In pointed and detailed public remarks, Federal Reserve Board Vice Chairman for Supervision Randal Quarles said on Monday that the Volcker Rule is “an example of a complex regulation that is not working well” and proposed a number of possible changes to the Volcker Rule. Mr. Quarles emphasized that all five regulatory agencies responsible for the implementation of the Volcker Rule are actively working on changes to the Volcker Rule. Overall, the possible changes outlined by Mr. Quarles focus on reducing the burden of the Volcker Rule within the boundaries of the statutory requirements, particularly for financial institutions that do not have large trading operations, as well as limiting unintended extraterritorial effects of the Volcker Rule. Further, it is not clear whether all five regulatory agencies are in alignment with the priorities and solutions that Mr. Quarles outlined in his speech, although he stated that he thought the odds of implementing the changes are “pretty good.”

US financial reform at the congressional and regulatory agency levels continues to move along—albeit more in fits and starts than in a blaze of big happenings. Below is a recap on where matters currently stand.


The US Senate financial regulatory reform bill, “The Economic Growth, Regulatory Relief and Consumer Protection Act” (S. 2155), about which we have previously written, remains on the Senate legislative calendar and now has 25 co-sponsors (12 Democrats, 12 Republicans, and 1 Independent who caucuses with the Democrats). No major actions on the bill have been taken. Given the bipartisan nature of the bill, it stands a reasonable chance of passing in the Senate (a vote will reportedly occur sometime in March) but will face strong opposition from Senator Elizabeth Warren and other progressive Democrats. There has been no indication from the House of Representatives thus far as to whether it will take up the Senate bill (if passed) or push for broader regulatory reform to align with its own financial regulatory reform bill.

Earlier this week, Consumer Financial Protection Bureau (CFPB) Acting Director Mick Mulvaney met with state attorneys general at the National Association of Attorneys General (NAAG) in Washington, DC, in his second public speaking appearance since taking over as acting director at the end of November 2017. While Mulvaney’s prepared remarks did not break new ground, his Q&A session with the state attorneys general was illuminating.

Mulvaney said that he does not intend to dismantle the CFPB, but that he does intend to change it so that it acts within the confines of the law as written. He does not intend to use his regulatory authority to break new ground and he does not intend to use his enforcement authority to “regulate through litigation,” a thinly veiled criticism of his predecessor’s aggressive use of the CFPB’s statutory “unfair, deceptive, and abusive acts and practices” (UDAAP) authority. Mulvaney also stated that he intends to focus a great deal more on education and less on enforcement.

Few topics in the financial news have gotten more attention recently than the rise of cryptocurrency and initial coin offerings (ICOs), which allow startups to raise money from users in exchange for digital currency. In 2017, ICOs raised more than $3 billion in funding, surpassing early-stage venture capital funding for internet companies, and solidifying ICOs as a financing strategy among tech entrepreneurs.

But with surging popularity comes increasing attention and scrutiny from regulators, most notably the US Securities and Exchange Commission (SEC or Commission). Previously, the SEC had adopted a more cautionary approach, advising potential investors to perform due diligence, and issuing trading suspensions for certain issuers that made questionable claims regarding ICO investments. As we have previously reported, however, the SEC has recently taken a more aggressive stance toward ICOs.

Less than a year after the Conference of State Bank Supervisors (CSBS) announced Vision 2020, an initiative to modernize state regulation for non-bank financial companies, the CSBS revealed plans to establish a standardized licensing practice for money services businesses. Seven states have agreed to a compact whereby all participating states accept the findings of one state that has reviewed money transmitter licensing requirements, including IT, cybersecurity, business plan, background check, and compliance with the Bank Secrecy Act. The states that have joined the compact include Georgia, Illinois, Kansas, Massachusetts, Tennessee, Texas, and Washington.

The US Court of Appeals for the District of Columbia Circuit, sitting en banc, held on Wednesday that the unitary and insulated directorship of the Consumer Financial Protection Bureau (CFPB) is constitutional. The 6-3 decision in PHH vs. CFPB, while legally significant, may be less momentous than originally might have been the case, inasmuch as the importance of the issue may have been overtaken by current events, which have intervened to create an interesting mix of legal and political drama.

