Weekly Roundup

Artificial Intelligence: Adena Friedman, CEO of NASDAQ, spoke about fintech innovation helping solve social issues, and the rise of AI in helping fighting financial crimes.

SEC X Account Hack Fallout: SEC Chair Gary Gensler this week addressed the cyber-attack that was launched upon the agency’s X (formerly Twitter) account, stating that there is currently “no evidence” that the unauthorized access on January 9 breached other department systems. The Commission, however, is currently evaluating the hack’s potential impact on other federal agencies, crypto investors, and the marketplaces’ at-large, emphasizing that it is working with law enforcement, including the FBI and the Department of Homeland Security, as part of its investigation.

Crypto Tax Rules: Following a recent U.S. Treasury Department-led markup of the Infrastructure Investment and Jobs Act, the IRS will not enforce the commercial reporting of cryptocurrency transactions above $10,000 until a regulatory framework is established. While opponents of this decision harbor concerns regarding current reporting requirements, numerous digital asset sector experts have hailed this decision as a positive step forward for the industry.

JPMorgan Fine: JPMorgan Chase is set to pay an $18 million fine to resolve a civil penalty levied by the SEC for violating whistleblower protection rules. Specifically, the bank ran afoul of current regulations by requesting retail clients to sign confidentiality agreements if they were issued a line of credit exceeding $1,000. SEC observers note that this action serves as a warning to companies throughout the banking industry to remove language in employee agreements that would in any way discourage whistleblowers from coming forward.

Gensler’s AI Fears: SEC Chair Gary Gensler expressed concern this week over the potential fragility of the financial system if there is a centralized market dominated by only a few AI models. Specifically, he drew parallels to the cloud provider and search engine markets, emphasizing the risk of a “monoculture” in finance in which numerous actors only rely on a singular central data or choice model. Gensler stressed the importance of maintaining diversity in these areas, urging regulators in the U.S. and across the globe to consider this approach.

SEC vs. Coinbase: A federal judge this past Wednesday expressed skepticism over the SEC’s attempt to regulate Coinbase, specifically questioning the broad reach of the Commission’s applied standards to the crypto industry. Coinbase is seeking dismissal of the agency’s civil lawsuit that alleges the company lists securities and operates its wallet service and staking programs unlawfully. The judge is expected to render a ruling in the coming months, and the outcome could shape the crypto regulatory landscape. 

In the Mix: This Week’s Top FinTech Thought Leader

  • Kirsten Wegner, CEO of MMI, published an op-ed on the Consolidated Audit Trail in Traders Magazine noting the CAT “has a budget that dwarfs that of many federal agencies,” and noting pending litigation in the 11th circuit.

  • Brad Garlinghouse, CEO of Ripple, spoke at the World Economic Forum this week about SEC Chair Gary Gensler’s aggressive crypto sector regulatory approach. “I do think the chair of the SEC, Gary Gensler, is a political liability in the United States. And I think he’s not acting in the interests of the citizenry, he’s not acting in the interests of the long-term growth of the economy, and I don’t understand it,” said Garlinghouse. “I think at some point there will be a new chair of the SEC, and I think that will be a good thing for the American people.”

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Weekly Roundup

Bitcoin ETF Approval: The SEC on Wednesday approved the sale of ETFs that hold bitcoin, paving the way for the first U.S. bitcoin ETFs to be sold to the public. The approval applies to 11 applications from a host of major asset managers, who are expected to start trading soon. Despite signing off on the approval, SEC Chair Gary Gensleremphasized the risks associated with bitcoin and several of the agency’s commissioners opposed the authorization due to investor protection concerns.

MMI Leads Charge Against Exchange Volume Discounts Ban: In a comment letter submitted to the SEC this week, the Modern Markets Initiative (MMI) requested that the commission retract a proposal that the agency published this past fall banning brokerages from offering exchange volume discounts. Specifically, MMI, along with a host of other industry stakeholders, argues that the proposal does not “demonstrate through data that the problem is real and not conjecture” and fails to “quantify the Proposal’s costs and benefits.” Additionally, the organization’s letter states that this new regulation could erode market quality and harm the smaller brokerages that it aims to help. MMI and the other signatories put forth several alternative solutions, including requiring exchanges to disclose more details about their volume-discount programs to address perceived gaps in empirical analysis.

