In a series of recent interviews (including with the American Bankers Association and a podcast with the ABA Banking Journal), Acting Comptroller of the Currency Brian Brooks discussed the Office of the Comptroller’s (OCC’s) plans to soon roll out another special purpose national bank (SPNB) charter specifically geared toward payments companies. This “payments charter” could be especially appealing for those companies looking for a national licensing platform for their payments business because it would provide federal preemption of state money transmitter licensing and related laws, which would eliminate the need to obtain a license to operate in each state.
The virtual currency Bitcoin has been a hot topic in FinReg for some time, but in recent weeks mainstream interest in Bitcoin has grown in light of the approaching “halving” or “halvening.” So what is the “halvening” and why does it matter from a regulatory perspective?
What Is Bitcoin?
First, a bit of background. Bitcoin is based on technology known as “blockchain.” As it relates to Bitcoin, blockchain is a publically available ledger that provides a permanent record of Bitcoin transactions. Each “block” constitutes a series of transaction records, which builds on the block before it. Taken together, these blocks form a permanent “chain” showing the entire history of Bitcoin.
In a recent post, we discussed the increasing focus by state attorneys general on the use of their enforcement authority against payment processing applications platforms that were not licensed under state money transmitter laws. As we pointed out, one of the challenges raised by these state laws is the fact that they are not uniform in either their language or how they are interpreted or applied.
In the spirit of looking at the glass-half-full aspects of these developments, it is worth pointing out that the Conference of State Bank Supervisors (CSBS) is undertaking an initiative to develop model payments legislation with the goal of increasing uniformity of state legislation in this area. The multistate licensing initiative is part of Vision 2020, a set of initiatives that CSBS and state regulators are implementing to harmonize the multistate licensing and supervisory experience for nonbank financial services providers, including fintechs. One primary area of focus for the CSBS is state money transmitter legislation. To this end, a committee of state financial institution supervisors, under the auspices of the CSBS, has developed model language for money services businesses, and recently published this model language for public comment. The model language focuses on areas such as core definitions of money transmission–related activities, money transmitter exemptions, control and changes in control of money transmission businesses, financial condition issues, and interstate parity and coordination activities.
In addition to releasing a finalized No-Action Letter (NAL) Policy, the Consumer Financial Protection Bureau (CFPB) also issued a revised Trial Disclosure Policy and Compliance Assistance Sandbox Policy on September 10.
Trial Disclosure Policy
Through its revised Trial Disclosure Policy, the CFPB has created the CFPB Disclosure Sandbox. Now, entities seeking to improve consumer disclosures may conduct in-market testing of alternative disclosures for a limited time upon permission by the CFPB. The Dodd-Frank Act gives the CFPB the authority to provide certain legal protections for entities to conduct trial disclosure programs. The new policy largely streamlines the application and review process, provides greater protection from liability (which also extends to agents of the waiver recipient), and allows for a time-limited extension for successful disclosure tests.
The Consumer Financial Protection Bureau (CFPB) finalized its revised No-Action Letter (NAL) Policy and issued its first NAL under the revised policy on September 10, in response to a request by the US Department of Housing and Urban Development (HUD) on behalf of more than 1,600 housing counseling agencies (HCAs) that participate in HUD’s housing counseling program.
The Consumer Financial Protection Bureau (CFPB), working in partnership with multiple state regulators, announced on September 10 that it has launched the American Consumer Financial Innovation Network (ACFIN) to strengthen coordination among federal and state regulators in order to facilitate financial innovation. ACFIN is a network of federal and state officials and regulators with authority over markets for consumer financial products and services. The CFPB invited all state regulators to join ACFIN, and the initial members of ACFIN are the attorneys general of Alabama, Arizona, Georgia, Indiana, South Carolina, Tennessee, and Utah. The network may include state attorneys general, state financial regulators, and federal financial regulators.
According to the CFPB’s press release, ACFIN “enhances shared objectives such as competition, consumer access, and financial inclusion. Additionally, ACFIN promotes regulatory certainty for innovators, benefiting the US economy and consumers alike. The network also seeks to keep pace with market innovations and help ensure they are free from fraud, discrimination, and deceptive practices.”
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.
In its continued efforts to learn what broker-dealers and their employees are doing in the digital asset space, FINRA has effectively reissued a regulatory notice requesting that broker-dealers keep FINRA apprised of their digital asset activities.
Last July, FINRA issued Regulatory Notice 18-20 where it requested that broker-dealers notify their regulatory coordinators about their and their registered representatives’ digital asset activities. Although not an exhaustive list, some activities FINRA wants information about include the following:
On July 8, the staffs of the Division of Trading and Markets (TM) of the US Securities and Exchange Commission and of the Office of General Counsel of the Financial Industry Regulatory Authority, Inc. issued a joint statement on broker-dealer custody of digital assets that are also securities (Joint Statement). As explained in, and for purposes of, the Joint Statement, a “digital asset” refers to an asset that is issued and transferred using distributed ledger or blockchain technology, including, but not limited to, so-called “virtual currencies,” “coins,” and “tokens.” While all digital assets are not securities under the federal securities laws, a digital asset that is a security is referred to as a “digital asset security” in the Joint Statement. While the Joint Statement provides some insight on the issues under consideration by regulators regarding custody, it does not identify specific circumstances under which a broker-dealer could custody digital asset securities in a manner consistent with the financial responsibility rule applicable to broker-dealers.
We are always looking to identify good forums for keeping abreast of global fintech developments and trends. One such interesting platform was Cross-Border Fintech: Regulation & the Law 2019, held in London on June 6, where we heard some great insights into the current market trends in and the future of fintech. The conference was well attended, with representatives of many industry leaders, authorities, and industry bodies in attendance. The participation of many on the front lines of fintech from financial institutions, fintech startups, and industry bodies created a forum to share innovative ideas and trends that allowed participants—including us—to keep up with the latest innovation.