Fintech Daily Digest

The Bank for International Settlements (BIS) published a paper by its Consultative Group on Innovation and the Digital Economy (CGIDE) that discusses four main processes in a retail central bank digital currency (CBDC) architecture. These are: i) enrolling new users, ii) creating CBDC (cash-in), iii) destroying CBDC (cash-out) and iv) intra-ledger transfers. These four processes could involve other flows and vary depending on the CBDC design, regulatory framework, technological infrastructure and policy objectives of each jurisdiction. The architecture lays out a hybrid model which allows for the division of labor between the central bank and private intermediaries.

On November 29, 2024 the Bank of Russia announced the extension of extend the fee-free period for digital ruble transactions to December 31, 2025. After that the fee for businesses accepting payments for goods and services in digital rubles will be 0.3% of the payment amount (but no more than ₽1,500). The fee for housing and utility companies will be 0.2% but no more than ₽10. The fee on business-to-business transfers will equal ₽15 per transaction. However, digital ruble transactions will always be fee-free for individuals.

The Bank of Canada (BOC) published a paper that uses microdata from the BOC Bitcoin Omnibus Survey, to measure familiarity with crypto-asset concepts using a set of three questions covering basic aspects of bitcoin. It finds that Canadian bitcoin owners are more informed than non-owners about the asset and thus have higher levels of crypto literacy. They are heterogeneous with respect to financial literacy. It finds that women who own bitcoin have similar financial knowledge as their male counterparts but score lower on crypto literacy measures. Moreover, the crypto literacy gender gap persists regardless of ownership status.

The European Securities and Markets Authority (ESMA) published the last package of final reports containing regulatory technical standards and guidelines ahead of the full entry into application of the Markets in Crypto Assets Regulation (MiCA) on December 30, 2024. ESMA has delivered extensive regulatory work over the past 18 months, comprising more than 30 Technical Standards and Guidelines, many of them developed in cooperation with the European Banking Authority (EBA). The package contains Regulatory Technical Standards on market abuse, plus guidelines on reverse solicitation, suitability, crypto-asset transfer services, qualification of crypto-assets as financial instruments, and on the maintenance of systems and security access protocols.

The U.K. Financial Conduct Authority (FCA) published a discussion paper on the future market abuse regime for crypto-assets (MARC) and crypto-asset admissions and disclosures regime (A&D), to help inform the development of a balanced regime that addresses market risks without stifling growth.

The Digital Euro Association (DEA) published a paper that I contributed to on the opportunities and challenges of using open-source software (OSS) in central bank digital currency (CBDC) development. The use of OSS could be crucial in building trust and transparency within CBDC projects, especially for retail CBDCs in regions where consumers and advocacy groups have resisted their implementation. By making the source code publicly available, central banks can facilitate independent verification of the software's functionality, which could help to address concerns around privacy and surveillance. By analyzing successful case studies and industry best practices, this report seeks to guide central banks in making informed decisions about OSS adoption.

The Financial Accounting Standards Board (FASB) Fair Value accounting rules on bitcoin and other eligible-crypto assets come into effect on December 16, 2024. Under the new rules, companies will measure crypto assets at fair value and update them at each reporting period in their financial statements. This will help companies realize both profits and losses based on Bitcoin's Bitcoin. FASB ASC Subtopic 350-60 outlines a new accounting standard that is suitable for fungible crypto assets that meet certain requirements. However, non-fungible tokens (NFTs), wrapped tokens, and internally generated digital assets are exempt from the scope. https://fasb.org/page/PageContent?pageId=/projects/recentlycompleted/accounting-for-and-disclosure-of-crypto-assets.html

Digital euro stakeholder feedback and update on holding limit methodology The European Central Bank (ECB) published material presented at the December 10, 2024 European Retail Payments Board (ERPB) digital euro technical session. The ECB provided an overview of the market stakeholder feedback and contributions on the consultation launched at the October 1, 2024 ERPB technical session. Aso, the ECB provided an initial overview of the methodology being used for the calibration of holding limits. https://www.ecb.europa.eu/euro/digital_euro/timeline/profuse/shared/pdf/ecb.deprep241212_14erpb_Summary_of_feedback_on_Fit_in_the_ecosystem.en.pdf https://www.ecb.europa.eu/euro/digital_euro/timeline/profuse/shared/pdf/ecb.deprep241212_14erpb_Annex_to_preliminary_methodology_for_holding_limit_calibration.en.pdf

The Bank of England (BOE) published a paper that proposes a simple mechanism through which an unremunerated central bank digital currency (CBDC) may improve welfare by lowering the market power financial intermediaries have in negotiating fees with digital firms that cannot use cash as an alternative means of payment. However, welfare benefits will be reduced to the extent that the CBDC reuses existing payment infrastructure without providing additional competition, efficiency and functionality.

