Weekly Update

TFU | July 2-8

Square withdrew its ILC application to the FDIC; SIX is building an end-to-end DLT platform to manage trading and settlement; the FCA welcomed new firms into its regulatory sandbox; PayPal completed the multi-billion dollar sale of its consumer credit portfolio; and the EBA published new fintech reports.

Leading Off

Square withdrew its application to the FDIC to become an ILC; the Swiss stock exchange announced plans to build an end-to-end distributed ledger platform; the U.K. FCA welcomed new firms into its regulatory sandbox; PayPal completed the multi-billion dollar sale of its consumer credit portfolio; and the European Banking Authority published reports warning banks about being too passive or proactive on fintech.


In the News

Square withdraws FDIC application. Square announced that it would temporarily withdraw its deposit insurance application with the FDIC, a key step in pursuing a de novo bank charter. A Square spokesperson noted, “. . . our decision to withdraw and refile was a procedural step in the review process that will allow us to amend and strengthen some areas of our FDIC insurance application.”

Swiss stock exchange to build end-to-end DLT service. SIX Swiss Exchange said it is developing a new platform to create a “fully integrated, DLT-based end-to-end trading, settlement and custody service for digital assets.” SIX’s CEO hailed the SIX Digital Exchange as the service that will “bridge the gap between traditional financial services and digital communities” when it launches early next year.

U.K. challenger banks suffer service outages. Leading digital-only banks Starling and Revolut were both affected by service outages related to their partnership with Global Processing Services (GPS), a London-based, third-party payment processor that provides services to several fintech firms. GPS had difficulty when processing data from merchants, causing card payments to time out and fail.

“Crypto Hunters” help retrieve lost Bitcoin. To help Bitcoin users recover access to their wallets, several startups are using retrieval methods that include password-generating software, data recovery technology, and even hypnotherapy. Chainalysis, a blockchain-analysis firm, estimates that around one fifth of all Bitcoin—around $20 billion in value—is currently lost, most of it permanently.

FCA welcomes fourth sandbox cohort. The U.K.’s FCA announced that 29 new startups will join its regulatory sandbox, the initiative’s fourth cohort since being formed in 2016. This year, over 40% of the companies are using the “controlled environment” of the sandbox to test how DLT can be used to offer products and services, including crypto-assets, to consumers.

Indian supreme court denies stay of crypto crackdown. India’s supreme court denied a request for interim relief from the Reserve Bank of India’s (RBI) April directive that all financial services providers must halt their “relationships with virtual currency exchanges and traders.” The court’s decision means that the RBI’s crackdown continued as planned, becoming effective on Friday, July 6.

PayPal sells consumer credit portfolio. Originally announced in November 2017, PayPal sold Synchrony Financial “$7.6 billion in receivables, including [its] U.S. consumer credit portfolio.” PayPal received about $6.9 billion in total consideration; and, as part of the deal, Synchrony will now be the exclusive issuer of the PayPal Credit online consumer financing program in the U.S. through 2028.

Bitmain valued at $12 billion in new funding round. Bitmain, the Chinese Bitcoin mining giant, closed a Series B funding round valuing the firm at ~$12 billion, led by a group of investors including Sequoia Capital China. A report from the Chinese news outlet Caixin noted that Bitmain is “currently conducting a pre-IPO funding round and could go public on the Hong Kong Stock Exchange in the future.”

NYSE executive to join Winklevoss Bitcoin Firm. Gemini, a digital-currency exchange founded by the Winklevoss twins, is adding NYSE chief information officer Robert Cornish. The move mirrors that of competitor Coinbase, who has hired veterans of traditional markets like the CME. “As the crypto market matures, we feel it’s going to look and feel like existing, mature markets,” Mr. Winklevoss said.

European Banking Authority publishes fintech reports. Issued as part of the EU regulatory agency’s Fintech Roadmap, the two reports explore fintech’s impact on banks’ business models and on prudential risks, warning that “risks may arise both for incumbents not able to react . . . [and] also for aggressive front-runners that alter their business models without a clear strategic objective in mind.”

Regulators have their eye on AI. In a piece published in the American Banker, Promontory CEO and former Comptroller of the Currency Gene Ludwig discussed how banks should expect the government to question their use of AI. Ludwig specifically noted the importance of “making sure there is strong governance around AI’s usage.”

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