Retail Investor Retention: A study released by eToro this week stated that 84% of U.S. retail investors believe they are taking the right amount of investment risk or should be taking on more. Specifically, the report highlighted that key lessons learned from past economic challenges and low unemployment rates have contributed to more retail investors remaining engaged in the market. The accessibility of investment education resources and digital trading tools has also empowered retail investors to employ a number of diverse techniques, including fundamental research, technical analysis, and passive investing, to remain properly engaged with developments throughout today’s markets.

Predictive Tech Concerns: With the SEC proposing a new rule last year to ban brokers and investment advisers from using predictive technologies unless they eliminate all potential conflicts of interest, numerous industry observers have stated their opposition to this new regulation. Specifically, these experts argue that the proposal unfairly lumps retail and institutional investors together, and while they do not deny that the complete elimination of conflicts in business transactions is possible, they maintain that any new regulations must seek to focus on disclosure and mitigation rather than defaulting to outright bans.

Rising Crypto Fines: Crypto and the fintech sectors faced higher fines than the entire traditional financial industry last year, surpassing a total of $5.8 billion in penalties for deficiencies in customer checks, anti-money laundering controls, and other financial criminal issues. This amount surpassed the $835 million paid by traditional financial services groups this past year, which marked the lowest level in a decade. The surge in fines against crypto and payments providers indicates increased scrutiny and enforcement within these sectors, which has led to a number of sector experts predicting that fines will continue to increase in the years ahead.

Nasdaq Enforcement Leans Into AI: Nasdaq announced at this week’s Consumer Technology Association conference that the organization is increasing its level of investment in technology to combat financial crime, leveraging artificial intelligence to enhance its anti-crime capabilities by predicting and expediting the identification of criminal behavior.

In the Mix: This Week’s Top FinTech Thought Leader

  • MMI CEO, Kirsten Wegner, hosted a “Lunch and Learn” this past Tuesday with leading securities enforcement defense specialist Fuad Rana. Among a host of pressing sector topics, they discussed the SEC’s 2024 regulatory agenda and potential changes to Section 605.

  • Kristin Smith, CEO of Blockchain Association, responded forcefully this week to U.S. Senator Elizabeth Warren’s (D-MA) criticism of companies’ tendency to hire professionals departing from public sector roles. “After leaving government, these public servants could have chosen from myriad, well-deserved professional opportunities. But they were drawn to work in the emerging digital asset industry because they value freedom and creativity,” said Smith.


Weekly Roundup

SEC 2024 Regulatory Preview: As the financial services space seeks to capitalize on the momentum spurred in part by a host of technological innovations, many sector experts are waiting to see how aggressive the SEC’s 2024 regulatory agenda will be. Specifically, several industry insiders believe that SEC Chairman Gary Gensler will seek to expand the commission’s rule-making efforts across several critical fronts, including (but not limited to) AI and short-sale-related data reporting. These experts also underscored how the upcoming federal election results will determine if the Congressional Review Act will be used to nullify any new rules in 2025.

Fixed-Income Trading Gaining Interest: With larger-than-anticipated yields over the past year leading to increasing levels of retail investor participation in the financial markets, many of the U.S. trading firms responsible for popularizing online investing are seeking to increase their presence in the fixed income space. A small number of these key sector stakeholders, including Wealthfront and Apex Fintech Solutions, have already launched online products, such as Treasuries and corporate bonds, to highlight fixed income trading options to the amateur investor class. While it is yet to be determined if these offerings will generate the same level of interest as traditional stocks, several sector experts have noted that it is the latest example of how Federal Reserve policy helps determine the pathways for innovation in the fintech space.

AI in Crypto: While AI advancements have already forced critical changes throughout the entire economy, numerous industry observers have stated that the quickly evolving technology will also cause important updates within the crypto space. Specifically, sector experts believe that AI will soon be incorporated into predictive trading and pricing operations and help programmers address sensitive technical issues that may arise on a platform’s blockchain.

SEC Commissioner Uyeda Sworn In: SEC Commissioner Mark Uyeda was sworn in this week for a full term after he received a confirmation vote last month from the U.S. Senate. He was originally appointed in June 2022 by President Biden as an interim commissioner but was renominated by the president this past June to serve a full-term that runs through December 2028. Commissioner Uyeda is one of two registered Republicans on the commission and has been an outspoken critic of SEC Chairman Gensler’s unprecedented rule-making pace. 

