- Top Lines
The Consumer Financial Protection Bureau (CFPB) issued an interpretive rule that describes states’ authorities to enforce federal consumer financial protection laws.
- Weekly Wrap Up
Using distributed ledger technology (DLT) to cut the cost of cross-border payments requires regulators to stop looking at individual entities like banks, and start looking at the whole decentralized network, a working paper produced for the Basel, Switzerland-based Bank for International Settlements (BIS) has found.
The Biden administration will press Congress to demand cryptocurrency exchanges keep their customers’ money separate from their own corporate funds, according to a person familiar with the plan that could constrain the way the industry does business. Spurred by Coinbase’s (COIN) recent disclosure that customers’ money would be jammed up if the company declared bankruptcy, federal officials intend to push U.S. lawmakers to fix the problem by insisting that a future legal framework require crypto firms keep customer assets walled off.
The U.S. Department of the Treasury issued the 2022 National Strategy for Combatting Terrorist and Other Illicit Financing (2022 Strategy), which identifies measures to increase transparency in the U.S. financial system and strengthen the U.S. anti-money laundering/counter the financing of terrorism (AML/CFT) framework.
The Federal Reserve Board published its semiannual Supervision and Regulation Report to inform the public and provide transparency about its supervisory and regulatory policies and actions, as well as current banking conditions.
The Federal Deposit Insurance Corporation (FDIC) approved a final rule implementing its statutory authority to prohibit any person or organization from making misrepresentations about FDIC deposit insurance or misusing the FDIC’s name or logo. “These practices not only harm those who are targeted with the false promise of deposit insurance, but, if left unchecked, could also undermine confidence in the FDIC, FDIC-insured banks, and the U.S. banking system,” said Acting Chairman Martin J. Gruenberg.
The FDIC has adopted Guidelines for Appeals of Material Supervisory Determinations that restore the Supervision Appeals Review Committee (SARC) as the final level of review in the agency’s supervisory appeals process. The revised Guidelines take effect May 17, 2022. The FDIC is soliciting comment on the revised Guidelines with a comment period of 30 days.
The U.S. Department of Housing and Urban Development (HUD) announced $10.3 billion in Fiscal Year 2022 formula grants to communities across the United States for housing and community development activities ranging from affordable housing development to public housing modernization to economic opportunities for people with low and moderate incomes.
The Department of Commerce published a Request for Comment (RFC) on digital assets and U.S. competitiveness in the Federal Register on May 19, 2022, due 45 days after publication (note that this may need to be adjusted by a few days as the submission date falls on Sunday, July 3). The RFC follows from the Executive Order of March 9, 2022, “Ensuring Responsible Development of Digital Assets,” (the EO) which outlines U.S. policy objectives with respect to digital assets. The Executive Order directs the Secretary of Commerce, in consultation with the Secretary of State, the Secretary of the Treasury, and the heads of any other relevant agencies, to establish a framework for enhancing U.S. economic competitiveness in, and the leveraging of, digital asset technologies. Commerce is requesting input from the public that will inform its work in developing the scope of the economic competitiveness framework. Read our summary of the RFC here.
House Financial Services Committee (HFSC) Ranking Member Patrick McHenry (R-NC) and Rep. Blaine Luetkemeyer (R-MO), Ranking Member of the Subcommittee on Consumer Protection and Financial Institutions, along with all HFSC Republicans sent a letter to CFPB Director Chopra regarding the CFPB’s new UDAAP supervisory policy and the recent changes to CFPB administrative adjudication procedures. Rep. Luetkemeyer concluded that the changes “deviate significantly from past practices” and “are very concerning.”
California lawmakers are asking the Federal Deposit Insurance Corp. to rein in partnerships between FDIC-supervised banks and consumer lenders they say are evading the state’s interest rate limits. The agency should “crack down on these schemes” to ensure lenders cannot dodge California’s 36% annual percentage rate cap on loans between $2,500 and $10,000, four Democratic legislators wrote in a letter to FDIC board members. The lawmakers were the authors of a 2019 state law that banned such loans.
