Major US Banking Regulators Finish “Policy Print” and Release 2022 Crypto Roadmap

Major US Banking Regulators Finish “Policy Print” and Release 2022 Crypto Roadmap

Top US banking regulator said on Tuesday that banks must seek and obtain written permission from their bank supervisors before engaging in cryptocurrencies.

The Office of the Comptroller of the Currency said that before taking on activities like providing custody services for crypto assets, banks must demonstrate they have appropriate risk management tools.

“I said the next few years will be the most important in the history of crypto policy,” commented Jake Chervinsky, head of Policy Blockchain Association. “Here’s proof: the major US banking regulators just finished a crypto “policy sprint” & say 2022 will be a big year. Get ready.”

On Tuesday, the Federal Reserve, Federal Deposit Insurance Corporation, and OCC released a joint statement, saying that they see the potential opportunities presented by the emerging crypto asset sector, but at the same time, they recognize the risks for banking organizations, their customers, and the overall financial system.

To provide clarity, the agencies recently conducted a series of inter-agency “policy sprints” focused on crypto and are now providing a roadmap of future planned work.

The focus of the sprint work included developing a commonly understood vocabulary, identifying and assessing key risks, including considering legal permissibility related to potential crypto activities conducted by banking organizations, and analyzing the applicability of existing regulations and guidance.

The staff also reviewed and analyzed activities banks may be interested in, such as crypto asset custody, facilitation of customer purchases and sales of crypto, loans collateralized by crypto, activities involving payments and stablecoins, and those that may result in the holding of crypto on a banking organization’s balance sheet.

The agencies said they would also evaluate the application of capital and liquidity standards to crypto for US banks. In addition, they will continue to engage with the Basel Committee on Banking Supervision and other relevant authorities.

“Based on this preliminary and foundational staff-level work, the agencies have identified a number of areas where additional public clarity is warranted.”

As a result, the agencies have developed this roadmap for cryptocurrencies. Throughout 2022, they plan to provide greater clarity on whether certain crypto-related activities conducted by banks are permissible, compliance with existing laws and regulations, and expectations for safety and soundness.

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Author: AnTy

US Banking Regulator FDIC Is Looking into Stablecoins’ Eligibility for its Deposit Insurance

US Banking Regulator FDIC Is Looking into Stablecoins’ Eligibility for its Deposit Insurance

The Federal Deposit Insurance Corp. (FDIC) is studying whether certain stablecoins might be eligible for its coverage. The discussions are only in the preliminary stage yet, reported CoinDesk citing five people familiar with the knowledge.

Reportedly, the agency is analyzing what pass-through FDIC insurance looks like for the reserves stablecoin issuers hold at banks. Such coverage makes the holder of the tokens eligible to be insured by the FDIC up to the standard deposit insurance amount of $250,000.

The agency is further looking into what direct deposit insurance would look like for banks that want to issue stablecoins.

“This is all part of a process by which they are trying to bring stablecoins into the banking system in a responsible manner,” one insider has been quoted as saying. “It depends on what’s backing the stablecoins.”

The insider added that if stablecoins are backed by reserves at the Federal Reserve for cash, then that would be a deposit but not if it’s backed by the Treasury.

Last week came the report that the Biden administration is looking to regulate stablecoin issuers as banks and is prepared to issue a report on them by the end of the month.

As we reported, the BIS also put out a proposal for public consultation this week, which aims to apply the same principles as those followed by the financial market to “systemically important” stablecoins.

Another report on CBDC from BIS earlier this month said significant stablecoin adoption could lead to “excessive market power” and fragmentation in the payments ecosystem.

In an interview with Forbes, former Securities and Exchange Commission (SEC) Chairman Jay Clayton shared his views on whether stablecoins should be considered securities. This is what he has to say:

“A stablecoin that promises $1 back to you, in exchange for the coin, and is backed by cash is one item. Such a coin that is backed by commercial paper, whether it’s 30, 60, or 90 days, sure looks like a money market mutual fund to me. So the second element really looks like a security. We have decided that a pooled vehicle of commercial paper that you use for daily liquidity is a money market mutual fund and should be regulated as such.”