U.S. vs. Mmobuosi: The U.S. Department of Justice this week charged Odogwu Banye Mmobuosi, the former co-chief executive officer of the Tingo Group, on numerous counts of securities frauds, submitting false statements, and conspiracy. The alleged misconduct occurred from 2019 to 2023 and each of the filed charges are related to Mmobuosi inflating the value of the mobile phone and agriculture divisions that he previously sold to the firm. The Nigeran fintech executive gained notoriety last year after falling short in his bid to purchase the Sheffield United Football Club, an English Premier League side.

In the Mix: This Week’s Top FinTech Thought Leader

  • John Palmer, President of CBOE, spoke with Bloomberg TV this past Tuesday about the potential benefits for market participants if Bitcoin’s ETF receives SEC approval. “Seeing that approval is going to pave the way for pension funds and RIA-based funds to be able invest in assets in a spot Bitcoin ETF where they may not be able to gain that access today in just a native, spot Bitcoin token,” said Palmer. Additionally, Palmer believes that spot ETF approval would expand the presence of Bitcoin derivative products and that larger firms within the traditional market sector will “lean on those derivatives more and more” to protect against risk.

  • In an interview with Traders Magazine, John Ramsay, Chief Market Policy Officer at IEX, provided his thoughts on marketplace outlooks for 2024. Specifically, Ramsay noted that the organization is anticipating an “increase in displayed volume and more performance-enhancing order type innovations,” and that federal regulators must provide “needed updates to Reg NMS” if Rule 605 is enacted.


Weekly Roundup

Kirsten Wegner’s 2024 FinTech Policy Outlook: In an editorial published this morning in Real Clear Markets, MMI’s own Kirsten Wegner highlighted five key FinTech trends that should be top-of-mind for policymakers going into 2024. Specifically, Wegner underscored the importance of legislators and regulators factoring increasing retail investor activity, AI’s expanding role in investment strategies, evolving regulatory technology, the proliferation of spot bitcoin ETFs, and the rising demand for low-cost trading options into their decision-making.

Stock Ownership Increases: According to a recent consumer finance-oriented survey conducted by the Federal Reserve, the percentage of American households that are stock market participants has reached a historic high of 58%. This figure is up five percentage points from a similar study the agency conducted in 2019, and numerous sector experts have attributed this surge to a record number of first-time participants entering the marketplace during the Covid-era.

SEC’s Stock Buybacks Setback: The SEC’s plan to impose additional disclosure requirements related to public companies’ stock buybacks was rejected by the U.S. Court of Appeals for the Fifth Circuit. Citing a lack of a proper cost-benefit analysis, the decision will force the agency to formulate an updated strategy to address next stock-buyback disclosure regulations.

Crypto Lobbying Efforts: Signaling that the crypto industry intends to leave its mark on next year’s election, three super PACs linked to various digital currency platforms have announced that they have raised a total of $78 millionfor the 2024 cycle. Specifically, key sector players, such as Andreessen Horowitz and Coinbase, are supporting these PACs initiatives to endorse candidates who advocate for policies that will advance important crypto-related priorities. While the legislative progress to establish a new regulatory framework for the industry faces challenges in the Senate and with the Biden Administration, numerous crypto sector experts are optimistic that the increasing volume of lobbying efforts could soon sway policy.

Coinbase vs. SEC: The SEC has rejected Coinbase Global’s latest petition for the agency to draft new rules for the digital asset sector. In their dissenting statements, SEC Commissioners Hester Peirce and Mark Uyeda expressed disagreement with the agency’s decision, emphasizing the importance of addressing issues arising from new technologies and innovations in a responsible regulatory manner. This response from the SEC has led the U.S.-based crypto exchange to challenge the decision in court, claiming that current regulations are “unworkable” for the crypto space.

Retail Trader Education: With Fortune Business Insights recently projecting that the global online trading platform market will reach $15.34 billion by 2030, numerous industry experts have raised concerns about the success rate of new retail traders. Specifically, these sector observers note that various online trading platforms will have to meet the increasing demand for transparency and education. These assertions are based off a survey by the World Economic Forum, which found that 74% of retail traders want more learning opportunities and 67% are seeking an increased level of trust in their online trading platform.

Crypto Training: A recent TRM Labs survey of 300 U.S. and international law enforcement professionals reported that although approximately 90% of respondents confirmed that their organizations provide crypto-related instruction, an overwhelming 99% believe that the intensity and scope of this training needs to be expanded. Specifically, these professionals identified shortages of qualified investigators, a general lack of expertise, and insufficient agency funding as the primary obstacles hindering law enforcement’s ability to effectively address crypto-linked crimes. Several sector observers have noted that the results of the survey underscore the urgency for regulators to prioritize digital asset education and sensible rules that promote technological advancements focusing on transparency and consumer safety.