Mark Uyeda, nominated to fill one of the open seats on the Securities and Exchange Commission, told a Senate panel that he wants to know how cryptocurrency accounting guidance issued in March intersects with state and federal banking requirements. Uyeda, during a Senate Banking, Housing, and Urban Affairs Committee nomination hearing, was questioned about the guidance by Sen. Cynthia Lummis (R-Wyo.). Lummis, who is working on bipartisan cryptocurrency legislation with Sen. Kirsten Gillibrand (D-N.Y.), pointed to a recent bank and securities industry letter that warned the guidance could weaken protections for customers.
The G7 Finance Ministers and Central Bank Governors, joined by the Heads of the International Monetary Fund (IMF), World Bank Group, Organisation for Economic Cooperation and Development (OECD), and Financial Stability Board (FSB) issued a Communiqué, outlining their agreement on a range of topics including digitalization and climate change (excerpts below).
“We . . . reiterate that any CBDC should be grounded in transparency, the rule of law, sound economic governance, cyber security and data protection. We encourage jurisdictions exploring CBDCs to examine the international dimensions of CBDCs, in particular their cross-border use. CBDCs with cross-border functionality may have the potential to spur innovation and open up new ways to meet users’ demand for more efficient international payments, but continued international cooperation will be important to understanding and minimising any negative spillovers to the international monetary and financial system.”
“In light of the recent turmoil in the crypto-asset market, the G7 urges the FSB, in close coordination with international standard-setters, to advance the swift development and implementation of consistent and comprehensive regulation of crypto-asset issuers and service providers, with a view to holding crypto-assets, including stablecoins, to the same standards as the rest of the financial system. In particular, the G7 calls for rapid implementation of the Financial Action Task Force (FATF) ‘travel rule’ and stronger disclosure and regulatory reporting, for instance, as regards reserve assets backing stablecoins. We reaffirm that no global stablecoin project should begin operation until it adequately addresses relevant legal, regulatory and oversight requirements through appropriate design and by adhering to applicable standards. The G7 remains committed to high regulatory standards for global stablecoins, following the principle of same activity, same risk, same regulation.”
“G7 central banks are committed to intensifying collaboration on integrating climate risks and aspects into their macroeconomic analysis and modelling toolkit. We support further work on climate-related macroeconomic scenarios and nature-related financial risks by the Network for Greening the Financial System and the Coalition of Finance Ministers for Climate Action.”
- ICYMI
Last week, we saw regulators’ and policymakers’ fears concerning stablecoins and financial stability somewhat realized when Terra, formerly the third largest stablecoin by market capitalization, decoupled from its dollar-peg and dropped to as low as $.20, creating a black swan event in digital asset markets. We anticipate this will lead to increased attention from Congress and regulatory agencies, including the SEC, CFTC, OCC, FDIC, and the CFPB. Speaking on the issue during a Congressional hearing, Treasury Secretary Janet Yellen said, “I wouldn’t characterize it at this scale as a real threat to financial stability but they’re growing very rapidly.” She added that stablecoins “present the same kind of risks that we have known for centuries in connection with bank runs,” and that “[t]he government has been clear that certain stablecoins are not suitable for payment purposes as they share characteristics with unbacked cryptoassets.”
- Upcoming Hearings & Events
Wednesday, May 25, 2022 at 11:00 AM EST: Foreign Policy will hold an event entitled “Tech Regulations: A National Security Threat?”. The event will convene technology and governance experts for a conversation on the potential unintended consequences of proposed legislation and ways to help safeguard national security.
Wednesday, May 25th from 9:30 AM to 4:00 PM ET: Staff of the Commodity Futures Trading Commission will hold a public roundtable to discuss issues related to intermediation in derivatives trading and clearing.
Wednesday, May 26th at 12:00 PM ET: The House Financial Services Committee will convene for a hearing entitled “Digital Assets and the Future of Finance: Examining the Benefits and Risks of a U.S. Central Bank Digital Currency.”