April 21, 2023

The Financial Stability Oversight Council (Council) voted unanimously to issue a proposed analytic framework for financial stability risks for public comment. This new framework is intended to provide greater transparency to the public about how the Council identifies, assesses, and addresses potential risks to financial stability, regardless of whether the risk stems from activities or firms. It also proposed guidance on nonbank financial company determinations. House Financial Service Committee Ranking Member Maxine Waters (D-CA) released a statement applauding the move and urging further action to promote financial stability. 

Comments will be due 60 days after the proposed framework and guidance are published in the Federal Register. 

The Financial Stability Board (FSB) published a letter from its Chair, Klaas Knot, to the G20 Finance Ministers and Central Bank Governors ahead of their April meeting. The letter notes that the financial stability outlook has become more challenging in recent weeks, as a consequence of turmoil in the banking sector. The FSB’s ongoing surveillance has highlighted vulnerabilities associated with elevated debt levels, business models based on the presumption of low and stable interest rates, stretched asset valuations, and the combination of leverage and liquidity mismatches in non-bank financial intermediation.

Consumer Financial Protection Bureau (CFPB) Senior Advisor Brian Shearer delivered testimony on junk fees before the Pennsylvania House of Representatives Consumer Protection, Technology, and Utilities Committee. He stated that both federal and state efforts are needed to address the rising junk fee problem in the U.S..

The Securities and Exchange Commission charged crypto asset trading platform Bittrex, Inc. and its co-founder and former CEO William Shihara for operating an unregistered national securities exchange, broker, and clearing agency. The SEC also charged Bittrex, Inc.’s foreign affiliate, Bittrex Global GmbH, for failing to register as a national securities exchange in connection with its operation of a single shared order book along with Bittrex. Notably, the SEC also alleged in this case that 5 tokens are securities: Omise Go (OMG), Algorand (ALGO), Dash (DASH), Tokencard (TKN), i-House Token (IHT) and Naga (NGC).

CFPB Director Rohit Chopra published a blog post entitled, “As outstanding credit card debt hits new high, the CFPB is focusing on ways to increase competition and reduce costs.” The blog discusses CFPB efforts to reform credit card penalty fees and to make it easier for small credit card issuers to challenge bigger players.

Federal Reserve Board (FRB) Governor Michelle Bowman delivered remarks entitled “Considerations for a Central Bank Digital Currency.” Governor Bowman discussed potential problems that a Central Bank Digital Currency (CBDC) could solve as well as design features and policy considerations for a possible CBDC, including privacy considerations, interoperability and innovation, and effects on the U.S. banking system.

FRB Governor Christopher J. Waller discussed tokenization and artificial intelligence (AI) in a speech. Governor Waller said financial innovation can be a double-edged sword, and we must consider whether “the innovation [will] create new efficiencies, help mitigate risks, increase financial inclusion; or will it create new or exacerbate existing risks?” He then discussed how tokenization and use of blockchain enables near-real time transfers 24/7/365, allows parties more precise control for settlement times, and it may increase efficiencies and reduce liquidity risks. He also said that  smart contracts also help enable atomic settlement to support Delivery-versus-Payment (DvP) and Payment-versus-Payment (PvP) functionality. With respect to AI, Governor Waller noted that banks are already using AI for a number of services, and it has proven useful for fraud monitoring. “AI models are only as good as the data they are trained on,” he said, and “[t]his can raise challenges when AI depends on high volumes and different varieties of data, which can complicate efforts to detect problems or biases in data sets.” 

The Federal Reserve issued initial findings from its 2022 triennial payments study. The information shows how consumers and businesses chose to make non-cash payments, using checks, different types of cards, and the automated clearinghouse (ACH).

The Federal Trade Commission testified before the House Energy and Commerce Subcommittee on Innovation, Data, and Commerce on the agency’s work to protect American consumers from unfair or deceptive practices and unfair methods of competition. In their testimony, the agency outlined its work on consumer protection enforcement and policy initiatives, including safeguarding consumers’ privacy, combatting junk fees and unwanted charges, making it easier for consumers to cancel subscriptions, and protecting servicemembers and veterans, older Americans, and other communities from fraud and deception.