The court held that while the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) created a uniquely powerful individual as the CFPB’s director serves a five-year term subject to removal only for cause, that structure is constitutional. The court also held that the agency is not appropriated by Congress and its rules are not subject to cost-benefit analyses by the White House Office of Management and Budget (OMB).

As we have been reporting, cryptocurrency, as an asset class, is currently taking the world financial markets by storm. Total market capitalization of cryptocurrency is estimated to be in the hundreds of billions of dollars and new initial coin offerings (ICOs) seem to crop up every other day, while the United States and other countries' governments have been left scrambling to figure out how to best regulate this new asset class and protect market participants and end users.

The US Securities and Exchange Commission (SEC) has been a leader in taking affirmative steps toward exercising some oversight of the fragmented cryptocurrency market. On January 18, the SEC’s Division of Investment Management published a staff letter detailing some of the Commission’s concerns about how cryptocurrency-related products will comply with the Investment Company Act of 1940, including specific issues relating to valuation, liquidity, custody, arbitrage, and potential manipulation.

Recent events in the cryptocurrency markets, including the wild swings in the trading prices of bitcoin, the growing incidence of initial coin offerings (ICOs) entailing the offer and sale of unregistered securities, and the launch of bitcoin futures trading, have encouraged the federal government to ratchet up its interest in virtual currencies. Not only have the Commodity Futures Trading Commission (CFTC) and the US Securities and Exchange Commission (SEC) made public announcements about virtual currencies and taken enforcement action against virtual currency companies or initial coin offerors in recent months, but Congress now is showing increased interest in bitcoin and other virtual currencies. A few very recent signals of heightened governmental interest in virtual currency are highlighted below:

  • The Senate Committee on Banking, Housing, and Urban Affairs (Senate Banking Committee) held two hearings in January during which virtual currencies were discussed in connection with strengthening anti-money laundering (AML) laws
  • Reports indicate that the Senate Banking Committee will hold a hearing in February to analyze the implications of cryptocurrencies. CFTC Chairman Christopher Giancarlo and SEC Chairman Jay Clayton will likely testify at the hearing
  • On January 19, Mr. Giancarlo called on the Futures and Derivatives Bar to “set the course for the future” of virtual currencies
  • In a January 22 speech, Mr. Clayton again cautioned market professionals and “gatekeepers” that they need to “do better” in their handling of ICOs, and said that the SEC staff will be on “high alert” for ICOs that may be “contrary to the spirit of our securities laws.”

In an op-ed published in Tuesday’s Wall Street Journal publicly reprising an email he sent yesterday to the staff of the Consumer Financial Protection Bureau (CFPB), Acting Director Mick Mulvaney set a clear new course, tone, and direction for the bureau.

Saying that his predecessor, Richard Cordray had directed his staff to “push the envelope,” Mulvaney, who has previously stated that “elections have consequences,” remarked, “[t]hat is going to be different. We are government employees, and we work for the people. That means everyone: those who use credit cards and those who provide the credit…”

Recognizing an imbalance between government prosecutors and targets, Mulvaney noted that when the CFPB loses a case, it moves on, but he rhetorically asks, “Where do those we charged go to get their time, their money and their good names back? If a company closes its doors under the weight of a multiyear Civil Investigative Demand, we still have jobs at the CFPB. But what about the workers who are laid off as a result?”

US Attorney General Jeff Sessions has just issued a memorandum (AG Memo) rescinding prior US Department of Justice (DOJ) guidance on the federal prosecution of marijuana offenses, including the 2013 “Cole Memorandum” (Cole Memo) and subsequent guidance regarding marijuana-related financial crimes (Financial Crimes Memo). The Cole Memo, among other things, expressly acknowledged the legalization of marijuana in several states for medical and recreational purposes and directed federal prosecutors to focus their enforcement priorities and resources on activities that align with current DOJ enforcement priorities. In turn, these priorities emphasized the prevention of marijuana-related activities posing the most significant threats to public safety and welfare (such as preventing the sale of marijuana to minors, or preventing marijuana sales from benefiting criminal enterprises). The Cole Memo in substance encouraged federal prosecutors to take a “hands-off” approach on the prosecution of “low level” marijuana-related offenses in those states that have legalized in some form the possession or use of marijuana for medical or recreational purposes. The subsequent Financial Crimes Memo carried forward the Cole Memo principles to the prosecution of banks and other financial institutions participating in marijuana-related banking and financial activities.