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The Financial Crimes Enforcement Network (FinCEN) published guidance (Guidance) on customer due diligence requirements under the Bank Secrecy Act (BSA) for hemp-related customers on June 29. The Guidance, which recognizes hemp as defined under the Agriculture Improvement Act of 2018 (the 2018 Farm Bill), advises financial institutions on their BSA customer due diligence requirements for hemp customers. This Guidance supplements—but does not replace—the December 3, 2019 interagency statement on providing financial services to customers engaged in hemp-related businesses.

Notably, the Guidance allows financial institutions to confirm a hemp grower’s compliance with applicable legal requirements by obtaining an attestation from the grower that it is validly licensed, or by obtaining a copy of that license. Further due diligence above and beyond these core requirements may be needed, however, depending on the financial institution’s assessment of the level of risk posed by a particular hemp customer. Thus, financial institutions are expected to apply their risk-based customer due diligence policies and procedures to determine whether additional information about a particular hemp customer is required, and to obtain additional information as may be necessary, consistent with the risk profile of the customer.

The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the US Department of the Treasury’s Financial Crimes Enforcement Network, in conjunction with the Conference of State Bank Supervisors, issued a joint statement on December 3 to provide more clarity regarding Bank Secrecy Act (BSA) compliance for banks that service customers with hemp-related businesses.

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.

A working group composed of the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency, and the US Department of the Treasury’s Financial Crimes Enforcement Network issued a joint statement on July 22 that is intended to provide greater clarity regarding the risk-focused approach used by examiners for planning and performing Bank Secrecy Act (BSA)/anti-money laundering (AML) examinations.

The Financial Crimes Enforcement Network (FinCEN) recently issued guidance consolidating current FinCEN regulations, rulings, and guidance about cryptocurrencies and money services businesses (MSBs) under the Bank Secrecy Act (BSA). Along with the May 9 guidance, FinCEN issued an advisory to assist financial institutions in identifying and reporting suspicious activity or criminal use of cryptocurrencies.

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.

Two years ago, we wondered in our blog post whether the staff of the US Securities and Exchange Commission (SEC) would have to further extend no-action relief to permit a broker-dealer to rely on an SEC registered investment adviser (RIA) to perform the broker-dealer’s customer identification program (CIP) requirements. And . . . here we are.

On December 12, the SEC staff issued the latest in a series of letters to the Securities Industry and Financial Markets Association (SIFMA). The letters conditionally extend no-action relief to allow a broker-dealer to rely on RIAs to perform some or all of the broker-dealer’s CIP requirements as well as the broker-dealer’s obligations under beneficial ownership requirements that went into full effect in May 2018.

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.

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.

Since taking on the role in November 2017, Comptroller of the Currency Joseph Otting has been relatively circumspect regarding his views on the banking industry, bank regulation, and bank regulatory reform. In testimony on June 14 before the Senate Committee on Banking, Housing, and Urban Affairs, Comptroller Otting provided the clearest insight to date about his views on the federal banking system and the role of bank regulation.

In his testimony, Comptroller Otting first discussed risk in the banking system and the OCC’s “supervision by risk” approach, noting the following areas of heightened risk:

  • Elevated credit risk due to eased credit underwriting, increased commercial real estate concentration limits, and policy exceptions that create a higher level of concern
  • Elevated operational risk created by cybersecurity threats and third-party relationships, including risks created by consolidation in the fintech industry, which has led to a limited number of providers servicing large segments of the banking industry
  • Elevated compliance risk due to Bank Secrecy Act (BSA) requirements, the new FinCEN beneficial ownership rules, and new technologies that attempt to increase customer convenience and access to financial products and services, and the need for banks to better manage implementation of regulatory changes in consumer laws