TechREG Weekly US: Lawmakers Propose Crypto Legislation; DOJ Urges More Int’l Cooperation

This week in TechREG U.S., cryptocurrency regulation has dominated the space. Lawmakers have discussed the role of cryptos in ransomware attacks and how to tackle this rising threat.

The Department of Justice (DOJ) published a report in response to President Joe Biden’s executive order, urging for more international cooperation for better crypto enforcement. But without any doubt, the legislative proposal by Sens. Cynthia Lummis and Kirsten Gillibrand to regulate crypto assets has attracted all the media attention.

The Federal Reserve has also been the target of legal proceedings and questions by lawmakers about its decisions to grant and revoke access to its Master Account.

Lawmakers, Regulators Discuss Crypto

US Lawmakers Take on Crypto Ransom Payments

The Senate Committee on Homeland Security and Government Affairs held a hearing Tuesday (June 7) to discuss the rising threat of cryptocurrencies as an enabler of ransomware attacks and ransom payments. Witness experts from the private sector provided testimony about how to deal with these problems.

The hearing came after Sen. Gary Peters, chairman of the committee, released a report June 2 detailing the results of his investigation into the role cryptocurrencies — which, according to the report, continue to play in emboldening and incentivizing cybercriminals to commit ransomware attacks that pose an increasing national security threat.

Senate Crypto Bill Debuts, and Crypto Industry Gets Big Wins

The Responsible Financial Innovation Act, introduced Tuesday, is a piece of bipartisan legislation by Lummis and Gillibrand that seeks to create a broad and all-inclusive regulatory and legal framework for cryptocurrencies, stablecoins and the decentralized finance (DeFi) market, including tax policy. In a win for the crypto industry, the legislation would drastically reduce the authority of the Securities and Exchange Commission (SEC); grant tax exemptions that would make it far easier to use cryptocurrencies for small, day-to-day payments; and set ground rules for stablecoins.

DOJ Calls for International Cooperation to Fight Crypto Crime

The DOJ released a report Monday (June 6) urging the U.S. to strengthen its coordination with other nations to investigate and combat crimes involving cryptocurrency. The report concluded that despite the steps already taken to combat the illicit use of digital assets, “efforts must evolve to meet the challenge.” The report recommended expanding the U.S. operational and capacity building efforts with international partners, increasing information sharing and closing regulatory gaps across jurisdictions.

In US First, NY Requires Stablecoins to Be Backed by Cash

New York State Department of Financial Services (NYDFS) Superintendent Adrienne Harris announced Wednesday (June 8) that the agency has issued guidance that provides “clear criteria for virtual currency companies looking to issue USD-backed stablecoins in New York.” Specifically, it requires that stablecoins issued in New York be 100% backed by reserves of dollars and four different types of treasuries, have those reserves audited monthly and be redeemable on demand.

Fed’s Payment System at Center of Debate

Crypto Bank Custodia Sues Federal Reserve Over ‘Black-Box’ Master Account Decision

Custodia Bank, a Wyoming-based digital asset bank, has taken legal actions against the Kansas City Federal Reserve and the Federal Reserve Board to force the institutions to issue a decision on the bank’s application to access the Fed’s Master Account. The bank argued that the institutions have “unlawfully” delayed for 19 months the decision to grant it access. Custodia said the “defendants’ method for reviewing Master Account applications largely remains a black box.” The company cited numerous meetings and communications with the Kansas City Fed and the Fed Board and said “it remains a mystery” how they allocate decision-making authority for reviewing and granting Master Account applications.

GOP Lawmaker Says Fed Revoked Master Account for FinTech Reserve Trust

U.S. Sen. Pat Toomey wants answers on why the Federal Reserve Bank of Kansas City revoked a Master Account for the FinTech Reserve Trust. The Master Account gives Colorado-based Reserve Trust access to the Fed’s payments services, which is a rare and sought-after privilege for a FinTech. Toomey said this raises questions as to the Fed’s process for approving Master Accounts. Some FinTech and crypto firms have sought access to these services, which are usually reserved for traditional banks.

