February 21, 2024

Acting Comptroller of the Currency Michael Hsu discussed banking and commerce, regulatory effectiveness, and financial stability in remarks at Vanderbilt University. He also offered thoughts on the potential for the Financial Stability Oversight Council’s (FSOC) recently adopted analytic framework to identify and address financial stability risks, particularly regarding payments and private credit/equity, as they emerge. Specifically, he called for a “trip wire” approach, subject to notice and comment, where, “the FSOC would establish a set of metrics and thresholds, which if exceeded would trigger the assessment of systemic risk. The trip wires could complement other modes of analysis and would not have to be the exclusive means of prompting an assessment. “Notably,” he elaborated, ”the only consequence of crossing a trip wire would be to move from the identification phase to the assessment phase of the analytic framework.”

The U.S. Department of the Treasury (Treasury) announced that the United States is designating two individuals who are affiliates of the Russia-based ransomware group LockBit. This action is the first in an ongoing collaborative effort between Treasury, the U.S. Department of Justice, Federal Bureau of Investigation, and international partners targeting LockBit. The U.S. designated Ivan Gennadievich Kondratiev and Artur Sungatov for engaging in a ransomware attack against the Industrial and Commercial Bank of China’s (ICBC) U.S. broker-dealer, which affected the settlement of over $9 billion worth of assets backed by Treasury securities.

The Consumer Financial Protection Bureau (CFPB) issued a procedural rule updating the process by which financial institutions can appeal supervisory findings. The updated rule broadens the CFPB officials eligible to evaluate appeals, the options for resolving an appeal, the matters subject to appeal, and makes additional clarifying changes. Read the updated supervisory appeals process here.

The Federal Trade Commission (FTC) provided the CFPB an annual summary of its enforcement and related activities on the Equal Credit Opportunity Act (ECOA). The summary also outlines the Commission’s business and consumer education efforts on fair lending issues.

The Commodity Futures Trading Commission (CFTC) announced it is extending the comment period for its proposed rule requiring an Operational Resilience Framework for futures commission merchants (FCMs), swap dealers, and major swap participants. The deadline is extended to April 1, 2024. The proposed rule would require FCMs, swap dealers, and major swap participants to establish, document, implement, and maintain an Operational Resilience Framework (ORF) reasonably designed to identify, monitor, manage, and assess risks relating to information and technology security, third-party relationships, and emergencies or other significant disruptions to normal business operations. The CFTC further proposed guidance relating to the management of risks stemming from third-party relationships.

The CFTC unanimously approved proposed amendments to Part 48 of CFTC regulations and is seeking comments on the proposed amendments. The proposed amendments would permit a foreign board of trade (FBOT) registered with the CFTC to provide direct access to its electronic trading and order matching system to an identified member or other participant located in the United States and registered with the CFTC as an introducing broker for submission of customer orders to the FBOT’s trading system for execution. The comment period closes on April 22, 2024.

Read CFTC Chairman Rostin Behnam’s statement here.
Read CFTC Commissioner Kristin Johnson’s statement here.
Read CFTC Commissioner Caroline Pham’s statement here.
Read CFTC Commissioner Christy Goldsmith Romero’s statement here.  

The CFTC approved a proposed rule to implement requirements for FCMs related to margin adequacy and the treatment of separate accounts of a single customer. Relatedly, the Commission withdrew its April 14, 2023 proposal to codify the no-action position in CFTC Staff Letter No. 19-17 regarding separate account treatment applicable to derivatives clearing organizations (DCOs) and, through DCO rules, to clearing FCMs. The comment period closes on April 22, 2024.

Read CFTC Commissioner Caroline Pham’s statement here.
Read CFTC Commissioner Kristin Johnson’s statement here.

The CFTC issued for public comment a proposed rule for designated contract markets (DCMs) and swap execution facilities (SEFs) that would establish governance requirements regarding market regulation functions, as well as related conflicts of interest standards. The comment period closes on April 22, 2024.

