The staff of the Securities and Exchange Commission’s (SEC) Division of Trading and Markets (Staff) issued a no-action letter on October 29 to the Financial Industry Regulatory Authority (FINRA), which, in effect extends the effective date of recent changes to FOCUS reporting by registered broker-dealers. In August 2018, the SEC adopted amendments regarding, among other things, broker-dealer reporting with respect to reporting of extraordinary gains, the cumulative effect of changes in accounting principles, and comprehensive income reported on broker-dealer annual reports (i.e., Rule 17a-5). The amendments are scheduled to become effective for all filings made on and after November 5, 2018.

The ongoing and accelerating pace of developments in the realm of crypto-assets in multiple jurisdictions warrants continual review and monitoring. In a report issued earlier this month on the implications of crypto-assets, the international Financial Stability Board (FSB) stated that, while crypto-assets do not currently pose a material risk to global financial stability, vigilant monitoring is needed in light of the speed of market developments. The FSB believes that due to risks such as low liquidity and the use of leverage, market risks from volatility, and operational risks, crypto-assets lack the key attributes of sovereign currencies and do not serve as a stable store of value or a mainstream unit of account. The financial stability implications of these crypto-asset characteristics include an impact on confidence in, and reputational risk to, financial institutions and regulators; risks arising from financial institutions’ exposures to crypto-assets; and risks arising if crypto-assets were to become widely used in payments and settlement. Therefore, regulators are encouraged to “keep an eye on things” as crypto-assets continue to spread throughout the world economy.

As readers of our blog are aware, courts and regulators are playing catch-up when it comes to cryptocurrencies, and to interpreting existing laws and regulations as applied to these new and innovative offerings. One of these many important questions relates to whether virtual currencies are “commodities” within the meaning of the Commodity Exchange Act (CEA) and subject to regulation by the Commodity Futures Trading Commission (CFTC). A recent ruling by a US district court in Massachusetts held that a virtual currency (My Big Coin) is a commodity within the meaning of the CEA and is therefore subject to the anti-fraud authority of the CFTC, even though there currently is no futures contract on My Big Coin. My Big Coin is a Las Vegas-based creator of software that purportedly allows for the anonymous exchange of currency.

On October 11, 2018, the Securities and Exchange Commission (SEC) will have an open meeting to consider whether to reopen the comment period and request additional comments (including potential modifications to proposed rule language) regarding the following:

(1) Capital, margin, and segregation requirements for security-based swap (SBS) dealers and major SBS participants, and amendments to Rule 15c3-1 for broker-dealers that were proposed in October 2012 (Financial Responsibility Proposal)

(2) Amendments proposed in May 2013 that would establish the cross-border treatment of SBS capital, margin, and segregation requirements (Cross-Border Proposal)

(3) An amendment proposed in April 2014 that would establish an additional capital requirement for SBS dealers that do not have a prudential regulator (Prudential Regulator Proposal)

The five federal banking agencies (Federal Reserve, Bureau of Consumer Financial Protection, Federal Deposit Insurance Corporation, National Credit Union Administration, and Office of the Comptroller of the Currency – collectively Agencies) have issued a joint statement on the role of supervisory guidance.

The statement says that supervisory guidance does not have the force and effect of law, and that the Agencies do not take enforcement actions based on supervisory guidance. However, the Agencies state that supervisory guidance outlines the Agencies’ “supervisory expectations or priorities and articulates the [A]gencies’ general views regarding appropriate practices for a given area.” For example, supervisory guidance often contains examples of practices that the Agencies “generally consider consistent with safety-and-soundness standards or other applicable laws and regulations.”

After lengthy litigation on which we have commented extensively (see here and here), the US Court of Appeals for the District of Columbia Circuit issued an en banc opinion vacating and reversing in part a decision of a panel of that court, and holding that the Bureau of Consumer Financial Protection (Bureau, and formerly the CFPB), was not unconstitutionally structured. PHH Corp. v. Consumer Financial Protection Bureau, 881 F.3d 75 (DC Cir. 2018). For reasons not directly relevant to the instant matter, that litigation has ended and the Bureau has ended its administrative proceedings against PHH.

The UK Financial Conduct Authority (FCA) issued a press release on August 7 announcing that it has joined 11 other financial regulators from around the world to create the Global Financial Innovation Network (GFIN), building on its proposals earlier in the year to create a “global sandbox.” The network is intended to provide fintech firms a more efficient way to interact with regulators as they test new ideas across different markets and to create a new framework for regulators to cooperate on areas of innovation. This announcement continues a regulatory trend of being more hospitable to fintech innovation, as we have previously discussed.

We write frequently about the SEC’s and the CFTC’s focus on cryptocurrencies, but potential issuers should also be alert to other oversight, including possible enforcement actions, from other regulators as well. Indeed, state Attorneys General are playing a greater role in evaluating whether the mining and use of cryptocurrencies works to the disadvantage of consumers and small businesses. These state enforcement and regulatory officials are becoming ever more powerful. Furthermore, some of them may seek to expand the scope of their authority by pushing the “round peg” of “virtual” financial technology offerings into the “square hole” of outdated “physical only” state statutes and rules.

Meetings of the Conference of Western Attorneys General (CWAG) in New Mexico last week and of the Republican Attorneys General Association (RAGA) (Rule of Law Defense Fund) in California this week included panel discussions of cryptocurrency issues that are now before the Attorneys General and senior staff. Accordingly, fintech companies that intermediate cryptocurrencies should be aware of the increased risk in conducting these activities in particular states.

Prior to the passage of the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), bank holding companies and nonbank financial companies supervised by the Federal Reserve with $50 billion or more of total consolidated assets were subject to enhanced prudential standards (SIFIs). The EGRRCPA raised that threshold to $100 billion or more of total consolidated assets, and the SIFI threshold will eventually increase to $250 billion in total consolidated assets.

Zions Bancorporation (Zions) has around $66.5 billion in total consolidated assets and, prior to EGRRCPA, was a SIFI. Post-EGRRCPA, Zions is no longer a SIFI, which one would think would be the end of the story and Zions could walk away a happy non-SIFI bank.

On July 6, the Federal Reserve Board, Federal Deposit Insurance Corporation, and Office of the Comptroller of the Currency (together, the Agencies) issued an interagency statement (Statement) regarding the impact of the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act (the tongue-tying EGRRCPA), which we previously summarized. The new law amended the Dodd-Frank Act to streamline certain of its systemic regulation requirements, and provide a modest level of relief for midsized banks and community banking institutions. The Statement addressed some of the immediate impacts of EGRRCPA and the Agencies’ responses to those provisions that took effect immediately. The Federal Reserve Board also issued a separate conforming statement addressing the impact of EGRRCPA on bank holding companies subject to its supervision (FRB Statement).

Among other things, EGRRCPA increases the Dodd-Frank Act enhanced prudential supervision threshold for bank holding companies with $50 billion in total consolidated assets by exempting bank holding companies with total consolidated assets of less than $100 billion immediately upon enactment (May 24, 2018), and raising this threshold to $250 billion 18 months after the date of enactment (November 25, 2019). EGRRCPA also allows the application of any enhanced prudential standard to bank holding companies with between $100 billion and $250 billion in total consolidated assets.