February 24, 2023

The federal prudential bank regulatory agencies issued a joint statement highlighting liquidity risks to banking organizations associated with certain sources of funding from crypto-asset-related entities and effective practices to manage those risks. In response to the joint statement, Senate Banking Committee Chairman Sherrod Brown (D-OH) stated, “This is the right step to provide more clarity to banking organizations and protect people’s hard-earned money as we continue to consider a comprehensive regulatory framework for digital assets.”

House Financial Services Committee Chairman Patrick McHenry (R-NC) introduced the Data Privacy Act of 2023. The legislation “modernizes financial data privacy laws and gives consumers more control over how their personal information is collected and used—without stifling innovation in the United States.” Find the summary here and the section-by-section here.

The Department of Housing and Urban Development (HUD), through the Federal Housing Administration (FHA), announced a 30 basis point reduction to the annual mortgage insurance premiums (annual MIP) charged to homebuyers who obtain an FHA-insured mortgage. The premium will be reduced from 0.85 percent to 0.55 percent for most homebuyers seeking an FHA-insured mortgage.

The Consumer Financial Protection Bureau (CFPB) took action against multiple corporate entities operating under TMX Finance, broadly known as TitleMax, for “violating the financial rights of military families and other consumers in providing auto title loans.”

The CFPB issued orders to nine large auto lenders to provide information about their auto lending portfolios. “These nine lenders represent a cross-section of the auto finance market. The data collected from their responses to these orders will help us build a quality data set that provides insights into lending channels, loan performance, and inform potential future data collection efforts,” the CFPB stated.

The Board of Governors of the Federal Reserve (FRB) announced that it has denied the request by Custodia Bank, Inc., of Cheyenne, Wyoming, which offers digital asset banking, custody, and payment solutions, for reconsideration of the Board’s decision last month on its application to be supervised by the Federal Reserve.

The FRB, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) issued the 2022 Shared National Credit (SNC) report, which found that while credit risks to borrowers impacted by COVID-19 have declined, they remain high for leveraged loans, as well as the entertainment, recreation, and transportation services industries.

New York Attorney General Letitia James sued a cryptocurrency platform, COINEX (CoinEx), for “failing to register as a securities and commodities broker-dealer and for falsely representing itself as a crypto exchange.” The Office of the Attorney General was able to buy and sell cryptocurrencies on CoinEx in New York, although the company is unregistered in the state, which is a violation of New York’s Martin Act. Through this enforcement action, Attorney General James “seeks to permanently stop CoinEx from operating in New York through its website and mobile apps.”

Deputy Attorney General Lisa Monaco delivered remarks on Disruptive Technologies. Deputy Attorney General Monaco discussed counterterrorism and confronting new challenges in cyberspace. 

Russia and China-related sanctions were the focus of the last two weeks both with respect to the Biden Administration and Congress. We will likely see new initiatives from the Administration coming out of last week’s Munich Security Conference (February 17-19), and once Congress returns at the end of February now that the relevant national security committees have organized. Read more in our latest Sanctions Watch here

The SEC proposed a new rule to compel investment advisers to house their clients’ cryptocurrency with qualified custodians — a category of service providers that usually refers to banks and brokerages. SEC Chair Gary Gensley stated, “through this expanded custody rule, investors working with advisers would receive the time-tested protections that they deserve for all of their assets, including crypto-assets, consistent with what Congress envisioned.” Commissioner Mark Uyeda noted in his statement that “[t]his approach to custody appears to mask a policy decision to block access to crypto as an asset class. It deviates from the Commission’s long-standing position of neutrality on the merits of investments.”

Federal Reserve Governor Michelle Bowman delivered remarks at the Midwest Cyber Workshop, organized by the Federal Reserve Banks of Chicago, Kansas City, and St. Louis. Governor Bowman discussed the risk of cyberattacks and stated that “banks need to adopt new technologies to meet customer demands, to take advantage of efficiencies and cost savings, and to remain competitive in the marketplace. Although third-party relationships are one avenue for community banks to bring new technologies online, they must do so with a thorough understanding of the associated risks.”