#FinTech & #Stablecoin Policy: No #Pandemic Problem Here
Every day this week, this blog features details of major policy initiatives that have not been derailed by the pandemic. Mostly, these developments have been lost in the noise in the news cycle. But our PolicyScope platform users and our daily COVID19 Report readers have watched the incremental forward progress on each of these important issues.
Today’s focus is on FinTech and digital currency policy. This post first identifies three macro-trends and then analyzes what platform data tells us about those trends. It closes with a summary of the key developments in March and April 2020.
Three Macro Trends
Restrictions on personal mobility necessarily require consumers and businesses to increase their reliance on electronic means of payment. By itself, this would not necessarily intensify policymaking regarding FinTech and digital currency issues.
Three macro-trends specific to the pandemic accelerate policy formation.
1. Contagion Risk (Literally): When people do venture out from home in order to make necessary purchases, increasingly they are concerned about the physical currency being a carrier for disease. They are not alone. The United States, South Korea and other nations began to quarantine and disinfect banknotes returning home from abroad in early February. More recently, Singapore formally encouraged consumers to rely as much as possible on contactless payment options.
2. Fiscal Stimulus Distribution/Financial Inclusion: Efforts to accelerate the transmission of economic stimulus at the retail level require direct payment options from the government to the individual. Expanding the availability of these payment mechanisms deeper into the underserved or low income cohorts within a population will additionally hold the benefit of enhancing broader societal goals regarding financial inclusion. While this can raise many thorny issues regarding data privacy and civil liberties, the usual advocacy groups have been muted in their response given the severity of the economic crisis.
It is far from clear that these trends necessarily benefit cryptocurrency issuers, particularly given the flight to quality over the last two months that have seen investors dump BitCoin in order to purchase fiat currencies issued by sovereigns, particularly the U.S. Dollar. At a minimum, the situation will at least immediately benefit efforts to launch central bank digital currencies. It also creates the foundation for expanding efforts to regulate digital currencies directly linked to sovereign-issued fiat currencies (stablecoins).
3. Consumer Protection: A distributed workforce with individuals sequestered at home increases their vulnerability to scams. Policymakers are responding by pivoting their priority agenda items to address consumer protection initiatives.
As this list indicates, increased public policy attention regarding FinTech and digital currency issues is a double-edged sword for the industry. While some trends create incentives for increased reliance on digital payments, digital currencies, and online financial services, other trends create incentives for policymakers to expand the regulatory perimeter deeper into the technology ecosystem.
The Data Shows Policymakers
Choose Priorities Carefully
Our patented PolicyScope platform demonstrates starkly the prioritization underway. For scale, of course nothing beats the activity levels regarding COVID9-19:
But policymaking is not always a big data event. Often, the most strategic developments occur quietly beyond the glare of the media as we noted in this post for Interactive Brokers last year.
Given the scale of the pandemic, it is surprising to see significant policymaking in any other policy area currently. Let’s start with the broad FinTech and stablecoins categories:
So far, policymaking regarding FinTech and stablecoins peaked in March with a slight downturn heading into April. However, aggregate April activity is not too far below the January levels. More importantly, the drop-off is not steep compared with other issue areas:
Faced with limited resources and distributed workforces, policymakers clearly prioritized maintaining momentum in certain work flows (e.g., stablecoin regulation) over others (e.g., CBDCs, payment systems, and cryptocurrency regulation).
The data also deliver two additional strategic insights:
* Relative Priorities: Any action taken in March and April merits close scrutiny, even at low aggregate volume levels. If the issue was important enough to warrant policy action amid the onset of a pandemic, this indicates a higher level of commitment to the policy in question.
* Increased Policy Risks: The classic high-level definition of risk is: an unanticipated outcome. If the low volume level activities failed to attract significant media attention (such as the Bank of England’s April actions regarding central bank digital currencies), the risk of a policy surprise at mid-year or year-end 2020 increases because most people would not be aware that in the middle of a pandemic significant steps were taken along a policy trajectory.
To illustrate the point, consider the selected list of key developments below. In normal times, many of these actions would generate considerable attention. They certainly signal shifts and acceleration in policy trajectories. But mostly, they flew below the radar. Our PolicyScope platform captured each development as it occurred, making it easy to register the policy shift on a daily basis.
Selected Key FinTech Developments Amid the Pandemic
The following developments stand out as being significant. While central bank and financial regulation policymakers were jettisoning rule books and extending compliance deadlines, FinTech and digital currency policy was shifting into over-drive.
* Commodity Futures Trading Commission: The Commodity Futures Trading Commission issued an interpretive guidance designed to increase flexibility regarding the regulatory treatment of “physical delivery” for cryptocurrency trading.
* IOSCO: The International Organization of Securities Commissions in early April scrapped its 2020 workplan in order to increase its focus on “specific investor protection issues, market integrity or conduct risks that may arise in the context of the COVID - 19 crisis.” Subsequent to that announcement, they did roll out new initiatives regarding sustainability and climate change. Consequently, the conclusion has to be that international policymaking with respect to cryptocurrency trading is at a standstill.
* Monetary Authority of Singapore: The MAS issued a formal statement actively urged individuals and businesses to rely on digital payments rather than bank visits (and, implicitly, rather than cash) in order to combat COVID19 transmission. The central bank will also be launching a promotional campaign to increase adoption of existing contactless and digital payments.
* The Financial Stability Board: Released a report to the Group of Twenty that establishes a “roadmap to enhance cross-border payments.” The accompanying technical note makes clear that policymakers mostly aim at addressing frictions and inclusion issues associated with remittances (high volume, low value personal transactions). The Annex also describes how distributed ledgers could function within financial systems. Only two of those use cases involve shared ledgers. Only one of those use cases involved relying on a third party to manage the ledger.
* The BIS Committee on Payments and Market Infrastructure + World Bank Group: Released a report highlighting a broad range of ways in which increased reliance on FinTech solutions can “promote financial inclusion.” It is rare to see any part of the Bank for International Settlements actively promoting third party technology solutions in general. It is particularly rare to see a BIS committee wading so deeply into policy areas closely aligned with social cohesion policy. This may also be the first time that a BIS committee has formally and publicly coordinated with the World Bank.
* De Nederlandsche Bank: The Dutch Central Bank, in cooperation with the Dutch Payments Association released data on 20 April 2020 indicating that cash withdrawals from ATMs were down -30% during the early coronavirus mitigation period. They attribute this decrease not only to mobility limitations designed to contain disease transmission but also to (i) government advice to consumer to use contactless payments and (ii) bank policies that increase limits on contactless payments so that individuals do not need to enter PIN numbers when using debit cards. They conclude by noting that “the question is whether this shift will be of a permanent nature once the coronacrisis is over.”
* Electronic Stimulus Distribution: The distribution of Stimulus #3 funding in the United States occurs through direct deposits, which is a form of electronic currency. Academics and privacy advocates will have a field day analyzing the implications of how the federal government can identify and issue payments directly to personal bank accounts. However, during the debate, not less than three different pieces of legislation were introduced to accelerate American reliance on digital payments. These included bills from Sen. Sherrod Brown (Senator Sherrod Brown’s bill authorizing banks and post offices to provide “digital wallets” and two bills in the House (one introduced by the Speaker of the House, the other introduced by the Chairman of the Financial Services Committee) referencing a “digital dollar” and, amazingly, authorizing the Federal Reserve to create a direct relationship with individuals in order to distribute the digital dollars. Separately, the Consumer Protection Finance Bureau loosened its rules regarding inbound payments as well as outbound remittances in order to facilitate access to non-paper payments and facilitate financial inclusion.