Kiffmeister’s #Fintech Daily Digest (20230328)

CFTC sues Binance, CEO Zhao over ‘willful evasion’ of U.S. laws, unregistered crypto derivatives products

The U.S. Commodity Futures Trading Commission (CFTC) sued crypto exchange Binance and founder Changpeng Zhao on allegations the company knowingly offered unregistered crypto derivatives products in the U.S. against federal law.
The suit also alleged that the company directed its employees to spoof their locations through the use of virtual private networks (VPNs). The CFTC is charging Binance with violating laws around offering futures transactions, illegal off-exchange commodity options, failing to register as a futures commissions merchant, designated contract market or swap execution facility, poorly supervising its business, not implementing know-your-customer (KYC) or anti-money laundering (AML) processes and having a poor anti-evasion program. [Read more at the CFTC]

Zhao replied to the complaint and classified them as “unexpected” and “disappointing.” The executive claims that the company has worked with the U.S. regulator since 2021. Zhao said: “upon an initial review, the complaint appears to contain an incomplete recitation of facts, and we do not agree with the characterization of many of the issues alleged in the complaint.” [Read more at Binance]

Custodia comments on the Fed’s 86-page order: new Fed policies and procedural abnormalities

The Fed Board of Governors released its final order on Wyoming-based Custodia Bank’s application to become a member of the Federal Reserve system, expressing strong doubts about Custodia’s management team, financial condition and business model in rejecting the application. Custodia responded with a framing of the context for the Fed’s implicit new policy stance and and what other banks might learn from them. The Fed outlined at least five new policies in the Custodia order, including the casting doubt on whether any issuer of a stablecoin on an open, public and/or decentralized network can comply with anti-money laundering/combating financing of terror laws. Also, the Fed de facto established a new requirement that state banks be FDIC-insured in order to become Fed member banks because, in its words, FDIC insurance is “a critical tool in preventing bank runs.” [Read more at Custodia]

Facilitating increased adoption of payment versus payment (PvP)

The Committee on Payments and Market Infrastructures (CPMI) published the final report on the facilitation of increased adoption of payment versus payment (PvP) to reduce foreign exchange (FX) settlement risk and improve cross-border payments. It analyses the causes of non-PvP settlement, takes stock of existing and proposed new PvP solutions and suggests roles for the private and public sectors to facilitate increased adoption of PvP. The report finds that existing PvP arrangements have been successful at reducing settlement risk for much of the FX market, but certain market segments remain exposed to risk: PvP arrangements are not available for all currencies and may not be the preferred solution of some market participants or for settling certain trades. New PvP solutions can complement the existing arrangements by providing flexibility and functionalities such as real-time settlement or 24/7 operations, expanding coverage to the retail market, and supporting emerging market currencies. [Read more at the CPMI]

UK Treasury Cancels Plans for Government-Backed NFT

The U.K. Treasury is canceling its plans to release a government-backed non-fungible token (NFT). The Royal Mint was tasked with releasing the token by the summer of 2022 but faced delays. The U.K.’s economic secretary Andrew Griffith said that the plans were not moving forward “at this time” but that the proposal would remain under review. Chair of the Treasury Select Committee Harriet Baldwin said that the government’s chief financial minister would be asked if issuing an NFT “remains the policy of his department.” [Read more at CoinDesk]

Upcoming conferences, webinars and speaking engagements:

• I’ll be moderating the “CBDCs, Stablecoins, Commercial Bank Money Tokens – What is the Future of Money?” panel discussion at the Digital Euro Association (DEA) Digital Euro Conference on March 31 in Frankfurt. [Register with this link and the DECKIFFMEISTER20 code and get a 20% discount]
• I’ll be moderating a panel on “what happens when the lights go out…different schemes for offline functionality” at the in-person Digital Currency Conference (DCC) in Mexico City on May 18. [Register here]

Kiffmeister’s global central bank digital currency monthly monitor

Just a reminder that I produce a monthly digest of central bank digital currency (CBDC) developments exclusively for the official sector. So for any of you out there who work for a central bank, ministry of finance or international financial institution who would like to receive it by email on the first business day of every month, please DM me on LinkedIn or email me at chronicles@kiffmeister.com.

The Sovereign Official Digital Association (SODA) is a technology-agnostic firm offering advisory services at the intersection of central banking, digital finance and the web3 industry, aiming to make public digital money a reality. SODA believes institutions in the existing financial ecosystem should have access to the tools and resources they need to move from discussion to action. SODA offers ‘real life’ use cases to help test digital money and drive adoption as central banks and other public institutions explore the future of a more financially inclusive world powered by interoperable blockchain-based networks. SODA would love you to join us on this journey – please get in touch (chris@sodapublicmoney.org).

Satoshi Capital Advisors is a New York-based, global advisory firm that works with central banks, governments, and the private sector to architect, implement, and operate varying initiatives. Satoshi Capital Advisors’ central bank work revolves around CBDC architecture and implementation, providing advisory services from research phase through to growth phase. Utilizing a product-market fit and technology agnostic approach to CBDC architecture and implementation enables Satoshi Capital Advisors to build tailored solutions, bespoke to local financial system nuances. Satoshi Capital Advisors welcomes requests from central bank officials for virtual and in-person CBDC workshops. [Click here for more information]

WhisperCash offers the first fully offline digital currency platform that has the same properties as physical cash. It can perform secure consecutive offline payments without compromising on security, privacy or accessibility. WhisperCash allows direct person to person offline payments without any server infrastructure or internet connectivity. It comes in various form factors including the self-contained credit card-sized “Pro” that sports an eInk screen and capacitive keyboard, and lasts for two weeks between recharges assuming a few transactions per day. [Click here for more information]