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Politico: Fintech Scandals Derail Momentum in Washington

Politico | Zachary Warmbrodt | Jan 3, 2023

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This was supposed to be fintech’s big year in Washington [but ] the series of scandals that emerged in late 2022 are derailing that momentum, putting the once-ascendant challengers to traditional banks on defense.

  • Crypto winter continues — Americans are getting bad news every day about the integrity of the cryptocurrency industry, with executives now openly accusing each other of wrongdoing following the FTX fraud scandal and market crash. Some lawmakers who bought into crypto’s potential are starting to voice mea culpas. Long-time skeptics are emboldened.
    • FTX founder Sam Bankman-Fried’s expected not-guilty plea to sweeping criminal charges. Expect more damning revelations as the government makes its case against Bankman-Fried and other FTX and Alameda Research executives who were once the digital currency world’s leading ambassadors in Washington.

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  • Federal prosecutors revealed over the holiday break that bankrupt digital asset lender Voyager Digital may be the focus of a CFIUS review — an interagency process designed to police foreign investment in U.S. companies. Why does it matter? Binance.US — the domestic affiliate of the behemoth international crypto exchange Binance — is making a bid to acquire Voyager. It underscores how Binance is primed for greater Washington scrutiny for a host of reasons.
  • The SBA in 2022 moved to let fintechs take on a bigger role in its flagship non-emergency lending program. But those firms are facing new investigations and political backlash after the House coronavirus subcommittee outlined in December how a number of the companies exposed the Paycheck Protection Program to fraud.
  • Regulators are under pressure — While all of this casts a pall over fintech on Capitol Hill, it more importantly means that Biden appointees at key regulatory agencies have a new mandate to crack down. Treasury in a November report called for greater oversight of fintechs in the consumer space.

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