Ride along with me as we read between the lines of DC Fintech Week. Least controversial is the relevance of AI. More spicy is the conversation on crypto within the regulated financial system.
8:45am Elisa De Anda Madrazo, President of FATF. Context 1: She’s a Mexican civil servant on secondment to FATF (not Trump appointee or American, this is relevant). Context 2: FATF AML compliance is always one of the biggest hurdles to building anything new in fintech or payments.
- She’s pro-innovation and pro financial inclusion (notable!).
- “We are here to protect people, society and financial system.”
- Wants to change historical thinking of tradeoff between inclusion vs safety. ‘But this is not a tradeoff.’ If we don’t do inclusion we don’t have light on transactions and flows. And dark flows create more risk, not less.
- Actions: changing rules to allow simplified rules for lower-risk use cases.
- Fintechs complain that regulators are not passing this through yet, so current focus is on prioritizing risk-based rules through global regulators.
- “Criminals are first movers” with technologies. Not changing their crimes but scaling up. Governments are not doing a good job (yet) at using AI. Need to catch up.
- Crypto / travel rule has been a problem, but crypto industry has come forward with solutions. Problem is that blockchains are public by default but AML/CFT requires identifying info to flow with transactions.
- FATF view is crypto needs to play by same equitable standards as all other rails.
9:15am FDIC Travis Hill, Acting Chairman FDIC (former deputy, now Trump Appointee – this is relevant)
- Under GENIUS Act, FDIC now supervises institutions issuing stablecoins (OCC for non-banks). Application and licensing framework.
- Priorities are Debanking: we want to have a banking system that serves all ‘law-abiding’ Americans. And we want to promote financial inclusion, regardless of ‘political views’. Debanking also a big complaint of crypto industry. (But what of common debanking of other sectors like the sex industry? – conspicuously not mentioned.)
- Thinks it’s an ill-advised approach to push custody and crypto outside of the banking sector.
- Interesting: “Turning on pipeline of new banking licensing is critical.” Only 90 new since financial crisis, lower than lowest annual rate before.
- Developing policy and looking at capital requirements, managerial requirements as barrier to de novo banks.
- Deposit Insurance should have a high bar, but to have a pipeline we’ll need more flexibility in rules.
10a-11a Themes from Blockchain convos with CITI, Ripple, Custodia and others
- FED and OCC are NOT aligned with FED (JPow) and SEC (Gensler) on policy and FED is hostile to Trump’s priorities (and by extension crypto), which freezes things.
- Crypto companies have had master account applications open with the FED for 5 years. “Fed would be happy to keep those apps open for 50 yrs.”
- Ripple Founder: $150M lawsuits shouldn’t be the only way to find regulatory clarity [fair].
- Citi says their clients want to move money but they don’t care how. Using private blockchain and their own coin. Citi token services are focused on institutional money movement [not so much retail].
- Argument is that crypto represents innovation, inclusion, the rest of the world is doing it so US should too. And that a regulated and visible industry is better than the alternative.
Between the lines: The disingenuity is that cryptoverse is not also still fraught with grift, systemic risk, and bad actors. Can we make crypto healthy by institutionalizing it? Are we to believe Trump is really the responsible champion that crypto needs?… while simultaneously hawking his own shitcoins on the White House lawn?