This week, policymakers, regulators, and industry convened at DC Fintech Week, hosted by the Georgetown Institute of International Economic Law, led by Dr. Christopher Brummer. The following speeches and statements occurred during the conference.
Acting Comptroller of the Currency Michael Hsu discussed crypto-asset regulation in two speeches. At DC Fintech Week, he compared crypto-asset-related activity with that of traditional finance, the integration of traditional finance and crypto finance, and risk management. He then gave remarks at a roundtable about institutional investors and crypto-assets, where he talked about the notion of integrating crypto-assets in the financial system to bring them within the regulatory perimeter and encouraged regulators to stick to their guns and not lower their standards when dealing with crypto-assets-related activities. Acting Comptroller Hsu stated that collaboration and coordination among regulators can mitigate the risk of over-accommodating the industry.
Vice Chair of the Federal Reserve for Supervision Michael Barr delivered a speech at D.C. Fintech Week discussing: the promise of fintech and payment innovation, striking the right balance in regulating crypto-asset-related activity, stablecoins and financial stability risk, risks involved in tokenizing bank deposits and whether this can be done in a safe and sound manner, how Section 1033 of the Dodd-Frank Act, concerning consumer access to personal financial data, can enable consumer autonomy, and working with the private sector on payment innovation.
Congresswoman Maxine Waters (D-CA), Chairwoman of the House Committee on Financial Services, spoke at DC Fintech Week. Chair Waters discussed the need for Congressional action to regulate the financial technology industry, the need for robust consumer and investor protection, and the need to stay focused on financial inclusion.
House Financial Services Committee Ranking Member Patrick McHenry (R-NC) participated in a panel on the second day of DC Fintech Week. The panel broadly discussed the development and potential of fintech, digital assets, and what regulation could look like within the industry. Rep. McHenry explained that there is no current regulation or law defining a stablecoin and added that a money transmission license is the closest standing framework, however, this existing framework is not thorough or innovative enough to handle the significant growth this industry will see. Rep. McHenry elaborated that what is needed from the next Congress is a definition on both a “means of exchange” and a “digital asset.” He said that defining these will be a priority of the House Financial Services Committee next year.
The Organisation for Economic Co-operation and Development (OECD) released its Crypto-Asset Reporting Framework (CARF), a new framework for global reporting and information sharing with respect to crypto-assets. The OECD stated that “[c]arve-outs are foreseen for assets that cannot be used for payment or investment purposes and for assets already fully covered by the C[ommon] R[eporting] S[tandard].” “Over the next months, the OECD will be taking forward work on the legal and operational instruments to facilitate the international exchange of information collected on that basis of the CARF and to ensure its effective and widespread implementation, including the timing for starting exchanges under the CARF,” the organization said.
The Securities and Exchange Commission (SEC) voted to adopt amendments to the electronic recordkeeping, prompt production of records, and third-party recordkeeping service requirements applicable to broker-dealers, security-based swap dealers (SBSDs), and major security-based swap participants (MSBSPs). The amendments are designed to modernize recordkeeping requirements based on technological changes over the last two decades, departing from the requirement that write-once read-many (WORM) records be stored on non-erasable/non-rewritable technologies, such as CDs, making the rule adaptable to new technologies in electronic recordkeeping.
The Board of Governors of the Federal Reserve System (FRB) announced that it had prohibited five former bank employees from future employment in the banking industry for fraudulently obtaining loans and grants administered under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
FRB Governor Christopher Waller delivered remarks about the U.S. dollar and central bank digital currencies (CBDCs). Governor Waller stated that he does not believe the decision over the development of a CBDC would have implications for the role of the United States in the global economy and financial system. Instead, Governor Waller stated that the focus of conversations about a possible CBDC should be on issues such as financial stability, payment system improvements, and financial inclusion.
The Consumer Financial Protection Bureau (CFPB) published a report on terms and fees associated with banking products marketed in partnership with colleges to students. The report raises questions about whether some marketing deals between colleges and financial institutions comply with Department of Education rules. The report also highlights a lack of transparency in the arrangements schools have made with financial institutions. In conjunction with the release of this report, the Department of Education issued guidance to schools on requirements for college-sponsored banking arrangements and committed to additional oversight on this issue.
