Tag Archives: KYC

Understanding eIDAS Impact on Banking and Payments

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What is eIDAS?

eIDAS stands for Electronic Identification, Authentication and Trust Services. It is European Union law — originally enacted in 2014 (eIDAS 1.0) and substantially revised in 2024 (eIDAS 2.0, formally Regulation 2024/1183) — that creates a legal framework for digital identity across all 27 EU member states.

The core ambition is straightforward: a citizen in Portugal should be able to use their national digital identity credential to authenticate with a German bank, a French hospital, or a Dutch government portal — and that credential should carry legal standing equivalent to a physical ID card.

eIDAS 2.0 goes further. It mandates that every EU member state must offer at least one European Digital Identity (EUDI) Wallet — a mobile application in which citizens store and selectively disclose certified attributes: their national eID, driving license, professional qualifications, and eventually bank account credentials or KYC attestations.

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Proposed Stablecoin KYC Rule

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The Fed/FinCEN and OFAC just revealed their proposed Stablecoin KYC rule and consistent with the GENIUS Act it entails bank-level KYC requirements for Stablecoin Issuers (see blog: No more Stablecoin “rewards”). This combined with the 303-page FinCEN/OFAC rule on transaction monitoring and secondary uses places substantial compliance burdens on Stablecoin issuers. So much that it is said the hottest job in Fintech is in Stablecoin compliance.

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FIncen / OFAC 303 Page Rule Squashes Stablecoin eCom Ambitions

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Exec Summary

  • New 303 Page FINCEN/OFAC Rule, aligns to the clear language of the Genius act, but IMHO will create major friction for use of USD stablecoins in eCommerce

  • Rules for tracking parties and monitoring secondary activity create a compliance regime that burdens every party with the need to understand the provenance of a coin. Can you imagine accepting $2000 for a new TV, shipping it out, then having your stablecoins burned?

  • So not only do we have KYC but we have SAR reporting requirements as PPSIs must also comply with SAR and the “Travel Rule” (31 CFR 1010.410(f)), which involves collecting and transmitting information about the originators and beneficiaries of funds transmittal.

  • Banks and Stablecoin Issuers that jumpted into Solana’s Token-2022 model saw this coming and are well placed to move forward

  • This creates substantial advantages for banks in sweeping coins into covered accounts and freshly minting new coins when required. 

  • Great news for Big Banks and V/MA. card gain signficant advantage over stablecoins with the proposed rule

  • I see this as tailwind for stablecoins in settlement, but a big headwind for stablecoin in eCommerce (with a few exceptions). 

  • My views on Stablecoin winners and losers remain unchanged except for an update to winners for x402.

  • No wonder Jamie Dimon remains confident that the banks will win, it will take years for stablecoin startups to build the regulatory muscle required to manage 303 pages of FinCEN mandates. By the time they do, the banks will already be running their own stablecoin subsidiaries under the very same rules.

The Rule

The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) and OFAC issued a 303-page proposed rule implementing the GENIUS Act, reclassifying permitted payment stablecoin issuers (PPSIs) as financial institutions under the Bank Secrecy Act. Requirements include bank-grade KYC, suspicious activity reporting, transaction blocking/freezing capabilities, and appointment of a U.S.-based compliance officer. Enforcement begins January 2027. A 60-day comment period opens now.

The NPRM (Notice of Proposed Rulemaking) introduces 31 CFR Part 1033, which specifically outlines the obligations of PPSIs. The density of this document reflects the complexity of applying traditional banking rules to a distributed ledger environment.

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Stablecoins: Near-Term Predictions

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12 Page Blog

Key Themes

  • Stablecoin growth is booming in the areas of remittance, cross-border, disbursement, and B2B supply chain. 

  • Card volumes face no threat as they remain the “last mile” of use and an economic model for stable coin issuers. 

  • The STABLE and GENIUS acts are driving significant central bank discussions, with divergent views on response in Europe. 

  • Asia is developing differently, with the effectiveness of Ukraine sanctions and fear of dollarization driving central banks to a CBDC approach.

  • The value of any network corresponds to the combined investment made by all parties around it. Stablecoin is the fastest-growing network and at the core of most FinTech investments.

  • PayPal, and legacy remittance providers are under a substantial near term threat

  • Expect big tech and mobile platforms to support stablecoins in new ways (ex recurring payments and emerging markets). 

  • A small number of low profit Banking segments are also at risk, as Stablecoin issuers become banks and threaten niche payment providers like Cash App, as well as specialists in categories like MSB, NBFCs, ELMI, …etc.

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Trust Assertions – Identity Will Define the Future of Payment Networks

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©Thomas Noyes, May 2022

My blogs last week have me thinking about the changes going around in Identity. This will be a long blog. Typo warning.. I’m still revising. 

The number one thing I look for in payments is change: volume, technology, behavior, data, …etc. Effective networks are notoriously hard to change, but they are also very resilient (see blog). Small changes in data flows, can lead to significant changes in margin and “control”.  Margin and control guide both public and private investment (see Evolution of Visa and Mastercard Beyond Payments). 

Identity is our most important asset — it’s literally who we are. 

Our complete “identity” is known to no one, as each entity we interact with has a partial view of us based upon what we chose to give them and what they observe. How others accept and validate our identity, and how others share insight about us, is the core of payments (see Trust Networks and Authentication in Value Nets). The structure, exchange, and assertions associated with identity are defining: web3, DeFi, Crypto, CBDCs and the Metaverse. These are not separate silos, but rather overlapping ecosystems that must interact, thus the importance of bridging identity across networks/domains (see Blog – Trust is domain specific). 

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