June 16, 2023

The Financial Stability Oversight Council (FSOC) convened in an executive session to hear updates from staff of the Federal Reserve Board on financial stability vulnerabilities and on the transition away from LIBOR. FSOC members also discussed the ability of market participants to manage their interest rate risk and liquidity risk in the current economic environment. Council members discussed extending the public comment period for an additional 30 days for the Council’s proposed analytic framework for financial stability risk identification, assessment, and response, and the Council’s proposed interpretive guidance regarding nonbank financial company determinations.  The public comment periods for the two proposals will be extended to July 27, 2023.

The Office of Information and Regulatory Review (OIRA) released the Spring 2023 Regulatory Agenda, which details actions that federal agencies are considering over the coming months. The agenda provides that the Consumer Financial Protection Bureau’s Section 1033 on personal financial data rights Notice of Proposed Rulemaking (NPRM) is anticipated in October 2023. It also signals that the Bureau intends to issue a NPRM in July 2023 that would allow it to exercise supervisory authority over a greater number of nonbank financial companies that participate in the consumer payments market.

The CFPB published a blog post on open banking, stating that the agency must not “micromanage open banking” and that standard-setting organizations must not skew to the interests of the largest players in the market. The blog post states that the agency expects to solicit comments on its personal financial data rights proposed rule in a few months and finalize the rule in 2024.

The Office of the Comptroller of the Currency (OCC) published its Semiannual Risk Perspective for Spring 2023, highlighting that operational risk is elevated, as cyber threats persist and the digitalization of banking products and services expands. The report also highlights an increase in banks’ use of third parties and says this expansion presents both opportunities and risks. Acting Comptroller Michael Hsu’s accompanying statement is available here

Acting Comptroller Michael Hsu discussed the benefits and risks of tokenization and artificial intelligence in remarks at the American Bankers Association’s Risk and Compliance Conference.

As part of the Biden-Harris Administration’s Investing in America agenda, the U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) released guidance on key provisions in the Inflation Reduction Act intended to expand the reach of the clean energy tax credits and help build projects more quickly and affordably. The Treasury and IRS also released additional information on a key provision in the Act to drive investment in communities that have seen fossil energy industries decline.

House Financial Services Committee (HFSC) Chair Patrick McHenry (R-NC) introduced two pieces of legislation, the Accountability Through Confirmation Act and the Protecting Small Business Information Act, intended to reform the Financial Crimes Enforcement Network (FinCEN). Chair McHenry stated that the bills will “boost transparency at FinCEN and ensure it is accountable to the American people.”

Senator Sherrod Brown (D-OH) and Senator Tim Scott (R-SC), the Chair and Ranking Member, respectively, of the Senate Committee on Banking, Housing, and Urban Affairs, announced an agreement on the Recovering Executive Compensation Obtained from Unaccountable Practices (RECOUP) Act. The bill would strengthen the banking agencies’ ability to remove or prohibit senior executives who did not appropriately oversee and manage the risks and governance of their banks. The bill will be considered for mark up at an executive session of the Committee on Wednesday, June 21, at 9:30 am ET.

Senate Banking Committee Chair Sherrod Brown and Senators Jack Reed (D-RI), Bob Menendez (D-NJ), and Elizabeth Warren (D-MA) sent a letter to Dan Schulman, President and CEO of PayPal, in response to reports of widespread fraud and scams on Venmo, which is owned by PayPal. The letter requests key information from PayPal including data on fraudulent activity taking place on the app and steps Venmo is taking to protect its customers from fraud.

HFSC Ranking Member Maxine Waters (D-CA) sent a letter to HFSC Chair Patrick McHenry urging him to immediately convene a hearing to explore the implications of generative artificial intelligence (AI) on housing and financial services. In the letter, Ranking Member Waters expresses concern about the rapid growth of AI technologies and argues that the Committee must play a leading role in ensuring that AI technologies do not exacerbate existing disparities and inequities within the financial system.

HFSC Chair Patrick McHenry sent a letter to U.S. Treasury Secretary Janet Yellen in her capacity as Chair of the Financial Stability Oversight Council (FSOC), demanding that FSOC revisit its April decision to evaluate risks posed by nonbank financial entities based on size, rather than the activities they undertake. Chair McHenry also expressed concern that allowing FSOC to extend its supervisory reach beyond prudential institutions to nonbank entities in this way could pose significant regulatory consequences for the financial system.

The Federal Deposit Insurance Corporation (FDIC), the Board of Governors of the Federal Reserve System (the Fed), and the OCC, under the auspices of the Federal Financial Institutions Examination Council (FFIEC), published final regulatory reporting changes in the Federal Register. The reporting changes would apply to all three versions of the Call Report and to the Report of Assets and Liabilities of U.S. Branches and Agencies of Foreign Bank, as applicable, and are subject to approval by the U.S. Office of Management and Budget.