Senate Panel OKs Michael Barr as Fed’s Head of Bank Regulation

President Joe Biden’s nominee for Federal Reserve vice chair of banking supervision, Michael Barr, has moved closer to winning the nomination after a lengthy process. The role Barr is up for would be responsible for developing policy recommendations for the Fed board and overseeing regulatory staff, which supervise some of the biggest U.S. financial firms like J.P. Morgan Chase and Bank of America.

CFPB, FinCEN Take on ‘No-Action’ Letter

Upstart’s Request to End Regulatory Immunity Raises Question on CFPB’s No-Action Tool

The Consumer Financial Protection Bureau (CFPB) issued an order Wednesday to terminate Upstart Network from its list of approved “no-action letters” (NALs). Surprisingly, the request to terminate the NAL didn’t come from the regulator but from the company, and it may raise questions about the requirements imposed by the agency to benefit from the NALs. The NALs provided a special regulatory treatment to Upstart by immunizing the lender from being charged with fair lending law violations with respect to its underwriting algorithm. Yet the company requested the termination of the NAL to “be able to make changes to its model without need for CFPB review and approval.”

CFPB Probes Employer Repayment Requirements for Training, Supplies

The CFPB is looking into various practices and financial products that could leave employees indebted to employers. The CFPB wants to see whether employees have a meaningful choice in taking up debt products from their employers, and it wants to know about the terms and conditions for the debts and whether they would stop someone from getting a better job.

FinCEN Proposes Rulemaking to Add No-Action Letter Enforcement Tool

The Financial Crimes Enforcement Network (FinCEN) issued an Advance Notice of Proposed Rulemaking (ANPRM) June 3 relating to the implementation of a no-action letter process at FinCEN. A no-action letter is used as a sort of enforcement tool, where an agency states by letter that it will not take an enforcement action against the company for the specific conduct presented to the agency. FinCEN is seeking public input on whether to establish a no-action letter process, what the scope of and limits on no-action letters should be, and how best to implement the process. The public consultation will remain open until Aug. 5.

The Department of Justice (DOJ) published a report in response to President Joe Biden’s executive order, urging for more international cooperation for better crypto enforcement. But without any doubt, the legislative proposal by Sens. Cynthia Lummis and Kirsten Gillibrand to regulate crypto assets has attracted all the media attention.

The Federal Reserve has also been the target of legal proceedings and questions by lawmakers about its decisions to grant and revoke access to its Master Account.

Lawmakers, Regulators Discuss Crypto

US Lawmakers Take on Crypto Ransom Payments

The Senate Committee on Homeland Security and Government Affairs held a hearing Tuesday (June 7) to discuss the rising threat of cryptocurrencies as an enabler of ransomware attacks and ransom payments. Witness experts from the private sector provided testimony about how to deal with these problems.

The hearing came after Sen. Gary Peters, chairman of the committee, released a report June 2 detailing the results of his investigation into the role cryptocurrencies — which, according to the report, continue to play in emboldening and incentivizing cybercriminals to commit ransomware attacks that pose an increasing national security threat.

Senate Crypto Bill Debuts, and Crypto Industry Gets Big Wins

The Responsible Financial Innovation Act, introduced Tuesday, is a piece of bipartisan legislation by Lummis and Gillibrand that seeks to create a broad and all-inclusive regulatory and legal framework for cryptocurrencies, stablecoins and the decentralized finance (DeFi) market, including tax policy. In a win for the crypto industry, the legislation would drastically reduce the authority of the Securities and Exchange Commission (SEC); grant tax exemptions that would make it far easier to use cryptocurrencies for small, day-to-day payments; and set ground rules for stablecoins.