The Monetary Authority of Macau (AMCM) has completed the development of a prototype digital Macau pataca (e-MOP) which will soon undergo sandbox and public testing. There is also a chance it will be linked to China's e-CNY and Hong Kong's e-HKD in the future. The People's Bank of China (PBOC) provided technical support, and the Hong Kong Monetary Authority (HKMA) is responsible for supervising and managing e-MOP issuance, cancellation and circulation. The AMCM will set up self-service money exchangers to allow holders to accept e-MOP or other foreign currencies for cash reloading by exchanging money. https://www.amcm.gov.mo/zh-hant/news-notice/emop/

Bank Indonesia (BI) completed its Project Garuda proof of concept (PoC) for a distributed ledger technology (DLT) based digital rupiah wholesale cash ledger. The testing confirmed that the solution can meet the business and technical needs requirements (transaction security, interoperability with existing payment systems and financial infrastructure). Two DLT-based platforms were tested; Corda (R3) and Hyperledger Besu (Kaleido). Both were able to meet all testing scenarios and address all key questions. Project Garuda will proceed with a broader exploration of securities ledger, including exploring liquidity management and privacy technology.

The Financial Stability Board (FSB) published recommendations to promote greater alignment in data frameworks related to cross-border payments and consistency in the regulation and supervision of bank and non-bank payment service providers. These recommendations advance key actions from the G20 Roadmap to address legal, supervisory, and regulatory issues in cross-border payments.

Societe Generale (SocGen) completed a collateralized market transaction fully executed on blockchain through its FORGE subsidiary. This is the first sale and repurchase agreement (repo) transaction in digital securities with a Eurosystem central bank. SocGen deposited as collateral with the Banque de France some bonds issued in 2020 on the public Ethereum blockchain in exchange for pilot central bank digital currency (CBDC) issued by the Banque de France on its DL3S blockchain.

The European Banking Authority (EBA) published a report to facilitate awareness of tokenized deposits, as well as assess their potential benefits and challenges. The report also aims to promote convergence in the classification of tokenized deposits in contrast with electronic money tokens (EMTs) issued by credit institutions under the Markets in Crypto-Assets Regulation (MiCAR).

Three European Supervisory Authorities (ESAs) published joint guidelines intended to facilitate consistency in the regulatory classification of crypto-assets under the Regulation on Markets in Crypto-assets (MiCAR). The Guidelines include a standardised test to promote a common approach to classification as well as templates market participants should use when communicating to supervisors the regulatory classification of a crypto-asset.

HQLAᵡ successfully concluded a feasibility initiative to address pain points in triparty collateral mobility. It uses its platform to transfer securities collateral to - or between - multiple triparty agents without triggering cross-custodian settlements. The HQLAᵡ platform uses distributed ledger technology (DLT) to validate the ownership of the securities at any given point in time.

Decentralized identity is a self-sovereign model where individuals fully own and control their digital identity, free from external institutions. By leveraging blockchain technology, this approach enables individuals to securely create, manage and share their personal information, shifting the power back to users and enhancing privacy and security online.

The Cambridge Centre for Alternative Finance (CCAF) updated its Cambridge Digital Money Dashboard (CDMD), offering new insights into the geographical flows of stablecoins, as well as regulatory overviews for a wider set of jurisdictions. This new update was made possible through a joint work with Chainalysis, a blockchain data platform specializing in on-chain data analytics for investigations and compliance.

The Cambridge Centre for Alternative Finance (CCAF) published a report that reviews the case for a wholesale CBDC, the various approaches in how it can be delivered, and an assessment of the pilots and experiments undertaken by the industry and central banks. It finds that buy- and sell-side firms are progressing with tokenization initiatives, driving a need for digital money for the cash leg. which may increasingly be delivered through tokenized bank deposits or stablecoins. Meanwhile, central banks are raising concerns on the risks of using such private settlement assets for settlement, facilitating experiments demonstrating how central bank money can be used instead, but with no clear indication yet on how and when this may be delivered in practice.

The International Capital Market Association (ICMA) published a reference guidance for DLT-based debt securities. The guide highlights considerations for the end-to-end lifecycle of DLT-based debt securities. It is designed for market practitioners as well as a broader audience of market stakeholders. It comprises over 50 practical questions and serves as a reference point across the lifecycle of a DLT-based debt security.