The US District Court for the Southern District of New York (SDNY) has dismissed without prejudice the fintech charter lawsuit brought by New York Department of Financial Services (NYDFS) Superintendent Maria T. Vullo against the Office of the Comptroller of the Currency (OCC). As we have previously reported, in March 2017, the OCC issued draft guidelines for a special purpose national bank charter for financial technology companies, often referred to as the “fintech charter.” The NYDFS filed a lawsuit in May 2017 challenging the OCC’s authority under the National Bank Act to grant special purpose national charters to fintech companies.

The OCC moved to dismiss the lawsuit for lack of subject matter jurisdiction and failure to state a claim, arguing that the NYDFS lacked standing, the claims were not ripe for decision, and the claim regarding the OCC special purpose national bank regulations was time-barred. Further, the OCC argued there had been no final agency action for the SDNY to review under the US Administrative Procedures Act.

The rise of cryptocurrencies and initial coin offerings (ICOs) undoubtedly shows that we live in interesting times that regularly present us with new and innovative products, markets, and opportunities. When the words “new” and “innovative” come to mind, the federal government is usually not part of the conversation. But the US Securities and Exchange Commission (SEC) under Chairman Jay Clayton appears more than willing to challenge that stereotype and to use the SEC’s regulatory and enforcement authority to take on the complex legal and other issues arising from innovative ICOs and other cryptocurrency products. Throughout these efforts, the SEC’s message has been clear and consistent: it will apply established federal securities laws principles and use its regulatory authority over ICOs and other cryptocurrency products expansively when appropriate, and it expects “gatekeepers” to aid in that effort.

Recent SEC Enforcement Actions: Munchee and Plexcorps

Two SEC enforcement actions over the last few weeks represent just the latest attempt by the SEC to get its message across. Most recently, it announced on December 11 a settled enforcement action that halted an ICO by Munchee Inc., a California business that created an iPhone app for reviewing restaurant meals. In a remarkably quick action for the SEC, it brought the case just weeks after Munchee commenced its ICO. The SEC charged Munchee with violating Sections 5(a) and 5(c) of the Securities Act of 1933 (the Securities Act) by conducting an unregistered offering of securities, and is notable because the SEC did not allege that Munchee made any misrepresentations in connection with the offering. Bringing such a standalone unregistered offering case is unusual for the SEC and represents its intention to bring these cases quickly, even in the absence of fraud.

Targeted bipartisan financial regulatory reform legislation announced last month has been approved by the Senate Banking Committee after a markup session on December 5. The “Economic Growth, Regulatory Relief and Consumer Protection Act” (S. 2155) is sponsored by Senate Banking Committee Chair Mike Crapo (R-ID) and has 19 co-sponsors (nine Democrats, nine Republicans, and one Independent who caucuses with the Democrats), and makes some significant changes to parts of the Dodd-Frank Act. The markup session resulted in technical and other less significant, mutually agreed-upon changes to the bill.

S. 2155 would make targeted changes to Dodd-Frank Act requirements that are applicable to banks, mortgage companies, and other providers of consumer financial services, and that are primarily intended to ease regulatory burdens on regional and community banking organizations. Some of the more notable changes include the following:

The Great Schism at the Consumer Financial Protection Bureau (CFPB) is over, at least for now, and White House Office of Management and Budget Director Mick Mulvaney is now firmly in control of the agency as its acting director, having been appointed pursuant to the president’s authority under the Federal Vacancies Reform Act. He has imposed a hiring and regulations freeze and said that while he does not intend to “burn the place down,” he intends to ensure that the CFPB operates under a budget and consistent with other executive branch agencies.

For the time being, we expect that this will mean new rules will be put on hold and be scrutinized further, particularly for the burden they impose on regulated businesses. We also expect a more measured approach in enforcement matters, and that the CFPB’s examination functions will be better coordinated with those of other federal banking agencies, further easing compliance costs and burdens for the CFPB-regulated firms.