In the Mix: This Week’s Top FinTech Thought Leader

  • Julie Sweet, CEO of Accenture, told the Financial Times in an interview this week that she does not believe most companies have the digital infrastructure to safely utilize AI technology. “There is a gap between saying you’re committed to responsible AI and having the programs that allow it to be real on the ground. The good news is that people are not trying to leap over the gap. They are being careful in the rollout and so it does limit, in the short term, some of the scaling opportunities,” said Sweet.
  • Michael Sonnenshein, CEO of Grayscale, spoke with Bloomberg TV recently about his company’s struggle with the SEC to convert into a spot ETF. “I think that the SEC should and does, in fact, want to create an even playing field,” said Sonnenshein. “We’ve publicly been advocates of the fact that when the commission is ready to give the requisite approvals for spot products to come to market, that it should be done all at once — the issuers who are operationally ready to launch their products should come out the gate all at once.”


Weekly Roundup

Crypto Trading Volumes Exceed Expectations: Trading volumes for various digital assets have beaten industry expectations in 2023, reaching a collective $3.61 trillion figure in November. Although numerous stablecoins experienced significant growth this year, Tether stood out as the platform reached the $90 billion mark for its overall market cap. While some traditional financial institutions, such as JP Morgan, are still wary of the digital asset space, numerous sector experts have noted that Bitcoin’s current performance indicates an early (rather than late-stage) bull market and have expressed optimism for continued growth in 2024 due to Bitcoin ETF’s possible regulatory approval.

CAT Concerns: U.S. Reps. Ann Wagner (R-MO) and Bill Huizenga (R-MI) sent a letter to SEC Inspector General Deborah Jeffrey to ask for an examination of the Consolidated Audit Trail’s (“CAT”) budget “to determine whether there are significant inefficiencies and waste.” The letter, also noting privacy concerns of CAT, was referenced during a House Financial Services Committee, Capital Markets Subcommittee hearing this week.

New Treasury Clearing Rules: The SEC this week approved new rules to address systemic risks in the U.S. Treasury market. Specifically, the reforms aim to increase transparency and reduce market volatility by requiring certain cash Treasury and repurchase agreements to be centrally cleared. The updated regulations, which will take effect by June 2026, target hedge funds and proprietary trading firms to regulate their debt-fueled “basis trades” that have raised concerns about potential market strain.

AI Scrutiny: The SEC announced that they will be launching  a targeted investigation into the use of AI by investment advisers. Regulators from the agency will be taking a closer look at details surrounding how these firms deploy AI related to their marketing documents, algorithmic models managing client portfolios, third-party providers, and compliance training to determine if there is a pattern of misconduct.

Warren’s Crypto Bill Gains Support: U.S. Senator Elizabeth Warren’s (D-MA) office announced that five additional senators, including Raphael Warnock (D-GA), Laphonza Butler (D-CA), Chris Van Hollen (D-MD),John Hickenlooper (D-CO), and Ben Ray Luján (D-NM), have agreed to cosponsor her Digital Asset Anti-Money Laundering Act. The bill is aimed at reducing cryptocurrency use by organized criminal and terrorist organizations through illicit channels. While critics of the bill argue that the government’s focus should be on the bad actors themselves rather than the technology, Senator Warren reiterated her claim that approximately half of North Korea’s missile program is funded via digital assets.

Fight Against Buyback Disclosure Rule: Various business groups are urging the U.S. Chamber of Commerce to dismiss an SEC rule requiring companies to provide more timely disclosures on stock buybacks. The groups pointed to the 5th U.S. Circuit Court of Appeals’ criticism of the SEC for acting “arbitrarily and capriciously” and failing to conduct a proper cost-benefit analysis when creating the rule. Because the SEC did not follow the Court’s guidance to rework the rule within 30 days, the organizations stated that they were compelled to request the Court to issue a final judgment vacating the rule.

SEC vs. Credit Suisse: Credit Suisse Securities agreed to pay over $10 million following charges brought by the SEC for allegedly providing certain prohibited services by acting as an underwriter and investment adviser to mutual funds. These actions were ruled to be in violation of a New Jersey court ruling prohibiting such actions.