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Author: AnTy

Biden Administration Seeking to Impose Banking Regulations on Stablecoin Issuers

Biden Administration Seeking to Impose Banking Regulations on Stablecoin Issuers

Meanwhile, the top US national security advisers will gather officials from 30 countries with plans to combat cyber crime and improve law enforcement collaboration on “the illicit use of cryptocurrency.”

The Biden administration is prepared to issue a report on stablecoins by the end of the month and is looking to regulate stablecoin issuers as banks.

The President’s Working Group on Financial Markets is expected to recommend that Congress establish a special-purpose charter allowing new crypto banks to manage stablecoins as deposits, reported the Wall Street Journal, citing a senior official involved with the report.

A group led by the Treasury Department further plans to recommend to the Financial Stability Oversight Council whether stablecoin activities should be designated as systemically important, the report added.

Examining whether stablecoins pose a systemic threat would be another approach to impose bank-like rules on stablecoins.

“Circle has already been working toward becoming a full-reserve national commercial bank,” said Dante Disparte, chief strategy officer and head of global policy for Circle, the issuer of the stablecoin USDC. The CSO sees the Treasury’s intent as “encouraging” and said they intend to work with regulators on appropriate crypto policies.

A few cryptocurrency firms, including Anchorage and Protego Trust Bank, have already won conditional bank charters from the Office of the Comptroller of the Currency (OCC).

However, under the former Acting Comptroller Brian Brooks, OCC made strides regarding crypto by giving national banks permission to offer crypto custody services, work with crypto custodians, and conduct payment using stablecoins.

Recently, Acting Comptroller Michael Hsu warned that crypto could threaten the financial system.

White House Calls A Meeting On Crypto’s Illicit Use

This week, the White House also said that top US national security advisers would be meeting with officials from 30 countries this month to work on plans to combat the growing threat of ransomware and other cyber crime.

An online session will also be hosted by the White House National Security Council aimed at “improving law enforcement collaboration” on issues like “the illicit use of cryptocurrency,” says the statement by President Joe Biden.

One White House official told the media that they are particularly eager to address “the misuse of virtual currency to launder ransom payments” and intend to “investigate and prosecute ransomware criminals,” many of whom are anonymous and attack institutions in other countries.

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Author: AnTy

Consensys, R3, eCurrency, Diem & Other Banking, and Payments Giants to Help BoE with CBDC

BoE Selects Consensys, R3, eCurrency, Diem Association & Other Banking and Payments Giants to Help with its CBDC

This week, the Bank of England announced the membership of the central bank digital currency (CBDC) Engagement and Technology Forums.

The creation of the groups was first announced in April this year alongside the CBDC task force to explore the potential of a UK CBDC.

Besides gathering input on all technical aspects and engaging stakeholders, the Technology Forum will help the bank understand the challenges of designing, implementing, and operating a CBDC.

The list published by the central bank includes some notable names from the world of payments and financial technology.

Members of the Engagement Forum include executives from HSBC, Starling Bank, Morgan Stanley, Standard Chartered Bank, NatWest Group SWIFT, PayUK, Visa, Mastercard, PayPal, Google, Facebook’s Diem Association, and many others.

As for Technology Forum, the members are Monzo, Spotify, Stripe, Amazon Web Services, IBM, R3, eCurrency, Consensys, Initiative for Cryptocurrencies and Contracts (IC3), and the Project Lead of Blockchain & Digital Currency at World Economic Forum.

The Technology Forum met for the first time in late September, and the Engagement Forum will have its inaugural meeting later in the year, it said.

“The Forum will have an important role in helping the Bank and HM Treasury understand the practical challenges of designing, implementing, and operating a CBDC.”

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Author: AnTy

Govt. Doesn’t “Do Banking Well,” JPMorgan CEO says It’s All About Transparency, Rule Of Law, And Governance

Govt. Doesn’t “Do Banking Well,” JPMorgan CEO says It’s All About Transparency, Rule Of Law, And Governance

Jamie Dimon says Bitcoin is “going to be regulated” and sees speculation due to the “tsunami” of money flows and liquidity to send it to $400,000 in five years.

