Hello Fintech Friends,

Welcome to another week of fintech policy updates! In this edition, we bring you the key highlights from the past week pertaining to crypto regulation, crypto enforcement, fintech policy, the Consumer Financial Protection Bureau (CFPB), and the Securities and Exchange Commission (SEC).

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1. Crypto Regulation

In a surprising move, the U.S. Senate joined the House of Representatives on Thursday to overturn the contentious SEC crypto accounting rule known as Staff Accounting Bulletin No. 121 (SAB 121). The Senate approved the resolution with a 60-38 vote, with twelve Democratic Senators, including Senate Majority Leader Chuck Schumer (D-NY), joining Republicans to pass it. Notably, President Biden has threatened to veto any resolution that undoes SAB 121 if it passes the Senate. The President now has ten days to veto the resolution, sign it into law, or let it become law without his signature.

On Thursday, the Department of Treasury published its “2024 National Strategy for Combating Terrorist and Other Illicit Financing,” outlining its priorities for tackling illicit finance. The Department emphasized its commitment to strengthening anti-money laundering and counter-terrorist financing efforts, particularly with respect to digital assets, as well as its plans to leverage technological innovations.

Internationally, the Swiss government published a consultation paper to gather feedback on its proposal to join the Crypto-Asset Reporting Framework (CARF), created by the Organisation for Economic Co-operation and Development (OECD) for the G20 nations in 2023, which has since been extended to include other countries. Meanwhile, in Turkey, the government has unveiled a long-awaited comprehensive crypto legislation, which will soon be submitted to parliament for deliberation and voting. This new legislation grants the Capital Markets Board (CMB) the authority to determine issuance principles, oversee the licensing and auditing processes of trading platforms, and defines the crime of “unauthorized crypto asset service provider,” including penalties for those operating without CMB permission.

2. Crypto Enforcement

Last Tuesday, Alexey Pertsev, the co-developer of Tornado Cash, was sentenced to 64 months in jail by a Dutch judge at the s-Hertogenbosch court after being convicted of money laundering. Pertsev had been in custody in the Netherlands since August 2022, following sanctions imposed on Tornado Cash by the U.S. government. Following his conviction, Pertsev has decided to challenge the verdict, and the case will now proceed to the court of appeals.

In the U.S., bankrupt cryptocurrency lender Genesis Global has obtained court approval to reimburse approximately $3B in cash and cryptocurrency to its creditors. Meanwhile, the Department of Justice (DoJ) has taken action against various cryptocurrency-related crimes. In the Central District of California, two individuals have been charged with money laundering connected to 'Pig Butchering' scams. Additionally, the DoJ has charged two brothers with offenses stemming from an alleged "cutting-edge scheme" where they purportedly stole $25M worth of cryptocurrency from the Ethereum blockchain.

3. Fintech Policy

On May 14, a bipartisan group comprising four Members of Congress from both the Senate and the House collectively addressed a letter to the heads of eight federal financial regulatory agencies, urging them to expedite the implementation of the Financial Data Transparency Act (FDTA). This legislation, passed as part of the National Defense Authorization Act in December 2022, aims to enhance the accessibility, consistency, and usefulness of federal financial data for the public. The letter emphasized that the implementation of this law would not only facilitate the utilization of advanced technologies like artificial intelligence but also foster greater transparency and efficiency within the market.

Partnerships between banks and fintech companies also took center stage on Capitol Hill. Michael Hsu, the acting comptroller at the Office of the Comptroller of the Currency (OCC), testified before the House Financial Services Committee, emphasizing the risks involved in banks' partnerships with fintech firms. He also discussed the guidance issued by banking regulators on how to effectively manage these risks.

On Thursday, the Bank for International Settlements’ Basel Committee on Banking Supervision released an important report on the digitalization of finance. This report delves into the various implications brought about by the integration of digital technologies within the financial sector, assessing both the potential rewards and risks associated with the adoption of these new technologies.

4. CFPB

On May 16, the Supreme Court made a historic ruling affirming the constitutionality of the CFPB’s funding mechanism. This decision overturned a previous ruling by a lower court that posed a significant threat to the agency's existence. Seven justices supported the decision, while two dissented. With this ruling, the agency can now proceed with its rulemaking on open banking and maintain its efforts to revise banking fees, including credit card late fees.

On the enforcement front, the CFPB filed a lawsuit against the online lending platform SoLo Funds, accusing it of employing deceptive tactics, known as “digital dark patterns,” to unlawfully extract fees from borrowers. Additionally, the bureau disclosed on Tuesday that it had paid over $384M from its victims relief fund to approximately 191,000 consumers. According to the CFPB, these individuals had been deceived by fintech company Think Finance into repaying loans they were not obligated to repay.

5. SEC

Last week, the SEC adopted amendments to Regulation S-P mandating institutions to promptly inform individuals affected by data breaches, ensuring notification "as soon as practicable, but not later than 30 days" following the discovery of a breach. These revisions extend to various entities, including broker-dealers (including funding portals), investment companies, registered investment advisers, and transfer agents. The SEC emphasized that these amendments to Regulation S-P, initially enacted in 2000, represent crucial updates aimed at safeguarding the privacy of customers' financial information.

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See you next week!