December 15, 2023

Treasury Secretary Janet Yellen convened a meeting of the Financial Stability Oversight Council (Council) in executive and public sessions at the U.S. Department of the Treasury (Treasury). The Council heard updates on the continued efforts of the Council’s Nonbank Mortgage Servicing Task Force regarding potential financial stability risks related to nonbank mortgage servicers, work by the Council’s Hedge Fund Working Group, work by the Council’s Climate-related Financial Risk Committee, and recent cybersecurity developments.

The Council approved its 2023 annual report. The annual report reviews financial market developments, describes potential emerging threats to U.S. financial stability, identifies vulnerabilities in the financial system, and makes recommendations to mitigate those threats and vulnerabilities. Overall, the Council found that the U.S. financial system remains resilient, and the U.S. banking system remains sound. The report also details the activities of the council and summarizes significant regulatory developments.

Read Secretary of the Treasury Janet Yellen’s remarks on the report here

Read Acting Comptroller of the Currency Michael J. Hsu’s statement on the report here

Read Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg’s statement on the report here

Read New York Department of Financial Services Superintendent Adrienne Harris’ statement on the report here.

Treasury Secretary Yellen delivered remarks on the U.S.-China economic relationship at the U.S-China Business Council’s 50th Anniversary Dinner in Washington, DC. Secretary Yellen discussed the U.S.’s economic approach to China, progress so far, and the year ahead.

Treasury Under Secretary for Terrorism and Financial Intelligence Brian Nelson delivered remarks at the U.S.-India Anti-Money Laundering and Countering the Financing of Terrorism Working Group. Under Secretary Nelson discussed the risks and vulnerabilities posed by virtual assets and virtual asset service providers (VASPs) and how Treasury is implementing AML/CFT frameworks to minimize these risks and vulnerabilities. Under Secretary Nelson also issued a joint statement with Sh. Sanjay Malhotra, Indian Ministry of Finance Revenue Secretary, summarizing the forum and stating that both countries recognize “the pressing need to accelerate global implementation of AML/CFT standards for virtual assets.”

The Consumer Financial Protection Bureau (CFPB) took action against a medical debt collector, Commonwealth Financial Systems, for illegally trying to collect unverified medical debts after consumers disputed the validity of the debts. Under the order the company will cease operations and pay a $95,000 penalty to the CFPB’s victims relief fund.

The Office of the Comptroller of the Currency (OCC) released enforcement actions taken against national banks and federal savings associations (banks), and individuals currently and formerly affiliated with banks the OCC supervises. Actions taken include a Formal Agreement against B2 Bank National; Association and a Cease and Desist Order against Upstate National Bank.

The Commodity Futures Trading Commission (CFTC), at its December 13 Open Meeting approved the application of Bitnomial, a marketplace connecting native digital asset hedgers with institutional traders, to register as a derivatives clearing organization (DCO). Bitnomial is the first crypto-native exchange to hold a clearinghouse license as a DCO, exchange license as a designated contract market, and a brokerage license as a futures commission merchant. 

The CFTC also approved a proposal requiring DCOs to segregate their funds from client funds (the Member Funds rule). The rule also enables a disintermediated direct-to-retail model for DCOs regarding default waterfalls – a series of financial safeguards and procedures that are activated in the event of a clearing member’s default at a clearinghouse.

Commissioner Christy Goldsmith Romero voted against the proposal.

The Securities and Exchange Commission (SEC) denied Coinbase’s July 2022 petition for rulemaking regarding regulation of digital asset securities. Among other things, the petition sought clarity regarding when a digital asset is a security. SEC Chair Gensler published a statement supporting the denial, stating he is “pleased to support the Commission’s decision for three reasons. First, existing laws and regulations apply to the crypto securities markets. Second, the SEC addresses the crypto securities markets through rulemaking as well. Third, it is important to maintain Commission discretion in setting its own rulemaking priorities.” SEC Commissioners Hester Peirce and Mark Uyeda issued a statement disagreeing with the decision. The Commissioners stated that the Petition “raises issues presented by new technologies and other innovations, and addressing these important issues is a core part of being a responsible regulator.”

SEC Division of Corporation Finance Director Erik Gerding gave a speech on the SEC’s Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure Rule. Director Gerding gave an overview of the changes the Commission made from the proposal, highlighted significant parts of the rationale and mechanics of these rules, and discussed potential misconceptions.

The SEC’s Office of the Advocate for Small Business Capital Formation delivered its annual report to Congress on capital raising from startups to small public companies. The report includes data on small business capital formation, policy recommendations from the Office, highlights of the Office’s advocacy work and public engagements from fiscal year 2023, and the Small Business Capital Formation Advisory Committee’s fiscal year 2023 summary of activities.

The SEC issued a staff report on the accredited investor definition. The report examines the current status of the accredited investor pool and concludes with a review of frequently suggested revisions to the accredited investor definition received from a variety of sources, including public commenters, the Investor Advisory Committee, and the Small Business Capital Formation Advisory Committee.

Senate Banking Committee Chair Sherrod Brown (D-OH), Senate Armed Services Committee Chair Jack Reed (D-RI) and several other Senate Democrats reintroduced the Veterans and Consumers Fair Credit Act, which would extend a 36% cap on interest rate loans for the military to all consumers. Read Sen. Brown’s remarks on the legislation here.

House Small Business Committee Ranking Member Nydia Velázquez (D-NY) led seven Small Business Committee Democrats in sending a letter to the White House Office of Management and Budget and the Department of Commerce calling on the agencies to study the effectiveness of AI chatbots in serving small businesses interacting with government agencies.

The Financial Technology Association, American Fintech Council, Chamber of Progress, Computer & Communications Industry Association, Electronic Transactions Association, Information Technology Industry Council, NetChoice, and TechNet wrote a letter requesting that the CFPB extend the comment deadline by 30 days for the notice of proposed rulemaking entitled “Defining Larger Participants of a Market for General-Use Digital Consumer Payment Applications” (the Proposal), which was released by the Bureau on November 17, 2023.

The Federal Reserve issued a Federal Open Market Committee (FOMC) statement. The Committee decided to maintain the target range for the federal funds rate at 5-1/4 to 5-1/2 percent. 

Senators Kirsten Gillibrand (D-NY) and Cynthia Lummis (R-WY) plan to introduce a “discrete” stablecoin bill. Sen. Lummis stated that the goal is to “craft a bill that is bipartisan and bicameral,” and that the role of Fed supervision over state-chartered stablecoin firms as a major focus.

Need to catch up on what happened earlier this week? Check out our December 13th Midweek Update here