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  • U.S.-UK partnership discuss fintech innovation

    Federal Issues

    On October 30, the U.S. Treasury Department issued a joint statement on behalf of the U.S.-UK Financial Innovation Partnership (FIP) providing an overview of recent meetings where Regulatory and Commercial Pillar participants exchanged views on “topics of mutual interest and to deepen ties between U.S. and UK financial authorities on financial innovation.” As previously covered by InfoBytes, the FIP was created in 2019 as a way to expand bilateral financial services collaborative efforts, study emerging fintech innovation trends, and share information and expertise on regulatory practices. Discussions focused on four topic areas: (i) cryptoassets; (ii) payment system modernization; (iii) distributed ledger technology; and (iv) artificial intelligence. Participants recognized “the continued importance of their partnership on financial innovation as an integral component of U.S.-UK financial services cooperation.” Participants also noted a desire to continue discussing these topics ahead of the next meeting in 2024.

     

    Federal Issues Of Interest to Non-US Persons Fintech UK Department of Treasury

  • Treasury official discusses AI and cloud computing at Gov2Gov summit

    Federal Issues

    On October 24, Assistant Secretary for Financial Institutions at the U.S. Department of Treasury Graham Steele delivered remarks at the Gov2Gov Summit to discuss the benefits and risks of artificial intelligence (AI) and machine learning (ML) in the financial services sector.

    First, Assistant Secretary Steele discussed the role of cloud computing and cloud service providers (CSPs) in supporting financial institutions’ work, following the Department’s release of a February report which discussed the financial sector’s adoption of cloud services. Assistant Secretary Steele indicated, among other things, that while cloud services can offer more scalable and flexible solutions for financial services institutions to store and manage their data, financial institutions have struggled to understand clearly and implement the cloud services they are purchasing from large, market-dominating CSPs. Assistant Secretary Steele stated that the Department is working toward a model that will allow financial institutions to “unbundle” cloud service packages so that financial institutions can provide more individualized services.

    Next, Assistant Secretary Steele discussed the potential advantages and disadvantages of the use of AI among financial institutions, which use AI for tasks including credit underwriting, fraud prevention, and document review. Among the benefits AI offers to financial institutions are reduced costs, improved performance, and the identification of complex relationships. The risks of AI, according to Assistant Secretary Steele, fall into three categories: (i) the design of AI, which can raise discrimination concerns, such as in consumer lending; (ii) how humans implement AI, including the possible overreliance on AI to render financial decisions; and (iii) operational and cyber risks, including the dangers around data quality and security, as AI consumes significant volumes of data.

    Last, Assistant Secretary Steele discussed how policymakers are addressing privacy and discrimination concerns with AI. He mentioned the White House’s Blueprint for an AI Bill of Rights, which would require, among other things, regular assessment of algorithms for certain disparities and biases. Assistant Secretary Steele also cited regulatory actions that can address the risks of AI, including a CFPB rulemaking under the FCRA and Federal banking agency guidance on third party risk management.

    Federal Issues Agency Rule-Making & Guidance NPR FDIC Federal Reserve Department of Treasury Artificial Intelligence

  • Treasury issues statement on U.S.-UK Financial Regulatory Working Group biannual meeting

    Federal Issues

    On September 29, the Department of Treasury issued a statement on the U.S.-UK Financial Regulatory Working Group, comprised of officials from both countries, and its meeting to discuss key themes including: (i) economic stability; (ii) banking issues; (iii) non-bank sector developments; (iv) climate-related financial risks; (v) international engagement; and (vi) digital finance.

    In their meeting, participants discussed international banking regulations, specifically Basel III, emphasizing the importance of consistent global implementation. They also acknowledged ongoing work by the Financial Stability Board (FSB) and Basel Committee on Banking Supervision regarding lessons learned from events in March 2023, with a focus on bank resolution. In addition, the group deliberated on the urgency of strengthening resilience within the non-bank financial intermediation (NBFI) sector. Topics included national reforms related to money-market funds, forthcoming work by the FSB to address vulnerabilities linked to leverage in the NBFI sector, and the value of globally implementing reforms in this sector to maintain financial stability. Among other topics, the group also noted progress in climate-related financial risks and sustainable finance mandates.

