September 8, 2023

The Consumer Financial Protection Bureau (CFPB) published an issue spotlight highlighting the impacts of so-called “Big Tech” companies’ policies and practices that govern tap-to-pay on mobile devices like smartphones and watches. The issue spotlight explains how regulations imposed by mobile operating systems can have a significant impact on innovation, consumer choice, and the growth of open and decentralized banking and payments in the U.S. 

CFPB Director Rohit Chopra also delivered remarks at the Federal Reserve Bank of Philadelphia’s Annual Fintech Conference, discussing “Big Tech” companies’ influence in the payments space. Additionally, in his remarks, Director Chopra announced that the CFPB’s key priorities include open banking, increasing payment speed and security, and confirmed that the Bureau aims to issue proposed rules to grant consumers more personal financial data rights next month.

FS Vector introduced Headmaster, a regulatory compliance training platform designed specifically for fintech companies. Headmaster provides comprehensive education, tracking, and regulatory updates for fintech companies, including payments, lending, deposit accounts, cards, and more.

The Senate confirmed Adriana Kugler to the Board of Governors of the Federal Reserve System (FRB or the Fed), Fed Governor Philip Jefferson as Fed Vice Chair, and Fed Governor Lisa Cook to a second term. President Biden issued a statement applauding the confirmations. Sen. Sherrod Brown (D-OH) also supported the confirmations.

FRB Vice Chair for Supervision Michael Barr delivered a speech at the Federal Reserve Bank of Philadelphia Seventh Annual Fintech Conference entitled The Federal Reserve’s Role in Supporting Responsible Innovation. Vice Chair for Supervision Barr discussed fundamental principles the payments system needs to meet, including ensuring that the payments infrastructure supports broad access and promotes financial inclusion, providing strong consumer protections, welcoming competition, providing customers with choices, and supporting innovation.

The Federal Deposit Insurance Corporation (FDIC) published its Quarterly Banking Profile for the second quarter of 2023. The report finds that reports from 4,645 commercial banks and savings institutions insured by the FDIC reflect aggregate net income of $70.8 billion in the second quarter of 2023. Though second-quarter net income decreased by $9.0 billion (11.3 percent) from the first quarter of 2023, after excluding the effects on acquirers’ incomes of their acquisition of three failed banks in 2023, quarter-over-quarter net income would have been roughly flat for the second consecutive quarter. ​​Declines in noninterest income, reflecting the accounting treatment of the acquisition of three failed institutions, lower net interest income, and higher provision expenses were the drivers of the decline in net income. Read FDIC Chairman Martin Gruenberg’s remarks on the publication here

FDIC Chief Risk Officer Marshall Gentry released FDIC’s Supervision of First Republic Bank, an internal review evaluating the agency’s supervision of First Republic Bank, San Francisco, California, from 2018 until its failure in May 2023. The report provides information on the causes of First Republic Bank’s failure and evaluates the FDIC’s supervision of the bank. The review was conducted at the request of FDIC Chairman Gruenberg.

The U.S. Securities and Exchange Commission (SEC) Division of Examination published a Risk Alert providing information regarding the Division’s risk-based approach for selecting registered investment advisers to examine and determining the scope of risk areas to examine.

Commodity Futures Trading Commission (CFTC) Commissioner Caroline Pham recommended in a speech “a time-limited CFTC pilot program (i.e. a regulatory sandbox) to support the development of compliant digital asset markets and tokenization.” Commissioner Pham suggested that the agency should set up a “program for a specific period of time that incorporates many of the components drawn from past pilot programs, including: registration and eligibility requirements, financial resources and other conditions, risk management, products and contract terms, and other requirements including disclosures and reporting.”

The CFTC issued orders simultaneously filing and settling charges against three decentralized finance (DeFi) platforms: Opyn, Inc., a Delaware-registered company based in California; ZeroEx, Inc., a Delaware company based in California; and Deridex, Inc., a Delaware company based in North Carolina. Deridex and Opyn are charged with failing to register as a swap execution facility (SEF) or designated contract market (DCM), failing to register as a futures commission merchant (FCM), and failing to adopt a customer identification program as part of a Bank Secrecy Act compliance program, as required of FCMs. ZeroEx, Opyn and Deridex are also charged with illegally offering leveraged and margined retail commodity transactions in digital assets. 

Commissioner Summer Mersinger issued a dissenting statement expressing concern with the CFTC’s “Enforcement First” position, bringing enforcement actions against these companies when “the Commission’s Orders in these cases give no indication that customer funds have been misappropriated or that any market participants have been victimized by the DeFi protocols on which the Commission has unleashed its enforcement powers.” 

The Financial Accounting Standards Board (FASB) voted to set a new rule on cryptocurrency accounting and disclosure which will say that companies must use a fair-value approach that would demand certain digital assets be measured at what they would trade for in the markets. The FASB gave staff permission to draft a final version of the new accounting standard, effective for fiscal years starting after December 15, 2024. The final language is expected to be approved in a written vote before the end of the year.

The Financial Crimes Enforcement Network (FinCEN) issued an alert to highlight a prominent virtual currency investment scam known as “pig butchering.”  Multiple U.S. law enforcement sources estimate victims in the United States have lost billions of dollars to these scams and other virtual currency investment frauds.

The Federal Housing Administration (FHA) issued a waiver to a requirement that FHA-approved mortgagees flag rejected loans in the FHA Connection (FHAC) system. FHA has determined that this flag does not improve risk management and is often why other lenders will reject an applicant even when that applicant might otherwise qualify for a loan. 

The Federal Trade Commission (FTC) finalized an order with that settles charges that the genetic testing firm left sensitive genetic and health data unsecured, deceived consumers about their ability to get their data deleted, and changed its privacy policy retroactively without adequately notifying consumers and obtaining their consent.

Congresswoman Maxine Waters (D-CA), Ranking Member of the House Financial Services Committee, sent a letter to FinCEN, the FRB, FDIC, the National Credit Union Administration (NCUA), the Office of the Comptroller of the Currency (OCC), and the United States Department of the Treasury (Treasury), asking the agencies to examine modernizing the rule’s requirements for Customer Identification Program (“CIP”) mandates for complying financial institutions.

Senate Majority Leader Chuck Schumer (D-NY) announced that the Senate’s upcoming artificial intelligence (AI) Insight Forum will take place next week. In his remarks, Sen. Schumer said that Sens. Mike Rounds (R-SD), Todd Young (R-IN), Martin Heinrich (D-NM), and himself are steering Congress’s efforts related to AI.

California Governor Gavin Newsom signed an executive order to study the development, use, and risks of generative AI.

The Board of Governors of the Federal Reserve (FRB) published a working paper entitled “FinTech and Banks: Strategic Partnerships That Circumvent State Usury Laws.” The working paper investigates the role of interest rate regulation of consumer credit and institutional risk segmentation in fintech lenders’ efforts to solicit new customers in the personal loan market. The report finds that strategic partnerships between fintech companies and specialist banks target marginal-risk, near-prime, and low-prime consumers for credit card and other debt consolidation loans, allowing fintech lenders to take advantage of federal preemptions from state rate ceilings to lend profitably to higher-risk consumers in states with low rate ceilings to compete in these markets.

Need to catch up on what happened last week? Check out our Midweek Update here