On November 16, the US Senate confirmed by a 54–43 vote the appointment of President Donald Trump’s nominee Joseph Otting as the new Comptroller of the Currency. Mr. Otting will assume his new duties upon being sworn in, which is expected to occur at or near the end of November. Reportedly, current acting Comptroller Keith Noreika will return to the private sector.

Mr. Otting, who at one time in his career was chief executive officer of OneWest Bank Group, which acquired most of the business of the failed IndyMac Bank and which was headed by Secretary of the Treasury Steven Mnuchin, is expected to support the administration’s efforts to move bank regulation and supervision in a more deregulatory direction. During his confirmation hearing, Mr. Otting drew strong criticism from Senate Democrats, mostly for his industry ties and the mortgage foreclosure activities of OneWest in the aftermath of the financial crisis. Mr. Otting’s prior public statements suggest that, as comptroller, he will focus on matters such as regulatory relief for community banks and regulatory and supervisory actions that would promote bank lending. He also has expressed support, however, for the overall bank regulatory framework, suggesting that he may adopt a more measured approach to changes in bank regulation and supervision.

Consumer Financial Protection Bureau (CFPB) Director Richard Cordray announced on Wednesday that he will resign from his post on November 30, seven months before the end of his five-year term. This development already is fueling substantial speculation about what is next for the agency.

The vacancy presents the president with an opportunity to appoint a director who shares the administration’s views on financial regulation and can put the agency on a different regulatory path. In due course, the president will nominate someone to fill the post permanently, and that person will be subject to Senate confirmation. The CFPB, however, enjoys strong support not only from Senate Democrats, but also in major sectors of the financial consumer community, having, among other things, collected over $12 billion in consumer restitution. In turn, the nomination and confirmation process for the new director may be difficult, depending in large part on who is nominated for the vacancy.

Consumer Financial Protection Bureau (CFPB) Director Richard Cordray has announced that he will resign as director effective November 30, some seven months shy of the end of his five-year term.

How this will affect CFPB enforcement, examination, and rule-making, how continuity of the directorship will be handled, and how it will impact pending litigation surrounding the director’s authority remains to be seen.

Morgan Lewis will monitor this important development and provide updates.

As the first anniversary of the Trump administration fast approaches, we decided to take a quick look at where matters stand on financial services reform.

This is what we see at the present time:

Congressional Action

On the congressional front, we have not been optimistic about the general prospects for changes to the Dodd-Frank Act or other financial reform legislation. But Senate Banking Committee Chair Mike Crapo and several Banking Committee Democrats on November 13 announced a bipartisan agreement in principle on the outlines of targeted “economic growth” legislation. The new proposal would, among other things, raise the current Dodd-Frank Act $50 billion asset threshold for a bank to be treated as “systemically important”—and therefore subject to more stringent Dodd-Frank systemic regulation—to $250 billion. The proposal also contains other “community bank relief” measures, including an exemption from the Volcker Rule for banking organizations with less than $10 billion in assets and limited trading assets. As is generally the case these days, prospects for further action on this proposal are uncertain, with progressive members of Congress already beginning to speak out against it. The fact that the proposal has (some) bipartisan support, however, may give this initiative the “legs” that prior congressional initiatives such as the Financial CHOICE Act never really had.

It didn’t used to be this way.

The Office of the Comptroller of the Currency’s (OCC) decision to grant a national bank charter to a new community bank outside of a major money center historically was not the stuff of national press coverage. But, in granting a full-service charter to Winter Park National Bank—which was personally delivered to the bank by none other than Keith Noreika, the acting Comptroller of the Currency—the OCC did something that it has not done for the last nine years, and that fact alone made the OCC’s actions noteworthy.

The US Treasury Department released a report on October 6 titled “A Financial System That Creates Economic Opportunities: Capital Markets,” which recommends possible changes to several key regulatory restrictions on securitizations that were adopted in response to the financial crisis.

Possible changes would include loosening qualified asset requirements under risk retention rules, limiting asset-level disclosure under Reg. AB II, and rationalizing capital and liquidity requirements for securitized assets.

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