Updated Federal Defense Bill: Numerous industry experts have noted that two key crypto provisions were removed from the joint version of the National Defense Authorization Act. The provisions specifically aimed to establish an anti-money laundering examination standard for crypto assets and mandate a report on the use of privacy coins and “anonymity-enhancing technologies” in the digital assets space. Although the Senate version of the bill included these provisions, they were omitted in the House-Senate conference version of the bill.

In the Mix: This Week’s Top FinTech Thought Leader

  • The SEC’s former Chief Economist, Mark Flannery, spoke to the Wall Street Journal this week about the aggressive pace of SEC Chair Gary Gensler’s regulatory agenda, which has led to various lawsuits to be filed against the Commission. “The combination of an aggressive agenda and a high workload inside [the agency] makes it at least possible that this is the beginning of a pattern,” said Flannery. “We’ll know in a couple more months, I suppose.”

  • FIA Principal Traders Group published an essay calling for Congressional oversight over CAT’s funding, noting that the Trail’s entire costs will currently be passed on to market participants. Without this additional oversight, the report stated that the CAT will be “essentially an additional tax on all purchase and sales of equities and listed options securities.”


Weekly Roundup

McHenry Exits: U.S. Rep. Patrick McHenry (R-NC) announced this week that he will not seek re-election in 2024. The Financial Services Committee chair and former speaker pro tempore released a statement laying out his reasons for retirement, saying, “This is not a decision I come to lightly, but I believe there is a season for everything and—for me—this season has come to an end.”

Crypto Lobbying Intensifies: According to data from OpenSecret, crypto companies spent $18.96 million on lobbying efforts in the first three fiscal quarters of 2023. Coinbase led the sector-wide lobbying efforts, spending $2.16 million on initiatives to seek regulatory clarity for the industry, followed by Foris DAX, the Blockchain Association, and Binance Holdings.

Thriving Money Market Funds: Money market fund managers are witnessing an unprecedented influx of cash in 2023, with nearly $1.19 trillion pouring into US money market funds since January 1. This surge is attributed to the Federal Reserve’s aggressive interest rate hikes, which have attracted investors seeking the highest yields in recent memory. While the focus on money market funds has been driven by retail investors, industry experts anticipate that institutional investors will also join in 2024 as the easing cycle begins.

Gensler’s Agenda: In a statement released this week, SEC Chair Gary Gensler emphasized his focus on enacting an agenda that focuses on shaping a regulatory landscape that accounts for the technological and business model advances of this decade. Specifically, Gensler said that his priorities when proposing any new rule will be bolstering the “efficiency, integrity, and resiliency of the markets.”

Cash-Flow Statements Face New Regulations: U.S. regulators are closely examining cash-flow statements and their impact upon investors. Specifically, the SEC is reviewing how companies address errors in these statements and the Financial Accounting Standards Board is considering expanded disclosure requirements on cash-flow statements.

Republican Candidates Address Crypto: At this week’s  Republican presidential debate, crypto policy became a focal point as Vivek Ramaswamy addressed the need for regulatory updates in response to recent high-profile cases, such as former Binance CEO Changpeng Zhao’s fraud conviction. Others on the debate stage mentioned reducing the SEC’s workforce, exempting bitcoin from capital gains tax, and supporting the right to self-custody bitcoin.

AI Investment Opportunities: Numerous market strategists have recently highlighted that the most promising investment opportunity over the next two to three years might lie in U.S. large-cap stocks that leverage AI to enhance their services rather than investing directly in AI developers. These leading analysts, such as Ron Temple, chief market strategist at Lazard, acknowledge the revolutionary potential of generative AI and machine intelligence but highlight the challenges of justifying the high valuations of existing AI developers.

In the Mix: This Week’s Top FinTech Thought Leader

  • At a conference hosted by The Messenger, SEC Chair Gary Gensler spoke about the number of issues associated with businesses making false claims related to artificial intelligence, which sector experts have dubbed as  “AI washing.” Gensler compared this practice to greenwashing and made clear that the SEC will be cracking down on bogus AI claims. “Don’t do it,” said Gensler, “One shouldn’t greenwash and one shouldn’t AI wash.”

  • During a Senate Banking Committee hearing this week, Jamie Dimon, CEO of JPMorgan Chase, warned lawmakers about what he views are the dangers cryptocurrencies pose to the wider global economy. “I’ve always been deeply opposed to crypto, bitcoin, etc.,” said Dimon. “The only true use case for it is criminals, drug traffickers … money laundering, tax avoidance.”


