All Things FinReg

The die is cast: FINRA has published Regulatory Notice 24-02 (RN 24-02) announcing the effective dates and other key dates and considerations for its recently adopted Residential Supervisory Location (RSL) and Remote Inspection Pilot Program (Pilot Program) rulemakings, to be codified as FINRA Rules 3110.19 and 3110.18, respectively. Together, these rules will offer FINRA member firms additional flexibility in how they structure certain aspects of their supervisory system following the sunsetting of related COVID-19 relief.

Financial services is perhaps the most regulated industry in the world, and the intersection between financial services, technology, and law remains a complicated and evolving space. A team of Morgan Lewis lawyers recently attended the 2023 Money 20/20 conference and previewed some major themes and trends that the industry can expect in 2024.

The Board of Governors of the Federal Reserve System (Federal Reserve) took another tepid step into the digital asset space on August 8, announcing that it has established a program to “enhance the supervision of novel activities conducted by banking organizations supervised” by the Federal Reserve. In addition, the Federal Reserve issued guidance explaining the supervisory nonobjection process for state member banks “seeking to engage in certain activities involving tokens denominated in national currencies and issued using distributed ledger technology or similar technologies to facilitate payments.”

The House Committee on Financial Services passed the Improving Disclosure for Investors Bill of 2023 on April 26, 2023 with bipartisan support. If passed by Congress and signed into law, the bill could alter the regulatory landscape for electronic delivery (e-delivery) by US Securities and Exchange Commission (SEC) registrants by eliminating the requirement to obtain an investor’s affirmative consent for e-delivery and allowing firms to implement a notice and optout approach to implementing e-delivery.

The Consumer Financial Protection Bureau (CFPB, the Bureau) promulgated on March 30 its final rule implementing Section 1071 of the Dodd-Frank Act. The rule requires that covered financial institutions collect and report to the Bureau data on applications for credit by small businesses (those having gross revenue of under $5 million in their latest fiscal year).

New York has enhanced its fraud prevention tools, while consumers can identify crypto scams using California’s scam tracker. A week after the US Securities and Exchange Commission (SEC) proposed amendments to cover cryptoassets under the Custody Rule applicable to investment advisers, federal banking agencies issued a statement reminding banks of their risk management obligations in connection with holding crypto companies’ deposits. The United Kingdom is considering fund tokenization, particularly as it relates to retail investors, and the Hong Kong Securities and Futures Commission is gearing up for a crypto exchange platform licensing regime while considering whether retail investors should trade on licensed crypto platforms.

In the continuation of our new blog series highlighting recent developments in the digital asset space, this post details continued action policy and enforcement actions by US regulators.

In this new series, we will provide an overview of recent noteworthy developments in the digital asset space around the world. The start of February was a busy period for regulators in the United States, where the US Securities and Exchange Commission (SEC) settled charges against an exchange in connection with its staking services and where other regulators issued digital asset guidance. Both the United Kingdom and Dubai Virtual Asset Regulatory Authority introduced plans to regulate digital asset activities. The Hong Kong Monetary Authority released a framework for stablecoin regulation, but it is unclear whether a new law will be adopted or existing laws will be amended to incorporate the framework.

In the depth of a crypto winter, the New York State Department of Financial Services (DFS) issued guidance (the Guidance) on custodial standards for those with a BitLicense or that are registered as New York state limited purpose trust companies that engage in virtual currency (VC) business activity (VC Trust Companies and, together with BitLicensees, VC Custodians). In addition to providing customer segregation and compliance standards, DFS also announced in the Guidance its position that a VC Custodian that enters into a sub-custody arrangement must obtain prior DFS approval before the arrangement’s implementation.

The New York Department of Financial Services (NYDFS) promulgated its long-awaited final rule regarding commercial financing disclosures, which applies to transactions of $2.5 million or less, on February 1, 2023. The state’s Commercial Finance Disclosure Law (CFDL) took effect January 1, 2022 and requires a TILA-like cost-of-credit disclosure to small businesses when they shop for commercial financing.