KT Fintech Blog

The KT Fintech Blog provides insights into how the emergence of fintech is fundamentally changing virtually every aspect of the financial services landscape and how traditional businesses navigate this rapidly evolving industry.

Archive for February 2018

Posted on Friday, February 23 2018 at 6:43 am by -

Another Regulator Warns About Digital Currency Risks

By Eamonn K. Moran    

During a February 22, 2018 press briefing on the progress of recovery efforts in Puerto Rico and the U.S. Virgin Islands since last year’s hurricanes, Federal Reserve Bank of New York President William Dudley cautioned that investing in privately issued digital currencies such as bitcoin could result in significant financial losses for those involved.  His remarks came in the context of responding to a question about cryptocurrency advocates setting up shop in Puerto Rico’s economy.

“There is a bit of a, I would say, speculative mania around cryptocurrencies in terms of their valuations, which I view as pretty dangerous, because I don’t really see what the actual true underlying value of some of these cryptocurrencies actually is in practice,” Dudley stated.  For privately issued digital currency, “it’s essentially what people think it’s worth, which seems to me somewhat dangerous,” he stated.

According to data from the website CoinMarketCap, all private digital currencies now total just shy of $450 billion, compared with Federal Reserve data that shows there is approximately $1.6 trillion in U.S. currency in circulation.  During the past year, bitcoin’s price has ranged from a low of $945.59 on March 20, 2017, to a high of $19,501.03 on December 18, 2017.  Its value currently stands at just under $10,000.

Dudley’s remarks added to a series of recent central bankers’ warnings and cautions on the issue, after a volatile period for digital currency. Earlier this month, European Central Bank President Mario Draghi stated that digital currencies should be regarded as “very risky assets.” According to Reuters, Bank of England Governor Mark Carney reportedly commented earlier this week that bitcoin “had pretty much failed thus far” as a form of money. We previously reported on a speech given by Federal Reserve Vice Chairman for Supervision Randal Quarles in November, in which he stated that “[w]hile these digital currencies may not pose major concerns at their current levels of use, more serious financial stability issues may result if they achieve wide-scale usage.” Quarles also opined that, in his view, the alternative to privately issued digital currency in the United States is not necessarily a publicly issued digital currency. Rather, he would like to enhancements and improvements to the banking system’s services so that the United States could have a “real-time payment system that would allow banks and their customers to make transfers and settlements of funds across the banking system instantly, conveniently, and securely all the time.”

Posted on Thursday, February 15 2018 at 11:30 am by -

CFPB Releases FY2018 – FY 2022 Strategic Plan

By Eamonn Moran    

Earlier this week, the Consumer Financial Protection Bureau (CFPB or Bureau) released its five-year Strategic Plan that establishes its mission, strategic goals, and strategic objectives.  This Strategic Plan presents an opportunity to explain to the public how the Bureau intends to fulfill its statutory duties consistent with the strategic vision of its new leadership.

The CFPB is required to prepare and publish a five-year Strategic Plan in accordance with the Government Performance and Results Act (GPRA) and GPRA Modernization Act. The prior Strategic Plan was published in April 2013. This new plan is a revision of the draft released in October 2017.

CFPB Acting Director Mick Mulvaney states that in reviewing the draft Strategic Plan released by the Bureau in October 2017, “it became clear to [him] that the Bureau needed a more coherent strategic direction.”  The plan draws directly from the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and refocuses the Bureau’s mission on regulating consumer financial products or services under existing federal consumer financial laws, enforcing those laws judiciously, and educating and empowering consumers to make better informed financial decisions.

Among changes from the prior Strategic Plan, the CFPB states that it will now focus on “equally protecting the legal rights of all, including those regulated by the Bureau, and will engage in rulemaking where appropriate to address unwarranted regulatory burdens and to implement federal consumer financial law and will operate more efficiently, effectively, and transparently.”

According to the Strategic Plan, the CFPB will achieve its mission and vision through: (i) seeking the counsel of others and making decisions after carefully considering the evidence; (ii) equally protecting the legal rights of all; (iii) confidently doing what is right; and (iv) acting with humility and moderation.

“If there is one way to summarize the strategic changes occurring at the Bureau, it is this: we have committed to fulfill the Bureau’s statutory responsibilities, but go no further,” said Mulvaney. “By hewing to the statute, this Strategic Plan provides the Bureau a ready roadmap, a touchstone with a fixed meaning that should serve as a bulwark against the misuse of our unparalleled powers.”

We note that this revised Strategic Plan does not provide any information about existing or potential future regulations or enforcement or supervisory initiatives.

Posted on Thursday, February 8 2018 at 6:49 am by -

State Regulators Take First Step to Standardize Licensing Practices for Fintech Payments

By Eamonn Moran

Earlier this week, the Conference of State Bank Supervisors (CSBS) announced that seven states have agreed to a multi-state compact that standardizes key elements of the licensing process for money services businesses (MSB).  Pursuant to the agreement, if one state reviews key elements of state licensing for a money transmitter – IT, cybersecurity, business plan, background check, and compliance with the federal Bank Secrecy Act – then other participating states agree to accept the findings.  The result is expected to significantly streamline the MSB licensing process.  The states announcing this agreement are Georgia, Illinois, Kansas, Massachusetts, Tennessee, Texas and Washington. Other states are expected to join this compact.

In May 2017, state regulators, operating through the CSBS, issued a policy statement establishing the 50-state goal.  This announcement is a key component of CSBS’s Vision 2020, which is a series of implementation initiatives directed at transforming the licensing process, harmonizing supervision, engaging fintech companies, assisting state banking departments, making it easier for banks to provide services to non-banks, and making supervision more efficient for third parties.

This multi-state compact represents the first step among state regulators in moving towards an integrated, 50-state system of licensing and supervision for fintech companies.  “This MSB licensing agreement will minimize the burden of regulatory licensing, use state resources more efficiently, and allow for broad participation by other states across the country,” said John Ryan, CSBS president and chief executive officer.