Recently in the US, there has been talk of regulation to limit the power of community banks. However, the American Fintech Council (AFC), the industry association representing responsible fintech companies and innovative banks, has opposed this potential legislation for fear of removing financial options for rural families, with the potential of further damaging local economies. 

The AFC delivered testimony before the Rhode Island Senate Committee on Commerce and Policy and the D.C. Council Business and Economic Development Committee.

Phil Goldfeder, AFC CEO and former member of the New York State Assembly, appeared in Providence and Ian P. Moloney, senior vice president, head of policy and regulatory affairs, testified in DC to urge legislators and councilmembers to oppose legislation that would put state-chartered community banks at a disadvantage, remove financial options for local families and potentially devastate the local economy.

“Under the guise of consumer protection, these bills in Rhode Island and DC will harm consumers who need access to safe and affordable financial services and will put local state-chartered banks at a disadvantage,” said Phil Goldfeder, chief executive officer of AFC.

“AFC’s diverse members represent a cross section of responsible Fintech companies that embrace transparency and are rooted in regulatory compliance and consumer protection. Our members have stepped in to serve communities long forgotten by large financial institutions and are creating safe, responsible, and affordable financial options for Rhode Island and DC families.”

Community banks need the same opportunities and rights as chartered banks

AFC testified before the Rhode Island Senate Committee on Commerce and Policy and the D.C. Council Business and Economic Development Committee in strong opposition to legislation that would opt their states out of a federal law that provides state-chartered community banks the same opportunities and rights as nationally chartered banks.

Although the legality of such legislation is still in question, passage would create uncertainty for responsible community banks providing financial access to Rhode Island and DC families.

“Unfortunately, this bill is a blunt legislative solution for an issue that requires nuance and will end up harming consumers,” said Goldfeder in his remarks before the committee in Providence. “If passed, SB 2275 will decrease access to responsible credit…put community banks at a disadvantage and leave many Rhode Islanders— particularly those in minority communities— with no option but to rely on far too many predatory and high-interest alternatives.”

“Both as a representative of the fintech industry and a resident of DC, I am deeply concerned about the impact that passing this bill will have on my fellow DC citizens. Therefore, we respectfully request that this committee table this bill to consider the nuance needed to properly solve the issues discussed, and not harm the thousands of DC residents being responsibly served by AFC members,” said Ian P. Moloney in his prepared remarks to the D.C. Council.

Positive impacts of fintech

In addition, Elizabeth Gorz, chief strategy officer and head of legislative affairs at AFC travelled to Albany to follow up on last week’s hearing that covered the many positive impacts of fintech on New York’s banking system and consumers. Representatives of Oportun, DailyPay, Affirm, Brigit and many others met with staff for Governor Kathy Hochul and more than a dozen members of the legislature to discuss responsible access to credit, buy now pay later (BNPL), earned wage access (EWA) and bank-fintech partnerships.

“As a mission-driven CDFI dedicated to putting the financial goals of our 2.1 million members within reach, we are proud to join AFC to discuss the importance of responsible innovation and strong consumer protections in expanding access to affordable credit for New York consumers,” said Ezra Garrett, senior vice president, public affairs and impact at Oportun.

AFC members are at the forefront of fostering competition in consumer finance and pioneering ways to better serve underserved consumer segments and geographies. AFC has publicly supported 36 per cent rate caps at state and federal levels, which is a key component of their advocacy and of addressing responsible lending. Members are also lowering the cost of financial transactions, allowing them to help meet demand for high-quality, affordable products.

The UAE has established itself as a frontrunner in the digital innovation space. However, maintaining this status requires an up to date understanding of the latest developments in financial markets across the world. One such market which has received a lot of attention is the digital asset space. Consequently, Dubai International Financial Centre (DIFC), the global financial centre in the Middle East, Africa and South Asia (MEASA) region, has enacted a Digital Assets Law as well as amended existing legislation.

The digital asset market represents a trillion-dollar asset class and the scope for future innovation and market opportunities within it are considerable. Thus far, the primary focus in many jurisdictions has been to regulate and impose enforcement-related sanctions on some of the practical applications of this asset class from a regulated financial services perspective.

