Hello Fintech Friends,

Happy spring equinox! Today marks the day when sunset and sunrise are 12 hours apart, making the day and the night equally long. Yet as we welcome the arrival of spring, distress in the banking sector continues to impact financial markets, posing significant implications for the crypto industry and the future access of crypto firms to the banking system.

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1. Troubled Banks

One week after the failure of the infamous three S's: Silvergate Bank, Silicon Valley Bank (SVB), and Signature Bank, the troubles of the banking sector continue. Last week, a fourth U.S. bank, First Republic Bank, was on the verge of failure but was salvaged by a $30B funding package from major U.S. banks, including JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, and Truist. Shortly after, Moody's lowered its outlook on the U.S. banking system to from "stable" to "negative," citing heightened risks after the collapse of SVB. The rough waters of banking seem to have made their way across the Atlantic. Yesterday, Swiss bank USB announced that it is acquiring struggling Credit Suisse for over $3B. The move was followed by a plan coordinated by major central banks worldwide to facilitate the provision of liquidity through existing USD swap line arrangements with the Federal Reserve (Fed).

Domestically, the debate about the failure of the three S’s is intensifying. The House Financial Services Committee will hold a hearing on the failure of the three banks on March 29 in which Federal Deposit Insurance Corporation (FDIC) chair Martin Gruenberg and Fed Vice Chair for Supervision Michael Barr are expected to testify. Rep. Tom Emmer (R-MN), the GOP majority whip at the House, suggested that U.S. financial regulators, especially the FDIC, are weaponizing recent instability in the banking sector to push crypto firms out of the U.S. Meanwhile, Democratic lawmakers are blaming the failure on the Trump Administration, which raised the Dodd-Frank threshold at which a bank is considered “systemically important” and is, thus, subjected to stricter supervision from $50B to $250B in assets (SVB had $209B in assets as of December 2022).

Regulators are also reacting. The Fed said that Michael Barr will be leading a review of the supervision and regulation of SVB that will be made available on May 1. The Department of Justice and the Securities and Exchange Commission (SEC) will also launch two separate investigations into the collapse of SVB.

2. Enforcement

On Wednesday, the SEC approved proposing new rules, which would apply to a wide variety of market actors, including crypto firms. The rules seek to reinforce disclosures on data breaches and cybersecurity precautions and broaden the scope of Regulation SCI to include the largest broker-dealers, swap data repositories, and certain clearinghouses.

3. Payments

The Fed announced that FedNow, a real-time payment service that would be made available through banks to both retail and institutional users, would launch in July 2023. Soon, we will no longer have to wait for one to five days for our Venmo transfers to reach our bank accounts.

4. CFPB

The Consumer Financial Protection Bureau (CFPB) has launched an inquiry into companies known as data brokers, which collect data on individuals’ personal lives. “The CFPB wants to understand the full scope and breadth of data brokers and their business practices, their impact on the daily lives of consumers, and whether they are all playing by the same rules.” The information requested by the CFPB, which includes business models and practices of the data broker market, can be submitted through June 13, 2023.

5. Timely reminder from the UK FCA to payments firms about client money safeguards! (by the Policy Edition’s friends Joshua Kaplan and Chris Hurn)

In a letter published on March 16, the UK Financial Conduct Authority (the “FCA”) highlighted to CEOs of UK payments firms its concerns relating to, among other things, the protection of client funds by firms. The FCA reminded payments firms of the requirement to ensure that client funds are adequately protected from the insolvency of the firm through having appropriate safeguarding arrangements with banks holding client funds.  It also urged firms to ensure that they are prudently managed from a financial perspective, including by way of ensuring that they have access to sufficient liquidity and regulatory capital to absorb losses. Given recent events, the letter will serve as a timely reminder to many firms to ensure that as far as practicable they protect their clients’ money from their own or third-party financial institutions’ insolvency.

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See you next week!