Group items tagged

"Considering that the Bank Secrecy Act was passed in 1970 as a way to monitor foreign accounts and is now responsible for over 26 million reports on Americans a year, it should be no surprise that people are worried about the threat a CBDC could pose to financial privacy. There is little doubt that government officials will tout the risks of terrorists, drug cartels, and money launderers to justify the surveillance that a CBDC would bring. But surveilling "for bad actors" inevitably means surveilling innocent people as well. It's time to reduce financial surveillance, not further entrench it. Introducing a CBDC would mark the end of what little financial privacy is left in the United States."

According to Circle CEO Jeremy Allaire, in the world of crypto assets, on the Treasury's proposed crypto-asset wallet rule: a report that includes a blockchain address essentially gives law enforcement a data feed that includes identity + blockchain addresses and the ability to monitor, in real-time, all of the that customer's flows. This is without any consent. Digital bearer assets with public chains combined with identity is a level of surveillance that does not exist in the existing financial system.

"Before U.S. President Joe Biden signed the Infrastructure Investment and Jobs Act into law in November, many groups spoke out against a provision that broadens the tax code's definition of "broker." But there is another hidden cryptocurrency provision in this new law that amends part of the tax code in a way that will greatly expand financial surveillance, criminalize certain cryptocurrency transactions and, in my view, violate the Fourth Amendment of the U.S. Constitution."

"The Commission previously approved ETPs that hold only futures contracts that trade on the CME, which is registered with the CFTC; those ETPs' underlying assets are thus subject to robust surveillance," it said. "The bitcoin spot market, by contrast, is fragmented and unregulated, and petitioner presented no supportable basis to conclude that the CME's surveillance of futures trading would sufficiently detect and deter fraud and manipulation targeting the bitcoin spot market and thereby protect against fraud and manipulation in Grayscale's product." https://grayscale.com/wp-content/uploads/2022/12/Reply-Brief-of-Respondent-SEC-12092022.pdf

Canada's Centre for International Governance Innovation (CIGI) Digital Policy Hub published a paper by Ori Freiman on central bank digital currency (CBDC) governance, focusing particularly on programmability and privacy/surveillance. Although programmable money and payments can support social policies, they also raise questions about the authorities' influence and control, and how to ensure there is no abuse of power. Privacy is a significant CBDC design challenge because meeting financial integrity (e.g., AML/CFT) requirements while offering cash-like anonymity seems incompatible. Authorities' access to citizens' data could lead to state-level surveillance, threatening civil liberties and human rights. Even if safeguards are put in place, CBDC infrastructure could be changed and initial safeguards overridden, rendering this risk a time-consistency problem. Eleven policy recommendations are suggested on privacy and data rights, accessibility, public participation and oversight, prohibiting programmable money, legislation protecting cash and more.

According to Ledger Insights, the wording of the CBDC Anti-Surveillance State Act (H.R. 5403) recently passed by the U.S. House of Representatives is too broad and will have unintended consequences. The bill will require the Federal Reserve to obtain congressional approval before issuing a central bank digital currency (CBDC). However, the wording is very sloppy, particularly by blurring the lines between retail and wholesale CBDC. For example, it could prohibit the current practice of using remuneration on commercial bank reserves held at the Fed as a policy tool, by not recognizing that those reserve balances are already wholesale CBDCs, albeit not on a distributed ledger. However, hopefully that can be sorted out as it moves through Congress.

The US House Financial Services Committee considered Majority Whip Emmer's CBDC Anti-Surveillance State Act. The bill was passed out of the Committee and reported favorably to the House floor during the markup session, an important step toward passing this legislation through Congress. The Act would prevent the Federal Reserve from issuing a central bank digital currency (CBDC) directly or indirectly to individuals or maintaining accounts on behalf of individuals. It would also prohibit the Secretary of the Treasury from directing the Federal Reserve to issue a CBDC and clarifies that a CBDC can only be issued pursuant to congressional authorization. https://docs.house.gov/meetings/BA/BA00/20230920/116343/BILLS-118-HR5403-E000294-Amdt-12.pdf

"Democratic concerns must be a part of the discussion about a national digital currency. Similar worries about privacy, surveillance and national digital currency were also raised in the European Union, the United States and elsewhere. Launching the digital Canadian dollar is a political decision, not a technological one. Ensuring freedom is the same. For the digital Canadian dollar and the Bank of Canada to be trusted, these worries must be addressed and mitigated. If the decision to issue this digital money is made, it needs to be done in a responsible manner"