However, the fundamental benefits brought about by blockchain technology, the digital assets that can be created thereby, and their application across a wide spectrum of use cases will grow and become of increasing importance in a much wider context. In this regard, the broader legal questions as to the exact nature of the legal features and consequences of digital assets has very much remained open for debate on a number of key issues.

International legal developments and judgments across the common law world have begun to provide some clarity in this regard but have not yet provided a comprehensive legal framework mapping out the full extent of the legal characteristics of a digital asset and how users and investors within this asset class may interact with digital assets and each other.

Following extensive review of the legal approaches taken to digital assets in multiple jurisdictions, and a period of public consultation in 2023, DIFC is now enacting its own Digital Assets Law.

Existing DIFC laws such as the Contracts Law, Law of Obligations, Law of Security, Law of Damages and Remedies, Trust Law and Foundations Law have also been updated through DIFC Amendment Law, No. 3 of 2024, to cater to specific issues arising in relation to this asset class.

Electronic transferable records

Updates to the Law of Obligations also provide for the use of electronic transferable records. Electronic transferable records are functionally equivalent to paper trade documents or instruments such as bills of lading, bills of exchange, promissory notes and warehouse receipts.

Recognition of such documents in electronic form facilitates greater efficiencies within cross-border digital trade by increasing the speed and security of the transmission of documentation and allowing for the automation of certain transactions through smart contracts.

Law of Security – DIFC Law No. 4 of 2024

Similarly, a great deal of innovation has taken place in secured transaction regimes internationally – particularly since the DIFC Law of Security was enacted in 2005. This includes the emergence of businesses and platforms that enable the extension of credit in, and secured or covered by, digital asset collateral arrangements, and an increasing drive to digitise international trade.

Following consideration of regimes in other jurisdictions and, in particular, UNCITRAL’s Model Law on Secured Transaction, in conjunction with the new Digital Assets Law, DIFC is repealing the 2005 Law of Security. It is replacing it with a new Law of Security to significantly amend and enhance DIFC’s securities regime.

This will align the regime with international best practices and provide clarity in relation to taking security over digital assets. In doing so, DIFC is also repealing the Financial Collateral Regulations, amalgamating the financial collateral provisions into a new chapter of the new Law of Security.

The UK Government has published a draft legislation to extend payment service providers’ (PSPs) time to analyse potential fraudulent transactions, by 72 hours on top of the current business day they already have. We reached out to the industry to uncover if the move will be as useful as intended or if it will only delay legitimate transactions and negatively impact consumer experiences.

According to the finance ministry, Brits lost over £485million in 2022 due to authorised push-payment (APP) fraud; this occurs when a fraudster tricks a victim into transferring them money. The proposed new legislation will give financial institutions extra time (three additional days) to evaluate if a consumer is being taken advantage of or if it is a legitimate transaction.

Mandatory changes to reimbursement 

Currently, if a consumer falls victim to this sort of fraud, there is no requirement by a bank to reimburse the consumer’s loss and while many do, it’s very dependent on the bank. However, the Payments System Regulator, one of the payments regulators in the UK, has issued that from 7 October 2024, banks and other payment firms must reimburse consumers hit by APP fraud.

The most consumers can get back from a scam is £415,000, with users potentially having to pay up to £100 before making the claim. This limit matches the Financial Ombudsmen Service’s (FOS) when dealing with its complaints.

The ministry’s new legislation will look to launch on the same day as the Payments System Regulator’s reimbursement legislation.

More time is needed

With reimbursement becoming mandatory, it comes as no surprise that firms need more time to determine if a transaction is fraudulent or not. However, this added time could slow down consumer transactions. Kate Troup, a financial services regulatory lawyer at law firm Fladgate, explains how the ‘golden era’ of instant payments is over. Rhey will now likely slow down so financial firms can make the right decisions on legitimate or illegitimate transactions.

“Once payment firms are required to reimburse all victims of authorised push payment fraud then it is likely that we are going to see more friction in the online payment system – slowing down transactions to enable payment firms to investigation suspicious transactions.