DOJ Calls for International Cooperation to Fight Crypto Crime

The DOJ released a report Monday (June 6) urging the U.S. to strengthen its coordination with other nations to investigate and combat crimes involving cryptocurrency. The report concluded that despite the steps already taken to combat the illicit use of digital assets, “efforts must evolve to meet the challenge.” The report recommended expanding the U.S. operational and capacity building efforts with international partners, increasing information sharing and closing regulatory gaps across jurisdictions.

In US First, NY Requires Stablecoins to Be Backed by Cash

New York State Department of Financial Services (NYDFS) Superintendent Adrienne Harris announced Wednesday (June 8) that the agency has issued guidance that provides “clear criteria for virtual currency companies looking to issue USD-backed stablecoins in New York.” Specifically, it requires that stablecoins issued in New York be 100% backed by reserves of dollars and four different types of treasuries, have those reserves audited monthly and be redeemable on demand.

Fed’s Payment System at Center of Debate

Crypto Bank Custodia Sues Federal Reserve Over ‘Black-Box’ Master Account Decision

Custodia Bank, a Wyoming-based digital asset bank, has taken legal actions against the Kansas City Federal Reserve and the Federal Reserve Board to force the institutions to issue a decision on the bank’s application to access the Fed’s Master Account. The bank argued that the institutions have “unlawfully” delayed for 19 months the decision to grant it access. Custodia said the “defendants’ method for reviewing Master Account applications largely remains a black box.” The company cited numerous meetings and communications with the Kansas City Fed and the Fed Board and said “it remains a mystery” how they allocate decision-making authority for reviewing and granting Master Account applications.

GOP Lawmaker Says Fed Revoked Master Account for FinTech Reserve Trust

U.S. Sen. Pat Toomey wants answers on why the Federal Reserve Bank of Kansas City revoked a Master Account for the FinTech Reserve Trust. The Master Account gives Colorado-based Reserve Trust access to the Fed’s payments services, which is a rare and sought-after privilege for a FinTech. Toomey said this raises questions as to the Fed’s process for approving Master Accounts. Some FinTech and crypto firms have sought access to these services, which are usually reserved for traditional banks.

Senate Panel OKs Michael Barr as Fed’s Head of Bank Regulation

President Joe Biden’s nominee for Federal Reserve vice chair of banking supervision, Michael Barr, has moved closer to winning the nomination after a lengthy process. The role Barr is up for would be responsible for developing policy recommendations for the Fed board and overseeing regulatory staff, which supervise some of the biggest U.S. financial firms like J.P. Morgan Chase and Bank of America.

CFPB, FinCEN Take on ‘No-Action’ Letter

Upstart’s Request to End Regulatory Immunity Raises Question on CFPB’s No-Action Tool

The Consumer Financial Protection Bureau (CFPB) issued an order Wednesday to terminate Upstart Network from its list of approved “no-action letters” (NALs). Surprisingly, the request to terminate the NAL didn’t come from the regulator but from the company, and it may raise questions about the requirements imposed by the agency to benefit from the NALs. The NALs provided a special regulatory treatment to Upstart by immunizing the lender from being charged with fair lending law violations with respect to its underwriting algorithm. Yet the company requested the termination of the NAL to “be able to make changes to its model without need for CFPB review and approval.”

CFPB Probes Employer Repayment Requirements for Training, Supplies

The CFPB is looking into various practices and financial products that could leave employees indebted to employers. The CFPB wants to see whether employees have a meaningful choice in taking up debt products from their employers, and it wants to know about the terms and conditions for the debts and whether they would stop someone from getting a better job.

FinCEN Proposes Rulemaking to Add No-Action Letter Enforcement Tool

The Financial Crimes Enforcement Network (FinCEN) issued an Advance Notice of Proposed Rulemaking (ANPRM) June 3 relating to the implementation of a no-action letter process at FinCEN. A no-action letter is used as a sort of enforcement tool, where an agency states by letter that it will not take an enforcement action against the company for the specific conduct presented to the agency. FinCEN is seeking public input on whether to establish a no-action letter process, what the scope of and limits on no-action letters should be, and how best to implement the process. The public consultation will remain open until Aug. 5.