Weekly Roundup

SEC’s Unprecedented Rulemaking Agenda: The SEC continues to push an unprecedentedly aggressive rule-making agenda, with its most recent proposal aimed at preventing conflicts of interest in the asset-backed securitization market by requiring firms to invest in compliance programs. Many financial firms have argued that the SEC’s regulatory campaign is imposing undue costs upon the industry, potentially impacting profits and leading to increased fees for everyday consumers.

Algo Trading Powers Continue to Rise: In an effort to increase market share within the fixed income algorithmic trading space, two major fixed income trading platforms, MarketAxess and Tradeweb, have expanded their service offerings through strategic acquisitions of algorithmic trading providers. Algorithmic trading has become integral to many financial service firms’ fixed income execution strategies, and numerous industry observers believe that these acquisitions are aimed at bolstering the platforms’ capabilities to meet the growing demand for algo trading solutions in the fixed income market.

Treasuries Crypto Crackdown: Deputy Treasury Secretary Wally Adeyemo issued a warning this week to cryptocurrency companies, stating that they risk being cut off from the U.S. economy if they fail to block illicit activity. This follows the Biden Administration’s request for new federal legislation that would grant the Treasury Department authority to regulate crypto marketplaces deemed illicit by the U.S. government.

SEC v. Jarkesy: The Biden Administration presented its arguments on Wednesday to the U.S. Supreme Court to expand the SEC’s authority to enforce securities laws through administrative hearings. The Court’s conservative majority, however, expressed concern regarding the agency’s discretion to choose between federal court and in-house hearings. The decision, which is expected to be handed down next summer, could have broad implications for federal agencies seeking to enforce environmental, consumer protection, and market integrity laws.

Cyber Disclosure Rules: New rules set by the SEC mandating disclosures of material cyber incidents by public companies within a four-day timeframe will go into effect this month. Numerous experts have noted that the restrictive timeline does not account for the intricate nature of most cyber incidents, which typically involve numerous internal and external stakeholders, and will require many firms to hastily establish command centers dedicated to addressing cyber incidents and meeting regulatory mandates.

Crypto Regulation: A new report from The Financial Stability Board (FSB) highlighted the potential vulnerabilities associated with the rise of crypto, emphasizing similarities with legacy risks in traditional finance, including leverage and liquidity mismatches. While many industry experts believe that the current threat posed by digital assets to the health of financial markets is limited, the FSB recommends additional assessments of regulatory measures that would prevent crypto-related risks from “amplifying across the financial system,” including enhanced cross-border cooperation and information sharing.

In the Mix: This Week’s Top FinTech Thought Leader

  • U.S. Representative Tom Emmer (R-MN) spoke with Thinking Crypto this week about his views on SEC Chair Gary Gensler’s approach to regulating the crypto industry. In response to Gensler’s aggressive posture toward the sector, Emmer has proposed an amendment to the Financial Services and General Government Appropriations billthat would limit  the amount of taxpayer funds the SEC can use for crypto enforcement. “These wins are wins for the industry. And they highlight that the rules of the road are unclear for the industry, despite Gary Gensler’s best efforts to pretend like they are. I guess the bottom line on that one is the SEC is an incompetent cop on the beat, which I’ve said over and over, and the crypto community’s refusal to lay down and die is proving Gensler’s incompetence in the courts. And that’s a good thing,” said Emmer.

  • In an interview with CNBC, Brian Armstrong, CEO of Coinbase talked about the aftermath of Binance’s $4 billion settlement with the U.S. Department of Justice and how it is a turning point for the crypto industry. “The enforcement action against Binance, that’s allowing us to kind of turn the page on that and hopefully close that chapter of history,” said Armstrong.


Weekly Roundup

Fintech Reducing Consumer Costs: According to a recent 2023 United Nations report, fintech technology has drastically reduced the cost of financial services for everyday consumers. Specifically, innovative technological advancements, like direct deposits, have expanded access to online banking and reduced expenses for more customers on traditional banking services, such as cashing checks.

SEC vs. Kraken: The SEC filed charges this week against Kraken, the second-largest cryptocurrency exchange in the U.S., claiming that the platform illegally operated as an unregistered securities entity. Speifically, the Commission alleges that Kraken commingled its own financial resources and digital assets with customer funds. Kraken disputes the charges, stating that “This is incorrect as a matter of law, false as a matter of fact and disastrous as a matter of policy.”

