Regulators on both sides of the Atlantic continue to monitor and address cryptoasset and distributed ledger technology activities. We recently posted on the guidance issued by the US Financial Crimes Enforcement Network on cryptocurrencies and in another post touched upon differences in the regulatory treatment of cryptoassets across jurisdictions. Today we report on two new developments relating to the treatment of cryptoassets by UK and US regulators.
Kathleen Kraninger, only the second Senate-confirmed director of the Consumer Financial Protection Bureau (CFPB) in its almost eight-year existence, recently gave her first public remarks. The priorities Director Kraninger laid out will materially impact the CFPB’s direction and mission until the end of her term in December 2023. Director Kraninger, appointed by President Donald Trump, succeeds the first CFPB director, Richard Cordray, who was appointed by President Barack Obama.
The Joint Committee of the European Supervisory Authorities (the ESAs) issued a report on 7 January 2019 on the status of regulatory sandboxes and innovation hubs following consultations with national regulators across the European Union.
The report compares the innovation hubs and regulatory sandboxes established in 21 EU member states and three EEA states, flagging too that Hungary and Spain are in the process of establishing regulatory sandboxes.
The US Senate has confirmed Kathy Kraninger to serve as the second director of the Bureau of Consumer Financial Protection (BCFP). She will serve a five-year term ending in December 2023, unless she is terminated for cause by the president. Thus, Kraninger will lead the agency through at least the first two years of the next presidential term.
Kraninger is currently an associate director of the Office of Management and Budget (OMB) where she reports to Mick Mulvaney, the OMB director and also the current acting director of the BCFP. She has previously served in other noncareer (political) positions in the Senate, the US Department of Homeland Security, and the US Department of Transportation.
The ongoing and accelerating pace of developments in the realm of cryptoassets in multiple jurisdictions warrants continual review and monitoring. In a report issued earlier this month on the implications of cryptoassets, the international Financial Stability Board (FSB) stated that, while cryptoassets 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, cryptoassets 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 cryptoasset characteristics include an impact on confidence in, and reputational risk to, financial institutions and regulators; risks arising from financial institutions’ exposures to cryptoassets; and risks arising if cryptoassets were to become widely used in payments and settlement. Therefore, regulators are encouraged to “keep an eye on things” as cryptoassets continue to spread throughout the world economy.
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.
In yet another example of state attorneys general stepping up their activities in response to a perceived regulatory rollback in Washington, 16 attorneys general, all Democrats, have written to the Bureau of Consumer Financial Protection (Bureau), formerly the Consumer Financial Protection Bureau (CFPB), proposing in quite strident terms that the Bureau not reduce its authority for or use of key enforcement tools such as the Civil Investigative Demand (CID). Read the letter here.
The letter makes the case that full CID authority permits agencies to fulfill their investigative mandate. While nominally responding to the Bureau’s request for information about its CID process, the letter serves the unmistakable purpose of making a joint public statement of the enforcement philosophy of these attorneys general. The letter thus bears a careful review as it likely presages investigative and enforcement litigation that they might undertake themselves. Each of these attorneys general has not only powerful consumer protection authorities under state law but also the express authorization under the Dodd-Frank Act to enforce that law’s prohibition on “unfair, deceptive, and abusive” acts and practices in federal court. In turn, as we have previously reported, the Bureau’s acting director, Mick Mulvaney, has made clear that he does not intend to interfere in the states’ regulatory and enforcement prerogatives. Read our prior blog here.