It would hardly be an exaggeration to say that every issue of Cabinet News and Views could be a special issue devoted to crypto-assets. Crypto again dominates our coverage this week, just as it comes up in just about every conversation my colleagues and I have here in DC and with clients across the country.

But let's not let the crypto focus get in the way of other financial regulatory news. This week we also take a look at consumer disclosure and bank regulatory issues in the U.S. and, over in the UK, important Prudential Regulation Authority regulatory priorities for 2023.

We are always happy to talk crypto (or anything else in the financial regulatory space). Just drop us a line here. 

Daniel Meade 
Editor, Cabinet News and Views

By Daniel Meade

Partner | Financial Regulation

By Mercedes Kelley Tunstall

Partner | Financial Regulation

Earlier today, the Federal Reserve Board (“FRB”), Federal Deposit Insurance Corporation (“FDIC”) and Office of the Comptroller of the Currency (“OCC”) issued a “Joint Statement on Liquidity Risks to Banking Organizations Resulting from Crypto-Asset Market Vulnerabilities.”

The joint statement points out the recent liquidity risks that crypto-asset-related entities have presented. The statement notes that “certain sources of funding from crypto-asset-related entities may pose heightened liquidity risks to banking organizations due to the unpredictability of the scale and timing of deposit inflows and outflows.”

The statement went on to remind banking organizations of risk management tools that may be effective to actively monitor such risks. The agencies made sure to note that the statement “does not create new risk management principles … [and that] [b]anking organizations are neither prohibited nor discouraged from providing banking services to customers of any specific class or type, as permitted by law or regulation.”  

By Mercedes Kelley Tunstall

Partner | Financial Regulation

By Daniel Meade

Partner | Financial Regulation

We have reported previously regarding the FDIC’s efforts to better police representations regarding deposit insurance, including when the FDIC issued an advisory regarding deposit insurance and the crypto industry last summer, and also when the FDIC published an updated rule in May 2022 regarding false advertising and misrepresentations, with support from the Federal Reserve and the Consumer Financial Protection Bureau.

This past week, the FDIC continued its work to ensure that the public is not misled regarding deposit insurance by reporting on a series of cease and desist demands it sent to two financial institutions and two websites that misrepresented the applicability of deposit insurance to their own products and to crypto, in general. One of the recipients of the FDIC letter is a crypto exchange making representations that deposit insurance covered fiat currency amounts held by the exchange, and the other company is a fintech that offers a savings product similar to a certificate of deposit that did not clearly identify the FDIC institution involved to provide deposit insurance and misrepresented the extent to which deposit insurance applies. With respect to the websites receiving the cease and desist letters, each website (see letters here and here) published articles regarding the very crypto exchange that also received a cease and desist letter, thereby perpetuating the impression that the crypto exchange itself was able to provide deposit insurance, even though it is not an insured depository institution. 

By Mercedes Kelley Tunstall

Partner | Financial Regulation

The State of New York passed a law in December 2020 – the Commercial Finance Disclosure Law (“CFDL”), with an effective date of June 2021 – that prescribed required disclosures for commercial finance transactions that are $2,500,000 or less. The required disclosures are similar in style to those required for consumer financial services, but have specifics that are quite different from the federal Truth In Lending Act (“TILA”). Accordingly, the New York Department of Financial Services (“NY DFS”)  finally published regulations implementing the law. In particular, the regulations clarified the available exemptions from the law’s requirements, which include:

• Financial institutions, including federally- and state-chartered banks, credit unions, industrial loan companies;
• Technology services providers providing financing for their products and services, as long as they have no interest in the financing;
• Real-estate secured financing;
• Leases (as defined in the UCC); and
• Providers that make no more than five (5) annual transactions in a rolling 12-month period.

In addition, if the transaction is covered by TILA, then the CFDL does not apply. Importantly, however, the NY DFS did not extend that exemption to cover commercial transactions that provide TILA-compliant disclosures, which has been a popular strategy for small business lenders to appease the Consumer Financial Protection Bureau and the Federal Trade Commission.

When the CFDL does apply to a commercial finance transaction, the breadth of the CFDL is quite broad – drawing in not just closed-end and open-end transactions but also sales-based financing and factoring transactions.