February 10, 2023

The House Financial Services Committee is moving forward with consideration of financial data privacy legislation. The bill, first released as a discussion draft by Chairman Patrick McHenry (R-NC) last June, was updated this week as part of Financial Institutions Subcommittee Chairman Andy Barr’s (R-KY) hearing on ‘Revamping and Revitalizing Banking in the 21st Century.’ While the House starts the two-week Mardi Gras recess today, action on the legislation could come as soon as Members return, with plans for a committee mark-up tentatively scheduled for Tuesday, February 28.

The Securities and Exchange Commission (SEC) Division of Enforcement announced its 2023 Examination Priorities, which include: 

  • new investment adviser and investment company rules; 

  • issues under the Advisers Act, private fund advisers’ portfolio strategies, risk management and investment recommendations and allocations, and registered investment advisers to private funds with specific risk characteristics;

  • standards of conduct issues for broker-dealers and RIAs;

  • ESG-related advisory services and fund offerings;

  • broker-dealers’, RIAs’, and other registrants’ practices to prevent interruptions to mission-critical services and to protect investor information, records, and assets;

  • examinations of broker-dealers and RIAs that are using emerging financial technologies or employing new practices, including technological and online solutions to meet the demands of compliance and marketing and to service investor accounts – note this includes crypto-assets.

SEC Chair Gary Gensler delivered remarks before the Small Business Capital Formation Advisory Committee. Chair Gensler discussed his support for the Private Fund Advisers Proposal introduced last February, and emphasized the need for more competition and transparency in the private funds markets. 

The SEC charged Payward Ventures, Inc. and Payward Trading Ltd., commonly known as Kraken, with failing to register the offer and sale of their crypto asset staking-as-a-service program, whereby investors transfer crypto assets to Kraken for staking in exchange for advertised annual investment returns of as much as 21 percent. To settle the SEC’s charges, the two Kraken entities agreed to immediately cease offering or selling securities through crypto asset staking services or staking programs and pay $30 million in disgorgement, prejudgment interest, and civil penalties. Commissioner Hester Peirce dissented, stating that “[i]nstead of taking the path of thinking through staking programs and issuing guidance, we again chose to speak through an enforcement action, purporting to ‘make clear to the marketplace that staking-as-a-service providers must register and provide full, fair, and truthful disclosure and investor protection.’ Using enforcement actions to tell people what the law is in an emerging industry is not an efficient or fair way of regulating. Moreover, staking services are not uniform, so one-off enforcement actions and cookie-cutter analysis does not cut it.” She added that, “[m]ost concerning, though, is that our solution to a registration violation is to shut down entirely a program that has served people well.”

The Office of Financial Research published a Risk Spotlight entitled “3 Ways DeFi Growth Could Threaten Financial Stability.” The blog discusses the risk of spillover effects from digital assets into traditional financial markets, financial-stability risks from rapid withdrawals of digital assets, and the potential for disruptions to have immediate consequences if digital assets are widely adopted.

The Consumer Financial Protection Bureau (CFPB) issued an advisory opinion addressing digital mortgage comparison shopping platforms that “appear to shoppers as if they provide objective lender comparisons, but may illegally refer people to only those lenders paying referral fees.” The opinion states that these companies violate the Real Estate Settlement Procedures Act (RESPA) “when they steer shoppers to lenders by using pay-to-play tactics rather than providing shoppers with comprehensive and objective information.” CFPB Director Rohit Chopra issued a statement supporting the advisory opinion.

The Biden Administration published a fact sheet entitled “The Biden Economic Plan Is Working.” It covers: 

  • Economic growth and stability; 

  • Manufacturing and infrastructure;

  • Health care costs for families;

  • Promoting competition; and

  • Reducing the deficit and taxes on corporations.

The National Credit Union Administration (NCUA) published a guidance statement on the expansion of permissible Credit Union Service Organization (CUSO) activities and associated risks.

Board of Governors of the Federal Reserve (FRB) Vice Chair for Supervision Michael Barr delivered remarks on financial inclusion at the  “Banking on Financial Inclusion” conference At the Hope Economic Mobility Forum at Jackson State University, Jackson, Mississippi. Vice Chair Barr discussed discrimination and disparities in the financial system and stated that regulators “need to understand both human decision-making and market context in designing the right rules of the road,” and “need to engage with techniques, such as cash flow underwriting and alternative data, new credit models, and other technologies that hold out the promise to increase access and reduce bias in credit intermediation.”

The U.S. Department of the Treasury released a report on the potential benefits and challenges associated with the increasing trend of financial sector firms adopting cloud services technology. The Treasury stated that “while cloud services can increase access and reliability for local communities as well as empower community banks to compete with financial technology firms, the report found that financial service firms ramping up their reliance on cloud-based technologies need more visibility, staff support, and cybersecurity incident response engagement from Cloud Service Providers (CSPs).”

The House Financial Services Subcommittee on Capital Markets hosted a hearing on removing barriers to capital access for small business owners.

The House Committee on Financial Services held a hearing on what can be done to combat the economic threat from China.

The FRB released the hypothetical scenarios for its annual stress test, which “helps ensure that large banks are able to lend to households and businesses even in a severe recession.” This year, 23 banks will be tested against a severe global recession with heightened stress in both commercial and residential real estate markets, as well as in corporate debt markets.

The New York Department of Financial Services (NYDFS) finalized an update to the state’s Community Reinvestment Act (CRA) which would allow New York-chartered banks to receive credit for issuing loans to women- and minority-owned small businesses in underserved communities. As part of the CRA review, banks will have to report small business lending data to NYDFS, including the loan size, recipients’ demographic data, and the type of application.

The Office of the Comptroller of the Currency (OCC) announced the selection of Kristen Baldwin to be the agency’s Chief Information Officer (CIO), effective February 26. As CIO, Ms. Baldwin will lead all OCC information technology (IT) programs, supporting the agency’s mission of ensuring that national banks and federal savings associations operate in a safe, sound, and fair manner.

The CFPB announced that it convened its 1033 SBREFA panel to discuss and seek feedback from small business representatives on proposals for its personal financial data rights rulemaking. In the tweet, the agency included a link to where it posted 99 out of the 1679 comments it received in response to its SBREFA Outline of Proposals and Alternatives under Consideration.

The U.S. House of Representatives passed several pieces of bipartisan financial services legislation. Among the bipartisan bills passed are initiatives to combat the financial exploitation of seniors and other vulnerable adults, streamline federal credit union board meeting requirements, and increase access to capital for rural small businesses. The bills include: 

  • H.R. 500, the Financial Exploitation Prevention Act, sponsored by Capital Markets Subcommittee Chairwoman Ann Wagner (R-MO);

  • H.R. 582, the Credit Union Board Modernization Act, co-sponsored by Oversight and Investigations Subcommittee Chairman Bill Huizenga (R-MI);

  • H.R. 298, the Expanding Access to Capital for Rural Job Creators Act, sponsored by Representative Alex Mooney (R-WV).

The Consumer Financial Protection Bureau (CFPB) proposed a rule to curb “excessive credit card late fees.” Specifically, the proposed rule would lower the immunity provision for late fees to $8 for a missed payment as well as end the automatic annual inflation adjustment. The proposed rule would also ban late fee amounts above 25% of the consumer’s required payment.