Two notable events dominated headlines this week: the U.S. midterm elections and the downfall of and fallout surrounding FTX International (FTX), the global crypto asset trading platform, and its affiliated companies. Essentially, following the announcement last week that $500 million in FTX’s native crypto asset FTT would be liquidated after a leaked balance sheet of Alameda Research, FTX CEO Sam Bankman-Fried’s trading firm, showed that much of its reserves were held in the form of FTT tokens. A financial run on FTX quickly ensued, with investors seeking to withdraw $5 billion from the platform. This caused a liquidity crisis that led to discussions regarding FTX’s potential sale. Matters worsened upon the news that approximately $10 billion in customer funds were transferred to Alameda Research, an FTX-affiliated trading firm. Today, FTX announced it, FTX US, and Alameda Research filed for voluntary Chapter 11 proceedings in the United States, and its CEO Sam Bankman-Fried resigned.
Congresswoman Maxine Waters (D-CA), Chairwoman of the House Financial Services Committee, released a statement that “ it is clear that there are major consequences when cryptocurrency entities operate without robust federal oversight and protections for customers.”
House Financial Services Committee Ranking Member Patrick McHenry (R-NC), stated that the recent events show the necessity of Congressional action to develop a clear regulatory framework for the digital asset ecosystem, including trading platforms.
Senator Sherrod Brown (D-OH), Chairman of the Senate Committee on Banking, Housing, and Urban Affairs, stated that the recent collapse “is a loud warning bell that cryptocurrencies can fail,” and that the “cryptocurrency market’s continued turmoil is why we must think carefully about how to regulate cryptocurrencies and their role in our economy.”
Following the Federal Reserve Board’s (FRB) recent decision to increase the federal funds rate by 0.75 percent to a target range of 3.75 percent to 4 percent – marking the sixth consecutive rate hike and the fourth consecutive super-sized rate hike in just the past eight months – Chairwoman Waters sent a letter to FRB Chair Jerome Powell. In the letter, Chairwoman Waters urged Chair Powell to consider the significant pain that these rate increases may inflict on families across the country and the impact these increases are having on the cost of housing.
Damian Williams, the United States Attorney for the Southern District of New York, and Tyler Hatcher, the Special Agent in Charge of the Internal Revenue Service, Criminal Investigation, Los Angeles Field Office (“IRS-CI”), announced a historic $3.36 billion cryptocurrency seizure and conviction in connection with the Silk Road dark web fraud. James Zhong pled guilty to committing wire fraud in September 2012 when he unlawfully obtained over 50,000 Bitcoin from the Silk Road dark web internet marketplace.
Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra discussed at the FDIC Systemic Resolution Advisory Committee, three categories of systemically important financial institutions that will continue to pose challenges for them: domestic systemically important banks (DSIBs), undesignated nonbank systemically important financial institutions, and global systemically important banks (GSIBs).
House Small Business Committee Ranking Member Blaine Luetkemeyer (R-MO) issued a statement on the Small Business Administration’s decision to lift the moratorium on Small Business Lending Companies (SBLCs). Rep. Luetkemeyer stated that the SBA’s lifting of the moratorium without acknowledging their oversight and regulatory deficiencies is a major issue, and that the SBA should be working to ensure the safety and soundness of these public-private lending programs.
The CFPB released a Consumer Financial Protection Circular addressing shoddy investigation practices by consumer reporting companies.
The U.S. Department of the Treasury (Treasury) and the Internal Revenue Service (IRS) announced the release of the 2022-2023 Priority Guidance Plan. The plan identifies under its list of general tax issues providing guidance on the tax treatment of transactions involving digital assets and validation of digital asset transactions, including staking. It also discusses under its section on Tax Administration promulgating regulations regarding information reporting on digital assets under §6045 (broker definition) and §6045A (information reporting for brokers), as amended by the Infrastructure Investment and Jobs Act, regarding transfer reporting and digital assets. The IRS also plans to draft regulations concerning information reporting of digital asset transactions with respect to §6050I (business cash receipts of more than $10,000), as amended by the Infrastructure Investment and Jobs Act.
The FRB published its semi-annual Supervision and Regulation Report. The report stated that banks are on sound financial footing and well positioned to absorb losses. Some have elected to increase credit loss provisions and take other steps to prepare for rising risks.
The CFPB finalized changes to its nonbank supervision procedural rule. The CFPB stated that the changes will provide transparency to the public about how they are using an important supervisory tool to keep pace with fast-moving consumer finance markets.
The Office of Financial Research (OFR), an independent bureau within the Treasury Department, conducted its 20th meeting of the Financial Research Advisory Committee in which the Committee discussed virtual currency data, the risks of and regulatory recommendations for decentralized finance (Defi), and the current state of U.S. monetary policy and sustained inflation.
The CFPB announced that it will re-open the comment period for public input on big tech payment platforms for 30 days and add additional questions.
The Federal Reserve Board invited public comment on a proposal to publish a periodic list of depository institutions that have access to Federal Reserve accounts—often referred to as “master accounts”—and payment services. Comments will be accepted for 60 days after publication in the Federal Register.