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Crypto Advocates Urge CFPB To Reconsider Proposed Rule On Digital Payments

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A group of U.S. lawmakers have expressed their concerns over a proposed rule by the Consumer Financial Protection Bureau (CFPB) that could affect the crypto space. In a letter dated Jan. 30, Representatives Patrick McHenry, Mike Flood, and French Hill asked CFPB Director Rohit Chopra to extend the comment period for the rule by 60 days and solicit feedback from the crypto community.

The rule, which was published in November 2023, proposed to expand the CFPB’s supervisory authority over certain depository institutions and nonbank entities that offer or enable consumer payments. The rule also included digital assets in its definition of “funds” and suggested that the CFPB could target digital asset wallet providers.

The lawmakers, who are the leaders of the House Financial Services Committee and the Subcommittee on Digital Assets, Financial Technology, and Inclusion, argued that the rule was unclear on how it would apply to specific entities within the digital asset ecosystem. They warned that the rule could create regulatory risk and uncertainty for crypto exchanges, wallet providers, and users and discourage peer-to-peer transactions through self-hosted wallets.

Peer-to-peer transactions through ‘self-hosted wallets’ is a core component for the digital asset ecosystem, as it eliminates third-party risk, […] Capturing certain digital asset wallet providers, who themselves do not maintain an ongoing relationship with consumers, would essentially introduce regulatory risk. […] We urge the CFPB to refrain from pursuing such a broad definition, said the letter.

Crypto Council For Innovation Calls For Congressional Action

The lawmakers’ letter echoed the sentiments of the Crypto Council for Innovation, an advocacy group that represents some of the leading crypto companies and investors. In a statement on Jan. 8, the group said it had “deep concerns” about the proposed rule’s impact on the crypto space, claiming it could “increase regulatory fragmentation” and stifle innovation.

The group urged the CFPB to exclude digital assets from its rulemaking and defer to Congress for a comprehensive and consistent regulatory framework for the crypto industry. The group also highlighted the benefits of crypto for consumers, such as lower costs, faster transactions, greater financial inclusion, and enhanced privacy.

Digital assets aren’t just like regular money. They’re a new and game-changing technology that brings big benefits to people and society, the statement explained. We think the CFPB should see how special and promising digital assets are and avoid putting extra rules that could hurt this growing industry.

McHenry To Retire As House Financial Services Committee Chair

The letter from the lawmakers also marked one of the last actions of McHenry as the chair of the House Financial Services Committee. McHenry announced in December 2023 that he will not seek reelection for a new term starting in January 2025, ending his 18-year tenure in Congress.

McHenry has been a vocal supporter of crypto and fintech innovation and has led several initiatives to promote the development and adoption of digital assets in the U.S. He has also been critical of some of the regulatory actions taken by the CFPB and other agencies against the crypto industry.

McHenry’s departure could have significant implications for the crypto space, as the control of the House of Representatives is expected to be highly contested in the 2024 elections. The outcome of the elections could determine the future direction and tone of the House Financial Services Committee and its subcommittee on digital assets, as well as the overall legislative agenda for crypto in the U.S.

Related Reading | Jito Labs’s Popularity Could Trigger Boom for Bitbot Token

California Governor Approves ‘Digital Financial Assets Law’ For Crypto Regulations

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In a significant development for the crypto world, California Governor Gavin Newsom has given the green light to a cryptocurrency bill that ushers in more stringent regulations for businesses involved in crypto operations. This legislative move, titled the ‘Digital Financial Assets Law,’ has a clear message: crypto in the Golden State is about to transform.

In a recent crypto announcement released on October 13, Newsom proclaimed that the legislation, known as the ‘Digital Financial Assets Law,’ will compel both individuals and businesses to secure a Department of Financial Protection and Innovation (DFPI) license for involvement in digital asset business activities. This game-changing legislation is slated to take effect on July 1, 2025, giving entities 18 months to prepare for compliance.