The European Commission will provide a prototype of a EU Digital Identity Wallet (EUDI) as set out in the proposed European Digital Identity Regulation. The proposal aims to enable European citizens and businesses to share identity data in a secure and convenient way. The prototype wallet serves to trial and inform the specifications developed by Member States, as the common EU Toolbox to implement the EUDI. It will be tested in a number of large scale pilots that cover different sectors and will be made available for re-use by contributors as open source. Meanwhile the Brownstone Institute points to some of the EUDI's significant ethical and surveillance concerns that should be extensively discussed and debated by the public.

Tom Emmer, a member of the US House of Representatives, has introduced a new bill to prohibit the Federal Reserve from issuing a retail CBDC. "My bill, which prohibits the Fed from issuing a CBDC directly to individual Americans, is a statutory prohibition on a surveillance tool that could be used to kill private sector innovation and deflate the dollar's dominance."

The Boston Fed is looking at setting up a "supervisory node," a regulatory surveillance tool that should be able to connect to various banking blockchains. This node will watch the money flows and settlements between different banks.

"Our results show that effective governance institutions are associated with a less restrictive regulatory stance on cryptocurrency, whereas financial openness is not found to be significant. The results imply that a certain level of institutional quality may be necessary before opening up to new forms of financial technology. As cryptocurrency is recognized as a risky speculative financial instrument, its current state of many unknowns can prevent policy makers from conducting a thorough surveillance to avoid system-wide vulnerabilities."

The ECB says the "central banking community" will refine its monitoring of crypto transactions, both on- and off-chain. In an Aug. 7 report the ECB argues that "closing the data gaps associated with crypto-assets" continues to pose a significant challenge for regulators and financial institutions.

According to the Blockchain Transparency Institute's 5th market surveillance report the cleanest exchanges are Kraken, Coinbase, Poloniex, and Upbit. Since the start of 2019, global wash trading has reduced by 35.7% among the real Top-40 exchanges.

Anecdotally, some non-U.S. traders have told me that they actually prefer the more lightly surveilled Tether because they feel that it's less likely that their coins get arbitrarily frozen for violating the terms of service.

"Bitcoin is vulnerable to government surveillance and prohibitions that could quash crypto exchanges and drive trades underground. But it arguably could survive underground better than could a banking system based on commodity redeemability that must be openly accessible to be trustworthy. If Bitcoin will continue to thrive as an investment and medium-of-exchange-in-waiting "until the authorities do better" at managing fiat money (and at allowing financial privacy), then Bitcoin may thrive for a long time to come."

The Dubai Financial Services Authority and the Commission de Surveillance du Secteur Financier Luxembourg, entered into an agreement to cooperate in the development of FinTech.

"We appreciate the fact that this proposal avoids technology-specific standards like the Swiss-rule and draconian restrictions like those FATF has contemplated. Nonetheless this rulemaking takes a bulk warrantless surveillance regime and applies it to an innovative technology with little opportunity for public comment. This is especially problematic given the complicated implications of the proposed recordkeeping requirements which may, as described in the next section, meaningfully stymie innovation. A fifteen day period is simply not enough time to work through these implications."

The Bank for International Settlements (BIS) announced the three winners of the G20 TechSprint challenge. The hackathon-style competition was launched in April 2020 to highlight the potential for technology to resolve regulatory compliance (regtech) and supervisory (suptech) challenges. The winners, chosen by an independent panel of experts, addressed one or more of its three problem topics. FNA won the dynamic information-sharing category for their solution FNA Platform for Dynamic Information Sharing and Real-Time Analytics, Tookitaki won in the monitoring and surveillance category for their solution Crypto-currency AML Typology Repository Management and ISDA-REGnosys won the regulatory reporting challenge for their solution Consistent Regulatory Reporting via the Common Domain Model.

"It is important to note that there has not been a sufficient and proper political debate on the balance between human rights and anti-terrorism measures. And as we already have Human Right Treaties in place outlining that mass surveillance and retaining of data of innocent people are a human right infringement, we can only conclude that our Ministries of Finance and Governments are about to make a historical and major mistake that violate their own commitments to privacy. "