Below is a summary of some of the significant legal and regulatory actions that occurred over the past week. This alert is not intended to be a comprehensive list of all such developments, but rather a selection of publicly-reported news that may be of particular interest.
Extension Granted on Prepaid Account Rule
The CFPB issued a final rule governing prepaid accounts, which delayed the effective date by six months. The new effective date for the prepaid account rule is April 1, 2018. The CFPB has announced plans to revisit “at least two substantive issues in the prepaid accounts rule through a separate notice and comment rulemaking process.” The CFPB expects to release the new proposal in the coming weeks. Final Rule; CFPB Announcement.
GAO Issues Report on Fintech
The U.S. Government Accountability Office (“GAO” or the “Office”) recently published its study related to the financial technology (“fintech”) industry. Members of Congress (Hon. Sherrod Brown, Hon. Jeanne Shaheen, and Hon. Jeffrey A. Merkley) asked the GAO to review a number of issues related to the fintech industry including how fintech products and services are regulated. The GAO does not make any recommendations in this initial report, but the Office plans to issue a series of reports on fintech addressing four common subsectors of fintech (marketplace lenders, mobile payments, digital wealth management platforms, and distributed ledger technology) and each subsector’s regulatory oversight. This initial report attempts to define each subsector, explain how it works, who uses it, benefits and risks, industry trends, and regulation and oversight. The GAO provided a draft of the report for review and comment to the CFPB, CFTC, CSBS, FDIC, the Federal Reserve, FINRA, FTC, NCUA, OCC, SBA, SEC, and Treasury. The Office incorporated technical comments from these agencies as appropriate. The GAO conducted this study from July 2016 to April 2017 in accordance with generally accepted government auditing standards. The GAO reported, as an example, that depending on services provided a marketplace lender may be subject to: federal regulation (e.g., Federal Reserve, FDIC, OCC), state licensing and regulation, securities offering registration (e.g., SEC), and/or enforcement actions (e.g., CFPB, FTC). The GAO noted that each subsector’s regulation depends on (1) the extent to which the firms provide a regulated service and (2) the format in which the services are provided.
GAO Report to Congress on Financial Technology; GAO Report Highlights.
Other Regulatory Updates
Nevada Senate Approves Smart Contract Bill
Introduced in March, Senate Bill No. 398 would preclude local governments from charging taxes or fees to individuals using the blockchain or smart contract technologies. The bill now moves to the state Assembly for consideration. NV SB 398
New Hampshire’s Bitcoin State Money Transmitter Exemption Goes to the Governor
House Bill 436 creates an exemption to the state’s money transmission requirements for companies that deal solely in convertible virtual currency and creates a definition for “virtual currency.” The house already approved the bill in March. NH HB 436 History; NH HB 436 Text; Virtual Currency Report (02/03/17).
Washington’s Money Transmitter Bill Becomes Law
On April 18 the governor of Washington signed into law amendments proposed by the Washington Department of Financial Institutions (“DFI”) in December of last year, to the state’s Uniform Money Services Act, including provisions specific to digital currency. The changes take effect on July 23, 2017. Virtual Currency Report
Florida Legislature Proposes Bill To Regulate Virtual Currency
The bill adds a definition of virtual currency to the state money laundering criminal statute and prohibits laundering of virtual currency. The bill passed the Civil Justice and Claims Subcommittee in March, and both the Appropriations and Judiciary Committees in April. HB 1379 text; HB 1379 Status; Virtual Currency Report (03/10/17).
The SEC Announces Plans to Reevaluate Decision Denying Bitcoin ETF
The U.S. Securities and Exchange Commission will review last month’s decision to block the listing of the first U.S. exchange-traded fund tracking digital currency bitcoin. SEC Order Granting Petition for Review and Scheduling Filing of Statements; Virtual Currency Report 3/10/17.
CSBS Files Complaint Against the OCC
This week, the Conference of State Bank Supervisors (“CSBS”) filed a complaint requesting declaratory and injunctive relief from the Office of the Comptroller (“OCC”) for the OCC’s efforts to offer national special purpose charters to fintech companies. The CSBS requests the court to declare that the OCC lacks statutory authority to create the special purpose national bank charters to Fintech companies and to set aside the OCC’s Nonbank Charter decision, among other requested relief. Complaint
Comptroller of the Currency, Thomas Curry, defended the OCC’s actions Friday in an address at the Fintech and the Future of Finance Conference at Northwestern University. Curry Remarks; American Banker Article.
Two Virtual Currency Exchangers’ Guilty Pleas to Criminal Charges for Failure to Register with FinCEN are Upheld
Two men in Louisiana entered guilty pleas last spring after their 2015 indictment for conspiracy to operate an unlicensed money service business in violation of 18 U.S.C. § 371. Virtual Currency Report (04/29/2016). The defendants represented that they were registered with FinCEN, but did not register for several months after the warning. A federal judge in Louisiana denied the defendants’ request to withdraw their guilty pleas this week. Case 5:15-cr-00240-SMH-MLH (Doc. 59).
Japan Commits to Advancing Payment and Settlement Infrastructures
This week, Hiroshi Nakaso, Deputy Governor of the Bank of Japan (“BOJ”), gave remarks at the Forum Towards Making Effective Use of the BOJ-NET. Nakaso addressed the needs he sees for the future: “we should try to grasp the possible impacts of new technologies, such as blockchain and distributed ledger technology, on payment and settlement infrastructures including central bank payment and settlement systems.” Nakaso Address (04/21/2014).
Malta Announces National Plans for Bitcoin
Malta’s Cabinet reportedly approved a first draft of the national strategy to promote bitcoin and blockchain technology following its Prime Minister’s proposal for the European Union to become the “Bitcoin continent.” Malta Today.
For a comprehensive list of developments please see our Virtual Currencies: International Actions and Regulations.