This new crypto bill introduces even more rigor by drawing parallels to California’s money transmission laws, prohibiting banking and transfer services from operating without a DFPI Commissioner-granted license. The DFPI will be able to impose rigorous audit requirements on crypto firms and obligate them to maintain meticulous records. The statement explicitly stipulates:

“[This bill] would require a licensee to maintain […] for 5 years after the date of the activity, certain records, including a general ledger maintained at least monthly that lists all assets, liabilities, capital, income, and expenses of the licensee.”

California’s Crypto Regulatory Shift

It’s worth noting that roughly a year ago, Governor Newsom rejected a similar bill to establish a licensing and regulatory framework for digital assets in California. His primary objection then was its inflexibility in adapting to the rapidly evolving crypto landscape. Newsom preferred to wait for federal regulations to take shape before collaborating with the legislature on crypto licensing initiatives.

In a broader national context, the United States is also contemplating extending the reach of the Electronic Fund Transfer Act (ETFA) to cryptocurrencies. This move is designed to combat fraudulent transfers and bolster consumer protection. Rohit Chopra, Director of the Consumer Financial Protection Bureau (CFPB), has voiced his support for this initiative, highlighting its potential to “reduce the harm caused by errors, hacks, and unauthorized transfers.”

As California pioneers more stringent crypto regulations, the industry’s landscape is set for a significant transformation. With these changes, crypto businesses must adapt to a new era of compliance and oversight. In contrast, the broader crypto community keeps a watchful eye on developments at both state and federal levels.

Crypto Fraud Skyrockets: 150% Rise in Hacks Prompts CFPB Action

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In a significant development for the cryptocurrency industry, the Consumer Financial Protection Bureau (CFPB), the top U.S. agency for consumer financial protection, is exploring the application of the Electronic Fund Transfer Act (EFTA) to cryptocurrencies. This move aims to safeguard consumers from the rising tide of fraudulent crypto transfers.

The EFTA, enacted in 1978, was designed to protect consumers during electronic fund transfers, encompassing transactions involving debit cards, ATMs, and bank accounts. Its primary goal is to minimize consumer losses resulting from unauthorized transfers. Financial institutions are mandated to inform consumers of their liability for unauthorized transfers, thus ensuring transparency before the initiation of electronic transfers.

CFPB director Rohit Chopra recently addressed the issue at a payments conference held by the Brookings Institution think tank on October 6th. Chopra stated that his agency is exploring the extension of EFTA regulations to “private digital dollars and other virtual currencies.” The objective is to mitigate the risks associated with errors, hacks, and unauthorized transfers in the crypto space.

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Rohit Chopra, CFPB Director

The decision comes amidst a startling 150% year-on-year increase in crypto-platform hacks. Furthermore, the high-profile criminal trial of FTX co-founder Sam Bankman-Fried, who faces charges related to fraudulent use of customer funds, has garnered significant attention.

Balancing Act: Innovation vs. Consumer Protection in Crypto

Chopra’s announcement also includes plans to issue orders to “certain large technology firms” to gain insights into their business practices regarding personal data usage and private currency issuance. This initiative underscores the growing concern over the privacy and security implications of digital currencies.

Additionally, the CFPB is set to investigate non-bank entities offering payment platforms. By examining the operations of these platforms, the agency aims to strengthen consumer protection in the evolving financial landscape.

Chopra also recommended that the Treasury’s Financial Stability Oversight Council consider categorizing certain crypto activities as “systemically important payment clearing or settlement activities.” This move could empower other regulatory agencies to ensure the stability of cryptocurrencies, especially stablecoins.

As the CFPB takes steps to extend EFTA regulations to the crypto industry, it demonstrates the increasing scrutiny and regulatory focus on the rapidly growing digital asset ecosystem. This move underscores the need for a balance between innovation and consumer protection in the evolving financial landscape.