The Financial Stability Oversight Council (FSOC) published its report on digital asset and potential financial stability risks and regulation, as directed under the Biden Administration’s Executive Order on Ensuring Responsible Development of Digital Assets.
The Report focuses on detailing how crypto-assets can increase financial stability risks based on their interconnectedness with the traditional financial system and those risks arising from within the crypto-asset ecosystem itself. It also discusses the regulation of entities engaging with crypto-assets and the actions of the FSOC member agencies regarding regulating these entities. The Report concludes with recommendations from the FSOC addressed to member agencies, Congress, and regulators.
Acting Federal Deposit Insurance Corporation (FDIC) Chairman Marty Gruenberg gave prepared remarks at the American Bankers Association (ABA) annual convention on “The Financial Risks of Climate Change.” He repeated that there is “a compelling obligation to engage with climate change as a financial risk to the safety and soundness of banks and the stability of the financial system.” He called for climate-related scenario analyses for large institutions, which he said should be viewed “as an exploratory risk management tool.” This is “not a stress testing exercise and will not have regulatory capital implications.”
He acknowledged that smaller and mid-size banks’ “supervisory expectations are tailored based on size, complexity and business operations,” but said their Board of Directors and senior management “should seek to better understand and consider their own unique climate-related financial risk and how it may impact them.” The session was broadcast live here.
The FDIC and the Board of Governors of the Federal Reserve System (FRB) jointly announced they anticipate issuing guidance to help certain large banks further develop their resolution plans. Resolution plans, required by the Dodd-Frank Act and commonly known as “living wills,” describe a financial company’s strategy for rapid and orderly resolution under bankruptcy in the event of financial distress or failure.
The FRB finalized updates to the Board’s rule concerning debit card transactions. Pursuant to statute, the updates specify that debit card issuers should enable at least two payment card networks to process all debit card transactions, including “card-not-present” transactions, such as online payments. The final rule is substantially similar to the proposal issued last year.
Director Chopra appeared on Bloomberg TV to discuss the report. Director Chopra said that he’s asked CFPB staff to provide options with the goal of promoting fair competition of similar products. He stated that the CFPB wants to ensure that the BNPL industry isn’t seizing any loopholes and said that new rules and guidance may be forthcoming.
Federal Reserve Governor Michelle Bowman delivered a speech entitled “Large Bank Supervision and Regulation.” Governor Bowman encouraged a “gradual and experiential approach” to supervision and regulation and discussed four guiding principles that will form her judgments about changes in regulation: that bank regulation and supervision should be transparent, consistent, and fair; striking the right balance between ensuring safety and soundness, and promoting acceptable and manageable risk-taking, including encouraging responsible innovation; effective regulation and supervision needs to be efficient; and regulation and supervision should serve a legitimate prudential purpose.
The letter cites specific “abuses of power” including the CFPB’s “pressure campaign” against overdraft services, the ability to publicly disclose decisions to supervise a nonbank, changes to the rules of adjudication making it harder for companies to defend themselves against novel enforcement theories, and referenced the use of mass email – in the case of Fifth Third Bank – “to harm the customer relationships of a bank that is involved in litigation with the agency.”
The Office of the Comptroller of the Currency (OCC) released its bank supervision operating plan for fiscal year (FY) 2023. The plan provides the foundation for policy initiatives and for supervisory strategies as applied to individual national banks, federal savings associations, federal branches, federal agencies, and technology service providers. The OCC staff uses this plan to guide its supervisory priorities, planning, and resource allocations.
President Joe Biden issued a proclamation declaring October 2022 Cybersecurity Awareness Month.
The Securities and Exchange Commission (SEC) announced charges against Kim Kardashian for touting on social media a crypto asset security offered and sold by EthereumMax without disclosing the payment she received for the promotion. Kardashian agreed to settle the charges, pay $1.26 million in penalties, disgorgement, and interest, and cooperate with the Commission’s ongoing investigation.
U.S. Secretary of the Treasury Janet L. Yellen announced the inaugural members of the Treasury Advisory Committee on Racial Equity. The first-of-its-kind committee will provide advice and recommendations to Secretary Yellen and Deputy Secretary Wally Adeyemo on efforts to advance racial equity in the economy and address acute disparities for communities of color.
The top Republican on the House Financial Services Committee, Rep. Patrick McHenry (R-NC), sent a letter to National Security Advisor Jake Sullivan, urging the Biden Administration to “thoughtfully and transparently work with Congress on efforts to confront the generational threat posed by the Chinese Communist Party, rather than acting unilaterally by Executive Order,” especially on efforts to regulate certain investment flows to China.
The Federal Housing Administration (FHA) published in the Federal Register a Request for Information (RFI) Regarding Small Mortgage Lending. The RFI seeks input regarding these barriers to small mortgage lending insured through the FHA program, as well as feedback on ways to improve FHA policies and programs to support affordable homeownership opportunities in underserved markets with lower housing prices.
The White House Office of Science and Technology Policy released a Blueprint for an AI Bill of Rights. The Blueprint outlines five principles that “should guide the design, use, and deployment of automated systems to protect the American public in the age of artificial intelligence.” The guide includes safe and effective systems; algorithmic discrimination protections; data privacy; notice and explanation; and human alternatives, consideration, and fallback.
President Biden issued a proclamation pardoning all U.S. citizens and lawful permanent residents who committed the offense of simple possession of marijuana. He also urged state and local governments to do the same.
The CFPB is taking action against Choice Money Transfer (Choice Money) for multiple violations of the Remittance Transfer Rule and the Electronic Fund Transfer Act (EFTA). The CFPB found the company did not accurately disclose important prepayment information to remittance senders, such as money transfer fees, current exchange rates and the date the recipient would receive the funds. The CFPB is ordering Choice Money to pay a $950,000 penalty that will be deposited into the CFPB’s victims relief fund.
The CFPB published a blog stating that mortgage borrowers can challenge inaccurate appraisals through the reconsideration of value process.
The top Republican on the House Financial Services Committee, Patrick McHenry (R-NC), released Committee Republicans’ capital formation agenda. “Committee Republicans have identified commonsense, pro-growth reforms that will strengthen public markets, help small businesses and entrepreneurs, and increase opportunities for all investors,” Rep. McHenry stated.
Acting Comptroller Hsu emphasized the need to maintain a “careful and cautious” approach to crypto activities, but said that he believes fintechs and big techs warrant much more attention. He expressed particular concern about bank-fintech partnerships, climate related risks, and economic inequality.
The FRB announced that six of the nation’s largest banks will participate in a pilot climate scenario analysis exercise designed to enhance the ability of supervisors and firms to measure and manage climate-related financial risks. Scenario analysis—in which the resilience of financial institutions is assessed under different hypothetical climate scenarios—is an emerging tool to assess climate-related financial risks, and there will be no capital or supervisory implications from the pilot.