While banking giant JPMorgan CEO Jamie Dimon has no love lost for Bitcoin and continues to blast the leading cryptocurrency, he can still see the digital asset rising 10x in value in coming years.

As of writing, Bitcoin is trading just above $43,400, and a 10x jump would mean BTC would be worth $430k by 2026 end.

Dimon shared his views on Bitcoin in an interview with the Times of India, where he yet again criticized the cryptocurrency, saying, “I don’t really care about Bitcoin.”

According to him, “people waste too much time and breath on it.” Not to mention, he doesn’t know if it’s an asset, foreign exchange, or a currency.

What he does know is that the cryptocurrency “is going to be regulated” because “governments regulate just about everything.”

Bitcoin, he further said, would be subjected to securities laws “that will constrain it to some extent.” Personally, he’s not a buyer of bitcoin and thinks,

“if you borrow money to buy bitcoin, you’re a fool.”

But at the same time, “that does not mean it can’t go 10 times in price in the next five years,” and the billionaire CEO doesn’t care about that.

Dimon compared the crypto asset to beanie babies, tulip bulbs, and internet stocks, saying,

“Speculation happens in every market around the world… So, I don’t know why there is a surprise with a lot of speculation, particularly when there’s as much liquidity in the system.”

While Dimon personally hasn’t shown interest in the cryptocurrency publicly, the bank has started to allocate to the market and allowed its wealthy clients to invest in the asset class.

During his interview, the CEO also talked about the fear of inflation which he said is a “legitimate concern” because “the world has embarked on massive amounts of quantitative easing and fiscal stimulus. They are powerful drugs into the system.”

But with growth being the antidote for everything and money printing driving growth, he sees inflation as transitory.

“The stock market anticipates healthy growth and earnings. The bond market may not anticipate that, and that may be because the flows of money and liquidity are so high — it’s like a tsunami coming over them.”

He further commented on banking, which he says governments “don’t do well.” As for bank privatization, he said it’s about “transparency, rule of law, ability to operate governance, accounting, all those various things,” which, if done right, could provide “very vibrant banks.”

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Author: AnTy

Morgan Stanley Discloses Holding More than 5.8 Million GBTC Shares

In its filing with the US Securities and Exchange Commission (SEC), banking giant Morgan Stanley revealed that it owns a large amount of Grayscale Bitcoin Trust (GBTC) shares, currently trading at $39.12, at a 13.36% discount to Bitcoin, which is hovering around $47k.

Morgan Stanley owns GBTC shares across multiple portfolios, with the largest 928,051 shares held by its Insight Fund.

Twelve separate mentions of Morgan Stanley Institutional Fund Inc show a collective 4,772,064 GBTC shares, while two of the three Morgan Stanley Variable Insurance Fund Inc. owns a total of 179,703 GBTC shares.

Overall, the bank owns 5,879,818 GBTC shares worth $230 million.

Additionally, all of the Morgan Stanley Institutional Fund Trust shows 611,868 GBTC shares in the filing.

Back in late June, when BTC was trading in the below $30,000s, Morgan Stanley had also disclosed a position worth $1.3 million in GBTC via their Europe Opportunity Fund.

With trillions of dollars in assets under its management, Morgan Stanley is one of the biggest traditional participants to explore cryptocurrencies and investing in crypto infrastructure.

Competitors Wells Fargo, JPMorgan, and Goldman Sachs, are also investing in the crypto space and planning to offer their clients access to cryptocurrencies.

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Author: AnTy

Texas Banking Department says Chartered Banks are Allowed to Provide Virtual Currency Custody Services

Texas Banking Department says Chartered Banks are Allowed to Provide Virtual Currency Custody Services

“Texas leads the way,” said Texas Blockchain Council as it noted that the Texas Department of Banking has issued a notice saying that chartered banks in the state may provide customers with virtual currency custody services, as long as they have adequate protocols in place to effectively manage risks.

The notice called “Authority of Texas State-Chartered Banks to Provide Virtual Currency Custody Services to Customers” was published on June 10.

In the notice, the department said that while custody and safekeeping of cryptos will differ from more traditional assets, it believes that “the authority to provide these services with respect to virtual currencies already exists pursuant to “Texas Finance Code.”

