#FinTech & #Stablecoin Policy Alive & Well Despite the COVID19 Pandemic

Every day this week, this Disruption and Data blog features details of major policy initiatives that have not been derailed by the pandemic. Mostly, these developments have been lost in the noise in the news cycle. But our PolicyScope platform users and our daily COVID19 Report readers have watched the incremental forward progress on each of these important issues.


Today’s focus is on FinTech and digital currency policy. This post first identifies three macro-trends and then analyzes what platform data tells us about those trends. It closes with a summary of the key developments in March and April 2020.


Three Macro Trends


Restrictions on personal mobility necessarily require consumers and businesses to increase their reliance on electronic means of payment. By itself, this would not necessarily intensify policymaking regarding FinTech and digital currency issues.


Three macro-trends specific to the pandemic accelerate policy formation.


1. Contagion Risk (Literally): When people do venture out from home in order to make necessary purchases, increasingly they are concerned about the physical currency being a carrier for disease. They are not alone. The United States, South Korea and other nations began to quarantine and disinfect banknotes returning home from abroad in early February. More recently, Singapore formally encouraged consumers to rely as much as possible on contactless payment options.


2. Fiscal Stimulus Distribution/Financial Inclusion: Efforts to accelerate the transmission of economic stimulus at the retail level require direct payment options from the government to the individual. Expanding the availability of these payment mechanisms deeper into the underserved or low income cohorts within a population will additionally hold the benefit of enhancing broader societal goals regarding financial inclusion. While this can raise many thorny issues regarding data privacy and civil liberties, the usual advocacy groups have been muted in their response given the severity of the economic crisis.


It is far from clear that these trends necessarily benefit cryptocurrency issuers, particularly given the flight to quality over the last two months that have seen investors dump BitCoin in order to purchase fiat currencies issued by sovereigns, particularly the U.S. Dollar. At a minimum, the situation will at least immediately benefit efforts to launch central bank digital currencies. It also creates the foundation for expanding efforts to regulate digital currencies directly linked to sovereign-issued fiat currencies (stablecoins).


3. Consumer Protection: A distributed workforce with individuals sequestered at home increases their vulnerability to scams. Policymakers are responding by pivoting their priority agenda items to address consumer protection initiatives.


As this list indicates, increased public policy attention regarding FinTech and digital currency issues is a double-edged sword for the industry. While some trends create incentives for increased reliance on digital payments, digital currencies, and online financial services, other trends create incentives for policymakers to expand the regulatory perimeter deeper into the technology ecosystem.


The Data Indicates Policymakers Are

Choosing Priorities Carefully


Our patented PolicyScope platform demonstrates starkly the prioritization underway. For scale, of course nothing beats the activity levels regarding COVID9-19:


But policymaking is not always a big data event. Often, the most strategic developments occur quietly beyond the glare of the media as we noted in this post for Interactive Brokers last year.

Given the scale of the pandemic, it is surprising to see significant policymaking in any other policy area currently. Let’s start with the broad FinTech and stablecoins categories:


So far, policymaking regarding FinTech and stablecoins peaked in March with a slight downturn heading into April. However, aggregate April activity is not too far below the January levels. More importantly, the drop-off is not steep compared with other issue areas:





Faced with limited resources and distributed workforces, policymakers clearly prioritized maintaining momentum in certain work flows (e.g., stablecoin regulation) over others (e.g., CBDCs, payment systems, and cryptocurrency regulation).


The data also deliver two additional strategic insights:


* Relative Priorities: Any action taken in March and April merits close scrutiny, even at low aggregate volume levels. If the issue was important enough to warrant policy action amid the onset of a pandemic, this indicates a higher level of commitment to the policy in question.


* Increased Policy Risks: The classic high-level definition of risk is: an unanticipated outcome. If the low volume level activities failed to attract significant media attention (such as the Bank of England’s April actions regarding central bank digital currencies), the risk of a policy surprise at mid-year or year-end 2020 increases because most people would not be aware that in the middle of a pandemic significant steps were taken along a policy trajectory.


To illustrate the point, consider the selected list of key developments below. In normal times, many of these actions would generate considerable attention. They certainly signal shifts and acceleration in policy trajectories. But mostly, they flew below the radar. Our PolicyScope platform captured each development as it occurred, making it easy to register the policy shift on a daily basis.


Selected Key FinTech Developments Amid the Pandemic


The following developments stand out as being significant. While central bank and financial regulation policymakers were jettisoning rule books and extending compliance deadlines, FinTech and digital currency policy was shifting into over-drive.


Cryptocurrency Trading


* Commodity Futures Trading Commission: The Commodity Futures Trading Commission issued an interpretive guidance designed to increase flexibility regarding the regulatory treatment of “physical delivery” for cryptocurrency trading.


* IOSCO: The International Organization of Securities Commissions in early April scrapped its 2020 workplan in order to increase its focus on “specific investor protection issues, market integrity or conduct risks that may arise in the context of the COVID - 19 crisis.” Subsequent to that announcement, they did roll out new initiatives regarding sustainability and climate change. Consequently, the conclusion has to be that international policymaking with respect to cryptocurrency trading is at a standstill.

Payments/Financial Inclusion