“At the moment, there are a number of cases where customers quite quickly realise that they have been the victims of fraud but by the time their bank or payment firm contacts the receiving firm the payment has disappeared and cannot be recovered. When the new rules come into force and the receiving firm is required to make a mandatory reimbursement to victims of fraud it is likely that some firms will impose a delay between a one-off unexpected payment into an account and a subsequent payment out.”

Liability lies with banks, not consumers

According to Silvija Krupena, director of the financial intelligence unit at RedCompass Labs, a payment and financial crime service provider, there has been a shift in responsibility when it comes to fraud. While previously the onus was on consumers to be aware of who they were transacting with, Krupena says things have now changed and banks are expected to step up.

“When it comes to fraud, liability is shifting from consumers onto banks who are increasingly being expected to refund their customers when fraud takes place. Banks have already made huge investments into fraud prevention adopting tools such as confirmation of payee which helped them stop £650.7million worth of fraud in the first half of 2023, a 10 per cent increase from the latter half of 2022.”

Krupena looks towards technology as a means of saving financial firms from needing to make enormous payouts. “Banks need to explore new technologies such as AI and data-driven, persona-based approaches, otherwise, they could be on the hook for hundreds of millions in fraud losses.”

A similar view was shared by James Gliddon, partner at national law firm, Foot Anstey, as he noted the importance of tech in ensuring consumers are not paying the price with long transaction times. “Given the volume of payment instructions, it is very unlikely that there could be a manual or human interaction – which is sometimes the only thing that can disrupt the fraud in action. We can expect the increased adoption of tech/AI tools to analyse and optimise any interventions.”

Banks must actively look to prevent fraud

Emma Lovell, chief executive of the Lending Standards Board, the body, explains how consumers must be protected by banks through active fraud prevention, rather than letting consumers fall victim and then helping them.

“Our experience of overseeing the only existing framework for APP fraud prevention, detection, and reimbursement – the Contingent Reimbursement Model Code – has demonstrated the importance of taking a consistent, sector-wide approach to tackling fraud.

“The incoming Payment Systems Regulator framework introduces mandatory reimbursement for APP fraud victims from all PSPs, but it is important that prevention and detection don’t get left behind. You can stop consumer harm from APP fraud by stopping these scams in the first place.

“The legislation proposed today is positive, and can be part of a bigger picture approach on prevention and detection. A new APP Fraud Prevention Standard is needed to ensure the industry has a consistent approach to stopping scams.”

Yes banks have a role to play but consumers must help themselves

Although banks have a large duty to play in protecting consumers with fraud prevention tools, it is crucial that consumers learn how to spot potential fraud themselves. Will Christopher, civil fraud partner at law firm Kingsley Napley, explains how the new legislation “doesn’t take away from the need to continue to educate the public about the sophisticated tactics that scammers employ.

“Common APP frauds include romance frauds through to frauds where the scammers operate seemingly plausible investment websites, especially in the crypto space. Scammers may even pose as the banks themselves to dupe their victims.

“We are frequently contacted by people who have lost sizeable sums to APP. Where losses exceed £415,000 there are steps that can be taken via freezing injunctions and search orders to recover funds but this is by no means a failsafe route.

“Whilst today’s proposals are to be welcomed, therefore, it is still the case that prevention is better than cure and the public must remain vigilant. Regardless of the measures in place, scammers will continue to evolve and adjust their strategies to game the system.”

The Law Commission, the statutory independent body constantly reviewing the law of England and Wales and offering recommendations for change, has launched a call for evidence to inform its project on private international law in the context of digital assets and electronic trade documents.

Having launched a digital assets report in June 2023, the Law Commission is also seeking views on draft legislation as well.

Digital assets and ETDs in private international law

In its call for evidence, the Law Commission aims to gain a better understanding of the most challenging and prevalent issues that digitisation, the internet, and distributed ledger technologies pose for private international law.