Retail Trading Remains Active: According to a recent report by Nasdaq, daily retail trading levels are currently clocking in at about $35 billion. This figure is in line with trading numbers from the previous 10 months of 2023 and remains ahead of pre-Covid levels.

Mastercard Battles Crypto Fraud: In an effort to bolster fraud prevention in its cryptocurrency transactions, Mastercard has partnered with regulatory technology platform Feedzai. The collaboration involves integrating Feedzai directly with Mastercard’s CipherTrace Armada platform, enabling real-time alerts regarding suspicious crypto transactions. Industry experts believe that the move will specifically help the credit card service detect potential money laundering and mule accounts through the use of AI technology.

Tether Helping Combat Human Trafficking: Tether this week announced that the firm has frozen $225 million worth of its cryptocurrency assets that has been potentially linked to a known human trafficking group. The move comes in response to a request from the U.S. Secret Service, which collaborated with Tether and crypto exchange OKX on a “months-long investigative effort.” This development underscores the industry’s efforts to partner with law enforcement agencies to crack down on any illicit activities occurring on crypto blockchain networks.

In the Mix: This Week’s Top FinTech Thought Leader

  • At the Financial Markets Quality Conference, Sapna Patel, Morgan Stanley’s head of Americas market structure & liquidity strategy, participated in a panel discussion about the problems surrounding the SEC’s proposed market structure reforms. “The question that I ask when you see a fundamental change, like the one contemplated, is what problem are we trying to solve because our markets are fairly efficient,” said Patel. “I think we should take a step back and be careful about breaking something that works for investors.”

  • Tuang Lee Lim, chair of the International Organization of Securities Commission’s (IOSCO) financial task force, released a statement addressing the organization’s rejection of requests from the crypto industry for a customized regulatory framework for stablecoins. “The activities of CASPs and their associated risks frequently mirror those observed in traditional financial markets,” said Lee Lim. “The regulatory approach taken is therefore consistent with IOSCO’s principles and associated standards for securities markets regulation.”


Weekly Roundup

Short Sellers x SEC Team-up: Numerous industry experts have expressed their surprise that a few notable Wall Street short sellers are teaming up with the SEC to expose misconduct. Several prominent short sellers, including Nate Anderson, Kyle Bass, and Carson Block, are sharing their research highlighting questionable accounting practices with the agency’s whistleblower office. While this unexpected collaboration offers the SEC potential head starts on investigations, several sector observers have called the ethics surrounding this unexpected alliance into question.

Proprietary Trading Data: According to Acuiti Proprietary Trading Management’s latest Insight Report, investment firm budgets are widely expected to increase in 2024. Specifically, 63% of trading houses believe that spending throughout their portfolios will be higher than their average annual figures. The report points to the usage of algorithmic trading tools and connectivity to new markets as the reasons behind this expected increase.

DOJ’s Uphill Battle vs. Financial Fraud: While the recent conviction of FTX founder and former CEO Sam Bankman-Fried served as a bright spot for the Justice Department’s campaign against financial crimes, various watchdog groups have noted that numerous distressing figures point to a lack of prosecutorial success in this key area. These organizations note that the stark decrease in the government’s conviction rate within these kinds of cases coincides with fiscal losses attributable to online fraud surging to $10.3 billion in 2022 (a 50% increase from 2021).

IRS Crypto Tax Proposal: The IRS is facing significant pushback from the crypto sector as it considers a tax proposal for digital assets. The open comment period for this potential rule has garnered a staggering 124,000 replies, which industry experts note reflects the vast concern about the potential threat this increased regulation would pose to investor privacy and decentralized crypto projects. Specifically, crypto advocates argue that the proposal, particularly its definition of a “broker,” is overly broad and could ensnarl various unrelated participants throughout the blockchain ecosystem.

SEC’s 2023 Enforcement Report: In fiscal year 2023, the SEC reported that the agency initiated a record-breaking 784 enforcement actions. Noteworthy cases included fines for unauthorized communications channel usage, enforcement actions under the Marketing Rule targeting investment advisors, and a crackdown on crypto-related activities. This report reflects SEC Chairman Gary Gensler’s views on crypto offerings attempting to register with the commission, online stock promotion, and ESG investing.

New York’s Strict Crypto Rules: New York state is tightening its grip on crypto regulation with new rules requiring cryptocurrency exchanges and entities to halt the certification of new coins and tokens until they submit updated policies to the New York Department of Financial Services. These updated guidelines define the department’s new criteria for evaluating tokens, governance approval processes, record-keeping standards, and conflict of interest safeguards. 

