Fintech and payments: regulating digital payment services and e-money
This Bank for International Settlements (BIS) paper explores how non-bank payment service providers (NBPSPs) are regulated and provides a cross-country overview of the regulatory requirements for digital payment and e-money services offered by NBPSPs. It benefited from responses to a CPMI survey of 75 jurisdictions conducted in early 2021.
The paper also has a box that discusses e-money definitions. As an aside, there was a fierce Twitter debate around e-money and stablecoins involving, among others, Rohan Grey, Marcelo Prates. The BIS paper keeps things pretty simple, defining “e-money” as debt-like instruments that an entity issues on receipt of funds for the purpose of facilitating payment transactions. More, specifically, from a:
- Balance sheet perspective, e-money is a fixed value claim on the balance sheet of the entity issuing it. That claim (ie the e-money the user receives) is (i) typically redeemable in fiat currency at a pre-established face value upon demand, which makes it similar to sight deposits held by banks; and (ii) denominated either in the same currency as the underlying balance sheet liability or in a fictitious unit of account that is tied to a sovereign currency.
- Risk perspective, e-money is a transaction device that offers stability of value through redemption guarantees provided by the issuer. To avoid breaking this promise, an issuer needs to ensure that it holds enough assets that are sufficiently liquid to meet all redemption requests upon demand at all times. Unless these assets are held as deposit at a central bank, which is possible or mandated only in few jurisdictions, they are subject to risks that could reduce their value.
But take a look at the aforementioned Twitter discussion if you want to go deeper into rabbit holes!
Liquidshare, BNP Paribas, Euroclear in CBDC trial for securities settlement
On June 18th and 25th, the Banque de France successfully carried out a fifth experiment on central bank digital currency (CBDC) with a consortium of actors driven by LiquidShare as part of the experimental program launched in March 2020. The experiment involved the simulation on a private blockchain of the issuance and settlement of unlisted securities and of the settlement of listed securities. Settlements of securities were simulated by CBDC issued on the blockchain. The experiment required the development and deployment of smart contracts so that the Banque de France could issue and control the circulation of CBDC tokens while ensuring that each transfer takes place simultaneously with the delivery of the securities.
Wyoming legally recognizes first DAO in the United States
“Wyoming has approved the first legally recognized decentralized autonomous organization (DAO) in the United States. The American CryptoFed DAO received notice from the Wyoming Secretary of State’s office on Tuesday recognizing it as a legal entity. The American CryptoFed DAO was established by mobile banking solutions provider mSHIFT on July 1, 2021. The project describes its mission as promoting a two-token economy that is immune from inflationary or deflationary influences.”
*For those interested in intra-day updates and news that didn’t make the Daily Digest cut, please check out my Diigo fintech bookmarks: https://www.diigo.com/user/kiffmeister/Fintech