The Office of the Comptroller of the Currency (OCC) conditionally approved the merger of MUFG Union Bank, National Association, San Francisco, California, into U.S. Bank, National Association (U.S. Bank). The approval follows consideration of numerous public comments submitted in writing and expressed during a public meeting conducted on March 8, 2022, in conjunction with the Board of Governors of the Federal Reserve System.
The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) and Financial Crimes Enforcement Network (FinCEN) announced settlements for over $24 million and $29 million, respectively, with Bittrex, Inc., a virtual currency exchange. Investigations by OFAC and FinCEN found apparent violations of multiple sanctions programs and willful violations of the Bank Secrecy Act’s (BSA’s) anti-money laundering (AML) and suspicious activity report (SAR) reporting requirements.
Rep. McHenry led Republican members of the Task Force on Financial Technology (Fintech Task Force)in sending a letter to Acting Comptroller Hsu. Fintech Task Force Republicans are urging Acting Comptroller Hsu to clarify the OCC’s position on partnerships between banks and fintech firms and provide clarity to the marketplace.
FinCEN Acting Director Himamauli Das delivered remarks at the ACAMS AML Conference. Director Das emphasized that “responsible innovation means not prioritizing growth over compliance,” and stated that there is a “tremendous amount of work going on outside the beneficial ownership rules that strengthens our national security and the integrity of our financial system, including on Russia, ransomware, virtual currencies, and other AML Act deliverables.”
The Treasury Department announced the approval of 11 additional state plans for up to $1 billion in funding under the State Small Business Credit Initiative (SSBCI). Treasury has now announced the approval of 31 state plans for approximately $4.8 billion in SSBCI funding.
Senator John Hickenlooper (D-CO) sent a letter to SEC Chair Gensler urging the SEC to issue regulations for securities that are digital assets through a transparent notice-and-comment process.
The Financial Accounting Standards Board (FASB) held a meeting discussing the accounting for and disclosure of crypto-assets. The FASB said that companies should use fair-value accounting for measuring crypto-assets.
The Department of Housing and Urban Development (HUD) Office of Inspector General (OIG) audited HUD’s oversight of lead-based paint hazard remediation in public housing and found that HUD did not have a current estimate of the number of public housing developments and units that contained lead-based paint. Without this information, HUD is unable to assess the resources or time needed to eliminate lead-based paint hazards in public housing.
New York Superintendent of Financial Services Adrienne A. Harris announced that Rhinebeck Bank (“Rhinebeck”), a New York State-licensed banking institution based in Dutchess County, will pay a penalty of $950,000 to New York State for violating New York State’s fair lending law. The Department’s investigation found that Rhinebeck’s practices resulted in minority borrowers paying higher interest rates than non-Hispanic white borrowers for their automobile loans, without regard to their creditworthiness.
The Financial Stability Oversight Council (FSOC) published its report on digital asset and potential financial stability risks and regulation, as directed under the Biden Administration’s Executive Order on Ensuring Responsible Development of Digital Assets.
The Report focuses on detailing how crypto-assets can pose risks to financial stability based on their interconnectedness with the traditional financial system and those risks arising from within the crypto-asset ecosystem itself. It also discusses the regulation of entities engaging with crypto-assets and the actions of the FSOC member agencies regarding regulating these entities. The Report concludes with recommendations from the FSOC addressed to member agencies, Congress, and regulators.
Acting Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg gave prepared remarks at the American Bankers Association (ABA) annual convention on “The Financial Risks of Climate Change.” He repeated that there is “a compelling obligation to engage with climate change as a financial risk to the safety and soundness of banks and the stability of the financial system.” He called for climate-related scenario analyses for large institutions, which he said should be viewed “as an exploratory risk management tool.” This is “not a stress testing exercise and will not have regulatory capital implications.”
He acknowledged that smaller and mid-size banks’ “supervisory expectations are tailored based on size, complexity and business operations,” but said their board of directors and senior management “should seek to better understand and consider their own unique climate-related financial risk and how it may impact them.” The session was broadcast live here.