January 27, 2023

The Board of Governors of the Federal Reserve (FRB) announced its denial of the application by Custodia Bank, Inc., Cheyenne, Wyoming, to become a member of the Federal Reserve System. The Board concluded that the firm’s application as submitted was inconsistent with the required factors under the law. According to the FRB, Custodia “proposed to engage in novel and untested crypto activities that include issuing a crypto asset on open, public and/or decentralized networks.” The FRB concluded that “the firm’s novel business model and proposed focus on crypto-assets presented significant safety and soundness risks.” The press release also referenced banking agencies’ Joint Statement on Crypto-Asset Risks to Banking Organizations, which “previously made clear that such crypto activities are highly likely to be inconsistent with safe and sound banking practices.”

The White House published a blog entitled The Administration’s Roadmap to Mitigate Cryptocurrencies’ Risks, authored by Brian Deese, Director of the National Economic Council, Arati Prabhakar, Science Advisor to the President, Cecilia Rouse, Chair of the Council of Economic Advisors, and Jake Sullivan, National Security Advisor. The blog states that the Administration’s focus is on “continuing to ensure that cryptocurrencies cannot undermine financial stability, to protect investors, and to hold bad actors accountable.” The blog also discusses the White House’s Framework for Responsible Development of Digital Assets, banking agencies’ Joint Statement on Crypto-Asset Risks to Banking Organizations, the Office of Science and Technology Policy (OSTP)’s request for information (RFI) on Digital Assets Research and Development, and the Financial Stability Oversight Council’s recent Report on Digital Asset Financial Stability Risks and Regulation.

The Office of Science and Technology Policy (OSTP) published a request for information (RFI) in the Federal Register to help identify priorities for research and development related to digital assets, including various underlying technologies such as blockchain, distributed ledgers, decentralized finance, smart contracts, and related issues such as cybersecurity and privacy (e.g., cryptographic foundations and quantum resistance), programmability, and sustainability as they relate to digital assets. Comments are due by 5:00 pm ET on March 3.

The Office of the Comptroller of the Currency (OCC) is soliciting academic research papers on emerging risks in the banking system or related policy and supervisory issues for submission by March 3, 2023. The OCC will invite authors of selected papers to present to OCC staff and invited academic and government researchers at OCC Headquarters in Washington, D.C., on June 12-14, 2023.

The New York Department of Financial Services released new guidance on custodial structures for customer protection in the event of insolvency. The guidance focuses on consumer protection relating to “Segregation of and Separate Accounting for Customer Virtual Currency; a Virtual Currency Entity (VCE) Custodian’s Limited Interest in and Use of Customer Virtual Currency; Sub-Custody Arrangements; and Customer Disclosure.

The Consumer Financial Protection Bureau (CFPB) issued a request for information seeking public feedback on how the consumer credit market is functioning as part of a biennial review of the industry. The CFPB is interested in hearing about people’s overall experiences with credit card products. In particular, the request is seeking information on: terms of credit card agreements and the practices of credit card issuers; effectiveness of disclosure of terms, fees, and other expenses of credit card plans; adequacy of protections against unfair or deceptive acts or practices relating to credit card plans; cost and availability of consumer credit cards; safety and soundness of credit card issuers; use of risk-based pricing for consumer credit cards; and consumer credit card product innovation.

Congresswoman Maxine Waters (D-CA), Ranking Member of the House Financial Services Committee, announced the Democratic Committee members selected by the House Democratic Steering and Policy Committee to serve on the House Financial Services Committee. The list can be found here.

Securities and Exchange Commission (SEC) Commissioner Mark Uyeda delivered remarks at the “SEC Speaks” Conference 2022. Commissioner Uyeda said that “without the benefit of comments from crypto investors and other market participants, the Commission is unable to consider their perspectives in developing an appropriate regulatory framework. To the extent that crypto assets raise unique issues not otherwise addressed in the current rule book, the Commission should consider proposing rules or issuing interpretive releases.”

Chairman of the House Financial Services Committee Patrick McHenry (R-NC) announced subcommittee assignments for the 118th Congress. The list can be found here.

The Biden-Harris Administration announced new actions to “increase fairness in the rental market and further principles of fair housing.” The actions align with a new Blueprint for a Renter’s Bill of Rights.

Acting Comptroller of the Currency Michael J. Hsu discussed large bank manageability in remarks at Brookings. The Acting Comptroller shared his views on detecting, preventing and addressing risks that can result in large banks becoming “too big-to-manage.” He reflected that large banks that repeatedly try but fail to fix their material deficiencies prolong risks to consumers, counterparties, and the financial system. Read the full remarks here

The SEC charged Avraham Eisenberg with orchestrating an attack on Mango Markets, a crypto asset trading platform, by manipulating the MNGO token, a governance token which the SEC is alleging was offered and sold as a security. Investigations into other securities law violations and into other entities and persons relating to the alleged misconduct are ongoing.