It is up to the bank which custody services it chooses to offer based on its expertise, risk appetite, and business model. They can either store copies of the customer’s private keys or take direct control of the bank. Basically, the banks will have to determine which storage option best fits the circumstances.

In a non-fiduciary capacity, the bank acts as a bailee, taking possession of the customer’s asset for safekeeping while legal title to that asset remains with the customer, but the bank owes its customer the duty to use proper care to keep the asset safely and to return it unharmed upon request.

As for offering custody services in a fiduciary capacity, the bank has the authority to manage virtual currency assets as it would any other type of asset held in such capacity.

However, banks are required to conduct due diligence and when offering new crypto services and implement controls; of technical, physical, and administrative nature, to measure and monitor relevant risks associated with custody of digital assets.

Establishing a relationship with a service provider with expertise in handling virtual currency is also recommended as part of due diligence, as per the notice.

The banks offering crypto services are further required to have adequate coverage with their insurance carrier.

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Author: AnTy

Software Provider Temenos Enables Crypto Trading for Banks

Banking software provider Temenos has announced a partnership with online digital asset firm Taurus to enable access to cryptocurrency for financial institutions.

Per its press release, the integration would make it easier for banks to offer cryptocurrency trading to their clients via Taurus’ platform.

Temenos Leveraging Taurus Blockchain Expertise

This will see Temenos’ banking clients exposed to a plethora of blockchain solutions like Taurus-CAPITAL (tokenization and lifecycle management), Taurus-PROTECT (hot, warm, cold digital asset custody), and Taurus-EXPLORER (API-based blockchain connectivity to ten blockchain protocols).

All this will now be accessible through the Temenos MarketPlace.

Temenos notes that Taurus was selected after a thorough review and evaluation process to help banks seamlessly integrate all forms of digital assets across cryptocurrencies, tokenized assets, and digital currencies.

Taurus will be integrated with Temenos’ next-generation core banking software called Temenos Transact.

Speaking on the occasion, Managing Partner at Taurus Sebastien Dessimoz noted that there had been an increase in demand for digital assets since 2020.

According to Dessimoz, Taurus’ blockchain expertise would aid Temenos clients in managing any digital asset and creating digital products easily.

Geneva-based Taurus received a securities license from the Swiss Financial Market Supervisory Authority (FINMA) to launch the regulated crypto marketplace dubbed the Taurus Digital Exchange (TDX).

Taurus said that TDX would enable investors and banks to trade tokenized securities, private assets, real estate, art, non-fungible tokens (NFTs), and cryptocurrencies.

Taurus is a seasoned blockchain company as it offers services for cryptocurrencies, including staking and decentralized finance (DeFi), tokenized assets, and digital assets, all within its platform.

Taurus Integrates Aave

Taurus has continued to grow its product suite. In March 2021, the Swiss digital asset provider added DeFi protocol Aave to its asset infrastructure. The integration would enable banks and exchanges to deposit and borrow cryptocurrencies like Ether.

Aave, a DeFi protocol catering to both institutional and retail users, facilitates borrowing and lending of digital assets has experienced exponential growth alongside the broader crypto market.

Banks are gradually warming up to decentralized finance (DeFi) protocols like Aave, as the amount of funds locked up in DeFi protocols rises above the $80 billion mark, per DeFi Pulse.

In a research paper published earlier this month by Netherlands-based ING Bank, it was agreed that both centralized and decentralized financial systems need to co-exist to achieve success. The paper states:

“Although DeFi currently appears to be a domain on its own, we envision that centralized and decentralized financial services will converge at some stage as both have unique capabilities that are beneficial to the other. There is, however, the challenge for centralized institutions of making sure that their assets stay within countries that are white-listed.”

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Author: Jimmy Aki

ING Report: How Blockchain & DeFi Will Change The Financial Landscape

ING Report: How Blockchain & DeFi Will Change The Financial Landscape

Multinational banking services provider ING bank has lent its voice in the ongoing debate surrounding decentralized (DeFi) and centralized finance (CeFi).