The Fed announced that results from its annual bank stress tests will be released on Wednesday, June 28, at 4:30 p.m. ET.

The Commodity Futures Trading Commission (CFTC) announced it won its case against decentralized autonomous organization (DAO) OokiDAO for operating an illegal trading platform and acting as a futures commission merchant (FCM) without registering with the CFTC. The case establishes that the CFTC may bring cases against DAOs, which the court considers as persons under the Commodity Exchange Act. 

The Public Company Accounting Oversight Board (PCAOB) published a “Spotlight” report on PCAOB standards for auditors to consider as they audit public companies or broker-dealers whose activities are associated with crypto assets.

The Fed published a database of financial institutions with access to, or requests to access, Fed master accounts and services. The database is consistent with the requirements set forth in legislation enacted last year and will be updated on a quarterly basis.

Investment firm BlackRock filed with the Securities and Exchange Commission (SEC) an application for a bitcoin exchange-traded fund (ETF) using Coinbase Custody Trust Company as the custodian for holding bitcoin.

The SEC’s Office of Minority and Women Inclusion (OMWI) developed a report form to facilitate self-assessments and provide a means for standardizing the diversity assessment that information that SEC-regulated entities voluntarily submit. To provide entities with a more streamlined and efficient report form, and in anticipation of next year’s collection period, the SEC has proposed to amend the report form. Stakeholders are encouraged to submit comments to the proposed amended Diversity Self-Assessment Tool in accordance with the instructions provided in the Federal Register Notice.

SEC Chair Gary Gensler delivered remarks before the Small Business Capital Formation Advisory Committee. Chair Gensler discussed the role of small businesses in American communities and the importance of capital markets helping to facilitate capital formation for small and large businesses.

Assistant Secretary for Financial Institutions at the Treasury Graham Steele delivered remarks on the digitization of financial services at the Transform Payments USA 2023 Conference. Assistant Secretary Steele discussed FedNow, CBDCs, privacy, financial inclusion, and open banking.

Deputy Secretary of the Treasury Wally Adeyemo participated in a roundtable on expanding access to capital for minority entrepreneurs and small business owners with representatives from the U.S. Department of Commerce and the Office of the Vice President. During the roundtable, Deputy Secretary Adeyemo discussed the Treasury Department’s State Small Business Credit Initiative and strategies for using public-private partnerships as force multipliers for investments in underserved businesses and entrepreneurs.

National Credit Union Administration (NCUA) Chairman Todd Harper delivered remarks at the MD&DC Credit Union Association Annual Meeting & Convention. Chairman Harper discussed IRR, liquidity risk, and CLF; climate-related financial risk; cybersecurity risk; and the proposed rule on charitable donation accounts.

Federal Reserve Governor Christopher Waller delivered remarks on financial stability and macroeconomic policy at “The Future of Macroeconomic Policy” conference.

The House Committee on Financial Services held a hearing on digital asset-related regulatory challenges and potential legislative solutions. 

The House Committee on Financial Services Subcommittee on Financial Institutions and Monetary Policy held a hearing examining U.S. Treasury markets and the debt management practices of the Department of Treasury. 

The House Committee on Financial Services, Subcommittee on National Security, Illicit Finance, and International Financial Institutions held a hearing discussing the preservation of the U.S. Dollar as the global reserve currency.

The House Committee on Energy and Commerce, Subcommittee on Innovation, Data, and Commerce hearing discussing Web3 and other distributed ledger technology (DLT) applications. 

The Board of Governors of the Federal Reserve System (FRB), Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) issued final joint guidance designed to help banking organizations manage risks associated with third-party relationships, including relationships with financial technology companies. The final guidance describes principles and considerations for banking organizations’ risk management of third-party relationships. The final guidance covers risk management practices for the stages in the life cycle of third-party relationships: planning, due diligence and third-party selection, contract negotiation, ongoing monitoring, and termination. Federal Reserve Governor Christopher Waller published a statement supporting the interagency guidance while Governor Michelle Bowman dissented. Read our full alert here.

Patrick McHenry (R-NC), Chairman of the House Financial Services Committee (HFSC), and Glenn “GT” Thompson (R-PA), Chairman of the House Committee on Agriculture, released a discussion draft of legislation providing a statutory framework for digital asset regulation. The bill is intended to “provide clarity, fill regulatory gaps, and foster innovation, while providing adequate consumer protections.”

Need to catch up on what happened last week? Check out our June 9th newsletter here.