Read CFTC Chairman Rostin Behnam’s statement here.
Read CFTC Commissioner Christy Goldsmith Romero’s statement here.

H.R. 7428, entitled To Regulate the Business of Offering and Providing Earned Wage Access Services to Consumers, and for Other Purposes, was introduced in the House and referred to the House Financial Services Committee. The bill is sponsored by Rep. Bryan Steil (R-WI) and cosponsored by Rep. French Hill (R-AR). The text of the bill has not yet been released.

Senate Banking Committee Chair Sherrod Brown (D-OH) issued a statement regarding this week’s announcement that Capital One will buy Discover Financial. Senator Brown stated that “a rubber-stamped merger that makes powerful financial companies even bigger and more powerful will do nothing for families,” and emphasized that with a merger of this size, regulators “need to ensure our financial system remains strong and competitive, so that consumers continue to have access to safe, affordable financial products and services.”

House Financial Services Committee Ranking Member Maxine Waters (D-CA) also released a statement about the announcement. Rep. Waters stated that she is “deeply opposed” to the merger, and that she is “more committed than ever to seeing President Biden’s regulators quickly adopt robust rules, including those implementing the Basel III endgame proposal, to safeguard against future financial crises and taxpayer bailouts of Wall Street.” Rep. Waters called for the Department of Justice and the banking regulators to move quickly to block the acquisition. 

Senator Sherrod Brown sent a letter to Federal Reserve Board (FRB or Fed) Chair Jerome Powell urging him to strengthen enforcement penalties under the Fed’s Investment and Trading Policy. In his letter, Sen. Brown cited a Fed report that said that in March 2020, just before the Board met to consider monetary policy and emergency lending programs in response to the COVID-19 crisis, two former Federal Reserve Bank Presidents traded securities in violation of the blackout period. Sen. Brown urged Chair Powell and the FRB to implement substantive penalties for Federal Reserve officials that engage in prohibited market trading activity and to establish a sufficient review process to determine when officials violate the policy.

House Speaker Mike Johnson (R-LA) and Democratic Leader Hakeem Jeffries (D-NY) announced the establishment of a bipartisan 24-member Task Force on Artificial Intelligence (AI). The task force will be led by Rep. Jay Obernolte (R-CA) and Rep. Ted Lieu (D-CA), and is charged with delivering a comprehensive report on what Congress should do to set new regulatory standards for AI and spur investment in the technology. The report will include guiding principles, forward-looking recommendations, and bipartisan policy proposals developed in consultation with committees of jurisdiction. 

Rep. Maxine Waters led 41 House Democrats in sending a letter to the FRB, Federal Deposit Insurance Corporation (FDIC), and OCC urging them to move quickly to finalize proposed rules to strengthen capital requirements for the nation’s largest banks, including a proposal to implement the Basel III endgame. In the letter, the lawmakers emphasize the importance of strong capital rules, particularly in the wake of last year’s three major bank failures.

The House Financial Services Committee held a hearing on Oversight of the Financial Crimes Enforcement Network (FinCEN) and the Office of Terrorism and Financial Intelligence (TFI). Read our summary here.

House Financial Services Committee Chair Patrick McHenry (R-NC) said that Republicans “have an understanding” with Ranking Member Maxine Waters (D-CA) on stablecoin legislation. The next steps are to work with stakeholders in the Biden Administration, such as the Federal Reserve (the Fed or FRB) and Treasury, Senate, and House of Representatives. Politico reported.

Rep. McHenry also stated that “this would be the first piece of digital asset legislation, so we want to get it right because it would then be the baseline for everything else to come,” and that he planned to “see what points of leverage I have” to get the legislation passed. He added that he might raise the issue with Federal Reserve Chair Jerome Powell when he testifies before the panel on March 6. Rep. McHenry further said that he plans to avoid asking Chair Powell about interest rates, but wants to dig into proposed changes to banks’ capital requirements.

Need to catch up on what happened last week? Check out our February 16th End of Week Wrap Up here