Tuesday, November 19, 2019

A few fintech regulation-related news items from today

Today, I read about at least two interesting fintech regulation-related news items.

First, the New York State Department of Financial Services “has granted a charter under New York Banking Law to Fidelity Digital Asset Services, LLC (FDAS), to operate as a limited liability trust company as part of the state’s rapidly growing virtual currency marketplace.” (here)

Second, CFTC Chairman Heath Tarbert published an op-ed, Fintech Regulation Needs More Principles, Not More Rules, in Fortune magazine (here).  The title aptly summarizes this short piece.  In general, I tend to agree with Tarbert that “a principles-based approach is the best way to govern this emerging market,” but that some areas, such as customer protection, might be “more suited to a rules-based approach.”  Tarbert also notes that “CFTC staff is currently considering how the core principles applicable to exchanges…and clearinghouses…can be better tailored for fintech,” and that “core principles have been central to our evaluation of clearinghouses that would clear derivatives resulting in delivery of Bitcoin” (information about ICE’s physically settled Bitcoin contracts here).

In a former post (here), I wrote:

A participant [at the December 2018 MRAC meeting] briefly remarked that clearinghouse default funds for crypto assets should be kept separate from default funds for other assets.  From my perspective, this makes complete sense, at least for the near future.  However, the CME explains: “Bitcoin futures will fall into CME’s Base Guaranty Fund for futures and options on futures, as any newly listed futures.”  The CME, Inc. (because of its division, CME Clearing) is a designated, systemically significant financial market utility under Title VIII of Dodd-Frank.  This issue of crypto asset clearing is itself worthy of its own post!    

In need of much more discussion – at least from my perspective – are the increased cryptocurrency-related offerings (including clearing) of some of the most important infrastructures in our global financial markets: trading exchange groups (and their clearinghouses).  I definitely still think crypto asset clearing deserves much more focus and its own post.  Maybe I’ll write that soon.  In the meantime, I’d love to see more debate by academics and others about the potential benefits and risks of the continued march down this path.      


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