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Industry roundup: 11 April

FDIC to set stricter guidelines on banks’ pursuit of crypto

The U.S. Federal Deposit Insurance Corporation (FDIC) is requiring banks to confirm with them on whether the bank is currently conducting or planning crypto-related activities. Guidance letters from the FDIC carry similar instructions to those from the Office of the Comptroller of the Currency (OCC). In November, the guidance directed banks providing custody services and engaging in other crypto-related activities to seek approval from local OCC regulators. Both policies highlight the potential risks of cryptocurrencies, especially as banks increasingly move into digital assets.

Todd Phillips, Director of Financial Regulation and Corporate Governance, Center for American Progress, stated that the regulatory agencies are not deterring banks from engaging in crypto. However, they would like advance notification so they understand the risks faced by banks and assess/evaluate whether their activities affect the bank’s safety and soundness.

According to the agency’s guidance document, FDIC concerns fall into several areas related to cryptocurrency-related activities: security and soundness, financial stability and consumer protection. Furthermore, the agency’s document stated that cryptocurrency activities may add new, increased or unique credit, liquidity, market, pricing and operational risks that can raise security and soundness concerns. There are basic ownership issues, such as whether ownership can be clearly verified and confirmed.

The FDIC has also identified the risk of financial stability and has serious concerns related to preventing money laundering and countering terrorist financing. The agency stated that crypto assets can pose a systemic risk due to the structure of cryptocurrencies or through the interoperability of certain digital assets.

With regards to consumer protection, the FDIC stated that they are concerned about consumer misperception as to the role of a bank or “that a cryptocurrency is speculative when the customer interacts with a bank that typically offers more traditional banking products.” The agency further added that depository institutions could also have issues enforcing consumer protection requirements in activities related to cryptocurrencies.

Global restructuring of operations leads Sezzle to withdraw from India

Sezzle, a US-based BNPL provider, ceased operations in India effective last Friday, 9 April 2022 as part of a restructuring in line with its parent company. Sezzle worked closely with over 1000 direct-to-consumer (D2C) brands in India, such as Titan, Fastrack and Plum. Sezzle notified merchants, requesting them to deactivate the service from their respective websites. However, as part of the after-sales service offering, Sezzle has informed its customers that it will continue to provide buyer and dealer support until May 9, 2022. Officials said there would be no impact on refunds/returns, which would be processed like normal business.

Australian BNPL company Zip signed a final agreement to acquire Sezzle, worth approximately US$491 million, in February 2022, with the transaction expected to close at the end of October 2022. Zip is also an investor in Indian BNPL start-up Zest Money.

UK’s FCA to step up enforcement measures on crypto activities, including stablecoin

The Financial Services Authority (FCA) of the UK plans to step up enforcement measures on companies that do not meet the basic regulatory standards in all sectors, outlining a strategy for the next three years. The framework will also include new rules for crypto assets, including stablecoins backed with traditional assets. The UK government has also launched its own plans to make the UK a hub for digital finance. However, the FCA emphasized its position that standards must not be compromised and that consumer and market risk must be mitigated appropriately, further regulating crypto assets as the industry evolves.

The Treasury stated that if a stablecoin is used for payments, it will be under the jurisdiction of regulatory agencies. The FCA commented that it would discuss how to regulate these tokens later this year. Additionally, the FCA supports innovative financial services as long as they have applications that are in the public interest. Stablecoins have traditionally been used primarily to buy other more volatile cryptocurrencies like Bitcoin, but issuers have progressively used currencies as a tool for remittances and faster transfers.

According to cryptocurrency data site CoinGecko, the rapid growth of the stablecoin market has grown from US $7 billion in value to about $190 billion over two years, which raises concern about its potential impact on monetary policy and financial stability. The Bank of England along with US regulators all warn that legislative and regulatory framework on adopting stablecoins for payments is urgently needed to mitigate these risks.

The FCA, which currently has anti-money laundering regulation authority and is set to gain new power to monitor digital asset promotion, pledged to ensure that crypto companies comply with anti-money laundering regulations and will intervene if the company damages consumer or market integrity.

Last week, the UK government announced that it would begin discussions on a broader regulatory framework for the digital asset market. Sarah Pritchard, Executive Director of Markets, FCA, stated that they will continue to work closely with the government prior to consultations to develop rules for cryptocurrency activities.

Russia calling on BRICS countries to integrate payment systems and cards

The Russian government has exhorted the other members of the Brazil, Russia, India, China and South Africa (BRICS) group of emerging economies to expand the use of national currencies for import and export operations and integration of payment systems.

Subsequent to the Ukraine conflict starting on February 24, Russia suffered unprecedented western sanctions, blocking them from the global financial system and nearly half of its US$606.5 billion gold and foreign exchange reserves in early April.

Anton Siluanov, Russian Finance Minister, stated that sanctions had significantly worsened global economic conditions, and that BRICS needed to expedite progress in the following areas: the use of national currencies for import and export operations, the integration of payment systems and cards, the establishment of their proprietary financial messaging system, and the creation of an independent BRICS rating organization.

Russia established its own banking messaging system called SPFS, a SWIFT alternative, and its card payment system MIR started operation in 2015. Both financial tool developments were established to protect against potential consequences or penalties on Moscow. The Central Bank of Russia, in an unexpected move ahead of its regular board meeting scheduled for April 29, cut interest rates from 20% to 17% and maintains the prospect of further cuts at future meetings. Siluanov stated that these measures were taken to make the ruble’s exchange rate more foreseeable and less unstable.

BRICS ministers confirmed the importance of working together to stabilize the current economic situation, stated the Finance Ministry. The report states that BRICS countries are reforming their financial interactions to prevent the economy from falling into crisis. They are also looking to create a BRICS-based interbank messaging system, similar to SWIFT, and other types of measures.

Mastercard and bitsCrunch partner in crypto initiative

bitsCrunch, a verification facilitating platform for digital assets, announced a partnership with Mastercard to collaborate on a Web3 project to further embrace crypto innovation. According to reports, bitsCrunch should enable buyers and sellers to have access to the tools they need to detect various illegal activities initiated on digital assets. Additionally, bitsCrunch should be able to further detect fraud through digital wash transactions, asset counterfeiting, and digital assets’ value. Users should be able to customize these tools to suit their NFT marketplace and monitor trends and updates when using NFTs.

The press release indicated that the new platform, to be created with Mastercard in the Master Start Path, is designed to help financial start-ups grow through technology solutions as well as help companies venturing into new markets. Mastercard’s venture into crypto looks to close the gap between the cryptocurrency and non-cryptocurrency sectors, enabling their users to harness fiat currencies to purchase digital assets using debit or credit cards.

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