SEC Finalizes Rules to Improve Agency Clearing Governance: The SEC adopted rules to improve clearing agency governance and mitigate conflicts of interest. The rules, which are effective a year from now, received bipartisan support in setting forth governance standards for registered clearing agencies.

In the Mix: This Week’s Top FinTech Thought Leader

  • Navin Gupta, managing director of South Asia and MENA at Ripple, spoke to Cointelegraph about the need for a technology-neutral approach to crypto regulations. “We don’t want people to think about regulating the technology… We want regulators, or anybody for that matter, to be technology-neutral. It doesn’t matter if the [activity] is happening in blockchain or traditionally,” said Gupta.

  • Solicitor General Elizabeth Prelogar filed a brief to the U.S. Supreme Court urging the justices to reverse a Fifth Circuit Court decision that limited the SEC’s use of in-house administrative law judges on matters pertaining to public rights. “The SEC actions at issue here fall within the heartland of the public-rights doctrine,” Prelogar said in her brief.


Weekly Roundup

Gensler vs. AI: During a speech at the Securities Industry and Financial Markets Association’s annual meeting, SEC Chair Gary Gensler defended the agency’s recent regulatory proposals aimed at stemming the proliferation of AI in financial services. The industry has criticized his Predictive Data Analytics proposal as overly broad, extending beyond AI systems to excel spreadsheets, and chilling to innovation.

Looming Government Shutdown: At a Subcommittee on Financial Institutions and Monetary Policy hearing, Congresswoman Maxine Waters (D-CA) spoke about the consequences a shutdown would have on the financial markets, “Given the global nature of our financial system, it is important that our regulators engage through international organizations, like the Basel Committee, to ensure that the U.S. is providing leadership on strong safeguards to avoid a global race to the bottom,” said Waters.

Treasury’s Crypto Focus: Deputy Treasury Secretary Wally Adeyemo this week stated the need for Congress to grant the Department of the Treasury new powers to reduce the spread of illegal cryptocurrency use. As part of his call to action, Adeyemo emphasized the need for cooperation between the Treasury Department, Congress, and the cryptocurrency industry to address digital asset flows believed to be connected to Hamas and other bad actors throughout the international community.

FTX Bankruptcy Fallout: In the aftermath of its recent bankruptcy case and the sentencing of founder and former CEO Sam Bankman-Fried, Crypto exchange FTX has asked the U.S. bankruptcy court of Delaware to allow the company to sell its trust assets, which reportedly include Grayscale and Bitwise funds worth around $744 million. Sector experts believe the move is aimed at preparing for forthcoming creditor distributions and facilitating an efficient sale of their assets.

Optimism in Crypto Market: Bloomberg ETF analysts James Seyffart and Eric Balchunas suggest that there is an eight-day window, from November 9 to November 17, during which the SEC could potentially approve all 12 pending spot Bitcoin ETF applications, including Grayscale’s conversion of its GBTC trust product. The anticipation of a Bitcoin ETF approval has fueled optimism in the crypto market, contributing to Bitcoin’s 30% price gain in the last three months.

Risky Treasury Market Rules: BNY Mellon has strongly suggested that the SEC implements its proposed central clearing rule for the Treasury market over an extended period of time, as it could cause major issues and disrupt the market function. The proposed rule would require trades to go through a clearing house, potentially raising trading costs and scaring off investors. 

In the Mix: This Week’s Top FinTech Thought Leader

  • Ken Griffin, founder of Citadel, spoke with the Financial Times abut the SEC’s proposed Treasury market regulations that are aimed at reducing risks by classifying hedge funds as the broker-dealer arms of banks. “If the SEC recklessly impairs the basis trade, it would crowd out funding for corporate America, raising the cost of capital to build a new factory or hire more employees,” said Griffin. “It would also increase the cost of issuing new debt, which will be borne by US taxpayers to the tune of billions or tens of billions of dollars a year.”

  • Rep. Patrick McHenry (R-NC), chairman of the House Financial Services Committee, categorized the Consumer Financial Protection Bureau’s proposal efforts to regulate digital wallets and payment applications as forced removal of consumer choice that will lead to diminished development of innovative technology. “Congress and regulators must work toward a regulatory environment that embraces innovation in our payments system. The action announced by Director Chopra today is a step in the wrong direction,” said McHenry.