When parties to a private law dispute are based in different countries, or the facts and issues giving rise to the dispute cross national borders, questions of private international law arise: in which country’s courts should the parties litigate their dispute, and which country’s law should be applied to resolve it?

The project has a particular focus on crypto-tokens and electronic trade documents. This is because these assets are prevalent in market practice, whilst also posing novel theoretical challenges to the traditional methods of private international law.

Digital assets and personal property rights

Additionally, the Law Commission is also launching a short consultation exercise on draft legislation to confirm the existence of a third category of personal property into which crypto-tokens and other assets could fall.

Its report in June concluded that certain digital assets, including crypto-tokens and non-fungible tokens (NFTs), are capable of attracting personal property rights. However, because digital assets differ significantly from physical assets, and from rights-based assets like debts and financial securities, they do not fit within traditional categories of personal property. The Law Commission recommends that legislation should confirm the existence of a ‘third’ category of personal property.

It has prepared draft legislation to reflect this recommendation and is seeking views on the draft clauses as to their potential impact.

It seems that every time Massachusetts Senator Elizabeth Warren fails to get an anti-crypto bill passed, she introduces a new draft. She has the strategy of messaging bills — legislation introduced for the purposes of media attention and fundraising more than actual passage — down to a science.

Warren’s latest legislation, the Digital Asset Anti-Money Laundering Act, threatens to undermine crypto’s core principles of freedom and personal sovereignty. While Warren argues that her bill is necessary to combat illicit activities, a closer look reveals its potential to stifle innovation, endanger user privacy, and play right into the hands of big banks.

The bill, co-sponsored by Kansas Senator Roger Marshall, is based on a premise that digital assets are increasingly being used for criminal activities such as money laundering, ransomware attacks, and terrorist financing. While some bad actors exploit digital assets, the bill’s approach of treating all developers and wallet providers as potential criminals is not only impractical but also dangerous.

Related: The SEC is facing another defeat in its recycled lawsuit against Kraken

The most dangerous part of the bill is the requirement that digital asset developers comply with Bank Secrecy Act (BSA) responsibilities and Know-Your-Customer (KYC) requirements. This effectively places the burden of law enforcement on the shoulders of software developers. It’s akin to requiring car manufacturers to be responsible for how their vehicles are used on the road.

The bill further seeks to eliminate privacy tools that protect crypto users from malicious actors. By cracking down on digital asset mixers and anonymity-enhancing technologies, Warren’s proposal threatens the privacy rights of law-abiding citizens. It’s essential to remember that privacy is a fundamental right, not a privilege that can be discarded at will. A number of early Bitcoin (BTC) millionaires have been kidnapped and tortured as a direct result of the transparency of the Bitcoin blockchain, Warren would leave future Bitcoiners defenseless against such threats.

While she claims to be acting in the name of national security, it’s worth noting that the big banks would benefit greatly from limiting the competition posed by cryptocurrencies. By imposing onerous regulations, the bill would make it difficult for crypto to compete on a level playing field.

But what about the argument that digital assets are being used by rogue nations and criminal organizations? While this is a valid concern, it’s crucial to distinguish between the technology itself and the actions of a few. The same argument could be applied to cash, which has been used for illegal activities for centuries. Banning cash would be an overreaction, just as overly restrictive crypto regulations are.

Breaking: Elizabeth Warren’s latest proposed anti-crypto legislation

Sen. Warren has co-sponsored the Digital Asset Anti-Money Laundering Act of 2023.

Says the legislation aims to:

-combat the “rising” misuse of digital assets.
-close regulatory “gaps.”
-extends Bank… pic.twitter.com/cl0L95Fyaj

— Carlo.eth (@DeFiDefenseLaw) December 11, 2023

One major concern is the bill’s approach to “unhosted” digital wallets, which allow individuals to bypass AML and sanctions checks. While preventing illicit transactions is crucial, the bill’s proposed rule to require banks and money service businesses to verify customer identities and file reports on certain transactions involving unhosted wallets may have unintended consequences.

Forcing individuals to provide personal information for every transaction goes against the very principles that have drawn people to cryptocurrencies — privacy and pseudonymity. It’s important to strike a balance between security and individual rights. Overregulation could drive users away from regulated platforms, pushing them into unregulated, more challenging-to-track environments.

