The Fed Chairman Comments on Potential for a US-backed Digital Currency

Jerome Powell, Chairman of the Federal Reserve, wrote to Congress this week discussing the merits of implementing a central bank digital currency (CBDC) in the U.S. The letter responds to a number of questions posed by lawmakers regarding the value that a digital currency would provide and implementation challenges that would need to be overcome. Two Congressmen had expressed concern that the U.S. is being left behind in the wake of technological advances.

Chairman Powell indicates that the U.S. is not currently developing a CBDC, but the Fed is monitoring development elsewhere. Chairman Powell noted that some of the motivating factors for  a digital currency in foreign countries do not necessarily exist in the U.S. Specifically, the demand for cash in the U.S. “remains robust” and there are fast and reliable digital payment services available that are not available in certain other countries.

Chairman Powell enumerated several challenges posed by a CBDC, including unanswered legal questions pertaining to rights of associated parties and privacy of transactions, policy issues relating to stability, and technical issues relating to information security. Moreover, Powell expressed skepticism for a CBDC in stating, “[i]t is not yet clear what additional value a general purpose CBDC could provide in the U.S.”

OCC and FDIC Issue Proposed Rules to Codify Valid-When-Made Doctrine

This week the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC) both issued proposed rules (OCC’s here and FDIC’s here) to resolve the doubt created about the valid-when-made doctrine when the Second Circuit undercut the doctrine in its Madden v. Midland Funding decision in 2015.  Both the OCC and FDIC note that the rulemaking will not address which entity is the true lender when the bank makes a loan and assigns or sells it to a third party.  Although the rulemaking will not address the true lender issue, the FDIC notes that it “views unfavorably entities that partner with a state bank with the sole goal of evading a lower interest rate established under the law of the entity’s licensing state.”

Comments on the OCC’s proposal are due January 21, 2020 and comments on the FDIC’s proposal will be due 60 days after publication in the Federal Register.

The valid-when-made doctrine means that an interest rate that is non-usurious when the loan is made does not become usurious if assigned to an entity located in a jurisdiction with a lower usury rate. The Madden decision is controversial because its holding invalidating the valid-when-made doctrine, significantly limiting the value proposition when banks sell loans to third parties. By invalidating the valid-when-made doctrine, the Second Circuit found that federal preemption from state interest laws that apply to national banks does not automatically carry to non-bank entities when they purchase loans from those banks. In their amicus brief, the agencies argue that Madden failed to consider and apply two established rules of law: the valid-when-made rule (a loan’s interest rate should remain legal if it was legal when created) and the stand-in-shoes rule (a contract assignee can exercise the assignor’s rights under the original contract). The agencies argue that by failing to apply these two established rules of law, the Madden court’s decision goes against Congress’s intent in creating federal preemption in this area because Congress “understood that the banks’ authority to assign their usury-exempted rates was inherent in their authority to make loans at those rates.”

Update on FinCEN’s Regulatory Agenda for FY2019

The Department of Treasury released an update to the regulatory agenda for the Financial Crimes Enforcement Network (FinCEN). The following are a few key highlights that FinCEN intends to address:

  • Report of Foreign Bank and Financial Accounts (FBAR). FinCEN is considering public comments received in a 2016 notice of proposed rulemaking (NPRM) and preparing a Final Rule with regards to clarification on FBARs, including those relating to employees that have signature authority over, but no financial interest in, the foreign financial accounts of their employers.  FinCEN anticipates finalizing amendments in January 2020.
  • Broker or Dealer Definitions. In January 2020, FinCEN anticipates finalizing amendments to the regulatory definitions of “broker or dealer in securities” under the regulations implementing the Bank Secrecy Act (BSA) to expand the scope of the definitions to include funding portals, i.e., to address BSA compliance for crowdfunding portals.  FinCEN issued proposed amendments in an NPRM issued in April 2016.
  • Anti-money Laundering (AML) Requirements for Certain Banks. In 2016, FinCEN proposed the removal of the AML program exemption for banks lacking a federal functional regulator, including without limitation private banks, non-federally insured credit unions, and certain trust companies. The proposal seeks to prescribe minimum standards for AML programs to ensure all banks are required to establish and implement AML programs. FinCEN anticipates issuing a final rule by the end of 2019.
  • AML Programs and Suspicious Activity Reports (SARs) for Investment Advisors. FinCEN proposed minimum standards in 2015 for AML programs for certain investment advisors including the requirement to report suspicious activity. Public comments are being considered while FinCEN prepares a Final Rule.
  • Registration Requirements for Money Services Businesses (MSBs). FinCEN is considering issuing a notice of proposed rulemaking amending the registration requirements for MSBs. The regulatory agenda provides no information about what the amendments will entail.  FinCEN anticipates issuing a notice of proposed rulemaking in June 2020.
  • Reporting of Cross-Border Electronic Transmittals. FinCEN may require certain depository institutions and MSBs to affirmatively provide records to FinCEN of certain cross-border electronic transmittals of funds (CBETF). Current regulations do not require affirmative reporting, though financial institutions are still obligated to maintain and make such records available. FinCEN issued an NPRM on this topic in 2010, but never issued a final rule.  FinCEN anticipates issuing a second NPRM on this issue in June 2020.
  • Currency and Monetary Instrument Report (CMIR) Requirements. FinCEN will research, obtain and analyze data to validate the need for updating the CMIR and related reporting requirements. Additionally, FinCEN will continue to issue proposed and final rules pursuant to Section 311 of the USA PATRIOT Act, which provides the Treasury Secretary with powers to target specific money laundering and terrorist financing risks.

If you have interest in discussing any of these topics, please contact Sam Boro ( or Nick Lundgren (