied Science and Technology Research Institute (ASTRI) to study the use of artificial intelligence in SME loan applications; and published a white paper to deliver the findings.

Transforming Risk Management and Compliance: Harnessing the Power of Regtech

The HKMA has developed a two-year roadmap to promote Regtech adoption in the Hong Kong banking sector. the HKMA commissioned an external consultant to explore the current state of Regtech in Hong Kong, examine common practices and barriers to adoption, and outline a roadmap to accelerate adoption in the banking sector.

Joint BIS-HKMA TechChallenge Winners Announced

The winners of the the HKMA and the Bank for International Settlements Innovation Hub TechChallenge, launched in August 2020, were announced. The TechChallenge, which explored innovative solutions to address challenges in trade finance, received a total of 103 solutions. The ten winners will have the opportunity to materialise their proposed solutions through prototype development in 2021.

Kiffmeister’s #Fintech Daily Digest (11/03/2020)

November 3, 2020 ~ kiffmeister

Ant Group’s record-breaking IPO has been suspended

Ant Group has called a halt on its huge initial public offering (IPO), delaying the November 5 debut on the Shanghai and Hong Kong stock exchanges, less than 48 hours before the highly anticipated start of trading. A meeting earlier this week between Ant Group’s senior executives and China’s top financial regulators led to “significant change” to Ant’s business environment, which may result in the fintech company not fulfilling the listing requirements or disclosure rules of the exchange, according to Ant Group’s statement to the Shanghai bourse operator.

PayPal crypto services to go global early 2021, support for CBDCs coming

Senior Paypal executives revealed further details about its plans to aggressively push into the crypto sector next year during the firm’s Q3 2020 earnings call, including plans to support central bank digital currency (CBDC). PayPal’s chief executive said that through its scale and prominence, the company will “help shape the utility of CBDCs” including facilitating interoperability with existing payment rails and fostering acceptance among merchants. Shulman also described the legacy financial system as “not working” for many ordinary people.

Mastercard President Says Crypto Patents Will Pay Off When Central Bank Digital Currencies Arrive

Mastercard President Michael Miebach said the payments processor’s massive trove of cryptocurrency patents will give it an edge once central bank digital currency (CBDC) debuts, during the firm’s Q3 2020 earnings call. “The link into an acceptance network is critical” for a CBDC, he said. “So we hold some patents in [the crypto] space that link these transactions right back into our network where it can be used. And this is how we can bring value, and it brings value to us.”

Regulators speed up fintech plans as Covid spreads

Regulators across 114 jurisdictions have reacted to the spread of coronavirus by speeding up the pace of fintech rulemaking, according to new research from the World Bank and the Cambridge Centre for Alternative Finance. 72% said they had accelerated or introduced new initiatives on digital infrastructure, while 58% said they had accelerated or introduced new measures to support Regech and SupTech. While only 17% of officials surveyed in advanced economies said that fintech was now a higher priority due to coronavirus, in emerging markets and developing economies, that proportion rose to 64%.

Hong Kong to reconfigure licencing regime for crypto assets

The Hong Kong Securities and Futures Commission (SFC) will propose a new regime on licensing for virtual assets by end-2020. It will require all platforms that trade any types of crypto assets, including both operating in Hong Kong and targeting Hong Kong investors, to apply an SFC license. Under the current legislative framework if a platform operator wants to operate completely off the regulatory radar it can do so simply by ensuring that its traded crypto-assets are not within the legal definition of a security. Also crypto-asset platform operators would only be allowed to serve professional investors.

CBUAE issues new regulation to support development of digital payment services

The Central Bank of the United Arab Emirates (CBUAE) issued a new regulation on Stored Value Facilities (SVFs). The CBUAE aims to facilitate Fintech firms and other non-bank payment service providers easier access to the United Arab Emirates (UAE) market while continuing to safeguard the customers’ funds, ensure proper business conduct and support the development of payment products and services. The scope of this regulation includes licencing, supervision and enforcement provisions applicable to the companies, which are licenced to provide SVF.

Kiffmeister’s #Fintech Daily Digest (11/02/2020)

November 2, 2020 ~ kiffmeister

Is Cambodia’s Bakong Retail Payment System a Synthetic CBDC?

“Bakong does not give users direct access to central bank money, but bakong balances must be matched by banks’ deposits with the NBC, giving bakong a “cash-like” quality. Furthermore, payments are settled instantly across the central bank’s systems.”

Australia Taps Ethereum for Wholesale Digital Dollar (AUD) Project

The Reserve Bank of Australia is partnering with Commonwealth Bank, National Australia Bank, Perpetual and ConsenSys Software, a blockchain technology company, on a collaborative project to explore the potential use and implications of wholesale central bank digital currency (CBDC) using distributed ledger technology (DLT). A proof-of-concept (POC) will be used to explore the implications of atomic delivery-versus-payment and other potential programmability and automation features of tokenised CBDC and financial assets. It will start by funding, settling and repaying tokenised syndicated loans on an Ethereum-based platform.

The virus has crushed the challenger bank dream

Business-to-business (B2B) fintechs, particularly those that support rapidly growing ecommerce, have performed well on the whole, and have been popular among investors. But for the big consumer fintech names, it has been rather different story. Some, such as Monzo, have seen valuations plummet. Both Monzo and Revolut have faced a barrage of complaints from customers who have had their accounts frozen. Challenger banks serving SMEs have also not had a great pandemic. And finally, the VC money that has so far kept them afloat is not as readily available in a global downturn.

Cayman Islands Announces Legal Framework in Bid to Attract Crypto Businesses

The Caymans’ Ministry of Financial Services kicked off Phase One of its anti-money laundering (AML) and countering the financing of terrorism (CFT) regulatory framework for virtual asset service providers (VASPs). Phase Two, slated to come into force in June 2021, will introduce licensing requirements and prudential supervision for VASPs.

Month: November 2020

Kiffmeister’s #Fintech Daily Digest (11/11/2020)