Additionally, the bill’s focus on directing FinCEN to issue guidance on mitigating the risks of handling anonymized digital assets seems to misunderstand the core tenets of blockchain technology. Cryptocurrencies like Bitcoin are designed to be transparent yet pseudonymous. Trying to eliminate this pseudonymity jeopardizes one of the key features that make blockchain secure and appealing to users.

Related: BRC-20 tokens are presenting new opportunities for Bitcoin buyers

Another significant issue is the potential overreach in extending BSA rules to include digital assets. Requiring individuals engaged in transactions over $10,000 in digital assets through offshore accounts to file a Report of Foreign Bank and Financial Accounts (FBAR) may be excessive. It could result in unnecessary burdens on individuals who use digital assets for legitimate purposes, such as cross-border remittances or investments.

Warren’s bill is a sledgehammer approach to a nuanced problem. Rather than stifling innovation and privacy, a more balanced approach would be to target specific criminal activities and individuals. The current AML system, which large crypto exchanges comply with, has been effective at interdicting illicit crypto usage, which is why isolated instances have been reported.

The Digital Asset Anti-Money Laundering Act is a deeply flawed piece of legislation. Warren’s bill poses a real threat to the crypto community and risks playing right into the hands of big banks. It’s essential that we find a more balanced and effective solution that addresses the concerns without stifling the potential of this transformative technology.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Amid ongoing campaigns for the elections in 2024, many United States lawmakers have not sealed the deal on legislation aimed at establishing regulatory clarity on aspects of the digital asset space, including stablecoins.

Speaking with Cointelegraph at the North American Blockchain Summit on Nov. 16, Consensys senior counsel and director of global regulatory matters Bill Hughes said it was “an exciting time in the policy world” as members of Congress considered which crypto bills they planned to support. Hughes said legislating on stablecoins should be a “no-brainer” for lawmakers once they resolved issues related to state-level regulators.

“Stablecoins are a huge part of the crypto ecosystem — it is one of the best use cases of blockchain technology,” said the Consensys director. “There’s just this one policy stumbling block which is holding stuff up.”

Hughes added that Massachusetts Senator Elizabeth Warren’s crypto bill, aimed at cracking down on the illicit use of digital assets, may have support but was “problematic” in addressing Anti-Money Laundering. In contrast, the Clarity for Payment Stablecoins Act, introduced by House Financial Services Committee chair Patrick McHenry, was “pretty sensible, all things considered,” according to the Consensys director.

“Crypto has definitely become a political football of sorts in D.C.,” said Hughes. “There are obviously those that are outwardly and gleefully hostile. There are a lot who view it as an exciting space that needs to be given room to breathe while also being mindful that there are meaningful risks that may be rightfully the subject of federal policy.”

This legislation she proposes does nothing to solve the problem she claims it solves. Literally nothing.

DOJs settlement today does help, however. https://t.co/IkcFIAygLO

— Bill Hughes : wchughes.eth (@BillHughesDC) November 22, 2023

Like many in the space, Hughes expected that the U.S. Securities and Exchange Commission could give the green light to a spot Bitcoin (BTC) exchange-traded fund, or ETF, but didn’t rule out the regulator continuing to delay a decision:

“It wouldn’t surprise me if the Bitcoin ETF was finally allowed to go forward […] there’s a huge supplier demand for it […] The current rationale for not having one has been incoherent.”

Related: US House FSC to discuss illicit activity in crypto at upcoming hearing

Candidates for the 2024 presidential election, including Republican Vivek Ramaswamy and Independent Robert F. Kennedy, Jr., attended the North American Blockchain Summit and expressed their support for many crypto-related policies — an issue that largely hasn’t taken center stage at Republican Party debates. According to Hughes, crypto was “very much off the beaten path” regarding political issues and more likely to be represented in candidates’ views on wider-reaching issues like financial freedom and the size of government.

Magazine: Unstablecoins: Depegging, bank runs and other risks loom