The SEC announced the appointment of Deborah J. Jeffrey as Inspector General, effective May 7, 2023. Ms. Jeffrey is currently the Inspector General of AmeriCorps.

Acting Comptroller of the Currency Michael J. Hsu discussed the Office of the Comptroller of the Currency’s (OCC) approach to open banking in remarks at FDX Global Summit Spring 2023 in Raleigh, N.C. In his remarks, Acting Comptroller Hsu addressed how the evolution of open banking may impact what and how the OCC supervises; how aspects of open banking such as account portability can empower consumers but also lead to increased liquidity risk of retail deposits for banks; how as practices evolve, cyber threats and other security risks will need to be reassessed and certain controls strengthened; how accountability challenges may be raised when mistakes are made and consumers are hurt as banks expand from handling customers’ money to also handling their financial data; the use of predictive data and how it may have adverse effects; and the blurring of the line between banking and commerce and how government agencies must monitor carefully and collaborate closely. 

The European Parliament endorsed the first EU rules to trace crypto-asset transfers, prevent money laundering, as well as common rules on supervision and customer protection in its regulation for markets in crypto-assets (MiCA). This is the first piece of EU legislation for tracing transfers of crypto-assets like bitcoin and e-money tokens. The text, which was provisionally agreed by Parliament and Council negotiators in June 2022, aims to ensure that crypto transfers, as is the case with any other financial operation, can always be traced and suspicious transactions blocked.

The federal financial institution regulatory agencies jointly issued an Interagency Policy Statement on Allowances for Credit Losses. The agencies issued this revised statement in response to changes in the accounting guidance for troubled debt restructurings (TDRs) by creditors under U.S. generally accepted accounting principles (U.S. GAAP).

Senators Jack Reed (D-RI) and Chuck Grassley (R-IA) introduced the Bank Management Accountability Act (S. 1181).  This bipartisan bill “would make it easier for banking regulators to claw back compensation from negligent bank directors and senior executives at failed systemically important banks and to ban those directors and executives from future participation in the financial industry.”

The House Financial Services Committee held a hearing with Chairman Gary Gensler of the U.S. Securities and Exchange Commission (SEC) on the Commission’s regulatory and enforcement activity. 

The House Financial Services Subcommittee on Digital Assets, Financial Technology, and Inclusion held a hearing on the need for legislation to create a regulatory framework for stablecoins. 

U.S. Deputy Secretary of the Treasury Wally Adeyemo chaired a meeting with members of the Financial and Banking Information Infrastructure Committee (FBIIC) to discuss the group’s collective and individual cybersecurity efforts. In the meeting, the Deputy Secretary recognized the agencies’ work to monitor and harden their cyber defenses at a time of increased threats, including those arising from Russia’s invasion of Ukraine. He emphasized the importance of information sharing to support detection of suspicious or malicious activity so that financial entities can better protect themselves. The participants received an update on the efforts of the FBIIC Cloud Working Group and other joint efforts to make progress on incident response plans. Deputy Secretary Adeyemo also underscored that a heightened threat level is likely to continue in the future and urged participants to accelerate efforts on joint cybersecurity projects. 

The House Committee on Small Business Subcommittee on Oversight, Investigations, and Regulations held a hearing entitled, “Office of Inspector General Reports to Congress on SBA Programs,” to examine fraud, waste, and mismanagement concerning Small Business Administration (SBA) pandemic-related funds and programs.

Federal Reserve Governor Michelle W. Bowman delivered remarks on the consequences of fewer banks in the U.S. banking system at the Wharton Financial Regulation Conference in Philadelphia, Pennsylvania.

Federal Reserve Governor Christopher J. Waller delivered remarks at the Graybar National Training Conference in San Antonio, Texas covering the economic outlook, including the recent failures of Silicon Valley Bank (SVB) and Signature Bank, and the extent that the stress in the banking system could weigh on economic activity.

There has been a discernible shift from a focus on Russia sanctions to a focus on China-related sanctions, particularly as they pertain to fentanyl production and trafficking. Read our latest Sanctions Watch here.