In a detailed whitepaper published on its website, the Amsterdam-based financial institution expounded on the pros and cons surrounding DeFi and how centralized finance could help institute a new economic system.

Collaboration Between DeFi and CeFi Beneficial For Global Finance

The paper titled “Lessons Learned from Decentralized Finance (DeFi)” opens by admitting the radical change decentralized finance (DeFi) has brought into the financial space.

Noting that DeFi aims to replace intermediaries with automated digital smart contracts, ING argues that negative opinions surrounding the emerging technology paint it as a foe rather than an ally.

In the 22-paged document, the European financial powerhouse noted that CeFi could help address DeFi’s area of weakness, pointing out know-your-customer (KYC) protocol.

It concluded by saying that if both entities collaborate, this could see the best of both worlds coming together to birth a new financial order.

Speaking on the document, ING’s blockchain lead Herve Francois argues that DeFi could substantially be more disruptive for the finance sector than Bitcoin has been.

Decentralized finance (DeFi) follows on the back of Bitcoin’s decentralization ethos of 2008. This nascent industry has grown exponentially in the last four years, with the largest DeFi facilitator Ethereum, boasting over $76 billion worth of assets under management (AUM) single-handedly.

The booming crypto market has seen other decentralized protocols springing up, with many providing legacy-backed services for a fraction of the cost.

Legacy Institutions Could Help DeFi

Pointing to some of the key takeaways from its study of the DeFi ecosystem, ING noted that counterparty risk is replaced with technical risk in the purely digital form of financial services.

The paper highlighted eight key features of the DeFi ecosystem that makes it rise above the current financial system naming composability, flexibility, decentralization, accessibility, innovation, and three other points.

The borderlessness that comes naturally to DeFi is a major plus, given that conventional financial institutions spend so much time and resources complying with local laws of countries they branch out to.

However, ignoring anti-money laundering (AML) and KYC requirements were the weak feet of DeFi, and this is an important area centralized finance could come in.

Using DeFi lender Aave as a case study, ING said that this disruptive technology had more accuracy, transparency, and speed than its centralized counterparts. However, it agreed that the novelty of the protocol came with inherent technical risks.

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Author: Jimmy Aki

Oracle Service API3 Inks Deal With OBP To Merge Conventional Banking With DeFi

Oracle Service API3 Inks Deal With OBP To Merge Conventional Banking With DeFi

Popular oracle provider API3 has partnered with the Open Bank Project (OBP) to bridge the gap between traditional banking services and blockchains.

This ten-year partnership aims to connect over 400 banking APIs to blockchain smart contracts using “Airnode,” an open-source gateway developed by API3.

Bringing Fintech And Banking Customers Into DeFi

API3 is a startup focused on porting data into blockchains. It terms itself as a DAO-governed protocol that provides decentrally governed and quantifiably secure data feeds.

OBP, on the other hand, provides API data in the banking industry.

According to OBP founder Simon Redfern, the partnership between API3 and OBP would merge banking APIs with blockchain smart contracts, Web 3.0 applications, and decentralized finance (DeFi), thereby bringing fintech and banking customers into DeFi.

Redfern also said that he hoped the collaboration would serve as a framework for financial regulators to explore and create new standards for the blockchain economy to converge with banking-based digital offerings.

This move by the two companies would allow developers to explore blockchain solutions, such as data and identity verification systems.

Greater Interests In Oracle Providers

Oracle providers in blockchain are third-party services that help networks access off-chain data. They provide smart contracts with external information. Oracle providers have seen greater interest recently, as their tokens have seen their valuations rising.

Apart from API3, other oracle providers leading the market include Chainlink (LINK), Band Protocol (BAND), and DAI.

Chainlink is, in fact, a market leader with a market capitalization of $16 billion. It has integrated with over 400 projects to date. It is now working on second-generation solutions, as seen in its newly released whitepaper.

Another market leader, Band Protocol, recently announced an integration with Google Cloud Public Data to enable immediate and accurate financial time series data analysis.

With this integration with Google Cloud, traditional, hybrid blockchain and cloud applications can be built to leverage unique data feeds from decentralized oracle services, as reported by the company.

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Author: Jimmy Aki