    The group emphasized the importance of international cooperation and agreed to meet again in 2024 to continue their dialogue. Established in 2018, this biannual dialogue aims to enhance financial stability, investor protection, market efficiency, and capital formation in both countries.

     

    Federal Issues Department of Treasury Basel FSB Risk Management Nonbank Of Interest to Non-US Persons UK

  • Senators ask Treasury, White House for answers on North Korea’s crypo-crime funding

    Financial Crimes

    On August 4, Senators Elizabeth Warren (D-MA), Tim Kaine (D-VA), and Chris Van Hollen (D-MD) sent a letter to the White House National Security Advisor and the Treasury Department’s Under Secretary for Terrorism and Financial Intelligence regarding their concerns over North Korea’s use of cyberattacks and cryptocurrency theft to skirt international sanctions and embargos. The letter urges the Treasury to provide details on its plan to stop North Korea from using digital assets to evade sanctions and continue with the development of nuclear weapons and ballistic missiles. The senators noted that a UN report found that in 2016, “North Korea exhibited a ‘clear shift’ to attacking cryptocurrency exchanges for the purposes of ‘generating financial revenue’” that is difficult to trace and subject to less government oversight. The letter highlights the effects of the cyberattacks, including how they have generated about $2 billion, which is then used to fund the North Korean military.  The extent of the cybercrime and cryptocurrency thefts show its use is “key” to the regime’s survival, and notes that the regime has a workforce of thousands of IT workers who operate out of many different countries. The senators asked for a response to their five questions by August 16.

    Financial Crimes Fintech Cryptocurrency Digital Assets Bank Secrecy Act North Korea Department of Treasury

  • Biden E.O. labels China as a country of concern; Treasury issues ANPR

    Federal Issues

    On August 9, the White House announced that President Biden signed an Executive Order on Addressing United States Investments In Certain National Security Technologies and Products In Countries of Concern (E.O.). The President explained his view that some countries create national security risks by using particular technologies to advance their “military and defense industrial sectors” rather than civilian and commercial sectors. Biden stated that although open global capital flows substantially benefit the U.S., the E.O. stated that certain investments may “accelerate and increase the success of the development of sensitive technologies and products in countries that develop them to counter United States and allied capabilities.” The E.O. directs the Secretary of the Treasury to issue regulations that (i) prohibit U.S. persons from participating in specific transactions associated with particular technologies and products that present a significant and urgent risk to national security; and (ii) mandate U.S. persons to notify the Treasury about different transactions related to specific technologies and products that may contribute to the national security threat. The annex to the E.O. identifies China, including Hong Kong and Macau, as the sole nation warranting concern. The E.O. also requires the Secretary to communicate with Congress and the public regarding the E.O., consult with other agency leaders, assess whether to amend the regulations within one year, and provide reports to the President and Congress.

    The Treasury simultaneously issued an Advance Notice of Proposed Rulemaking, requesting public comment on the implementation of the E.O., along with proposed definitions of key terms, before the program goes into effect. Written comments may be submitted within 45 days here.

    Federal Issues Department of Treasury Biden Of Interest to Non-US Persons China Hong Kong Artificial Intelligence Executive Order

  • EU-U.S. release statement on Joint Financial Regulatory Forum

    Federal Issues

    On July 20, participants in the U.S.-EU Joint Financial Regulatory Forum, including officials from the Treasury Department, Federal Reserve Board, CFTC, FDIC, SEC, and OCC, issued a joint statement regarding the ongoing dialogue that took place from June 27-28, noting that the matters discussed during the forum focused on six themes: “(1) market developments and financial stability risks; (2) regulatory developments in banking and insurance; (3) anti-money laundering and countering the financing of terrorism (AML/CFT); (4) sustainable finance and climate-related financial risks; (5) regulatory and supervisory cooperation in capital markets; and (6) operational resilience and digital finance.”

    Participants acknowledged that the financial sector in both the EU and the U.S. is exposed to risk due to ongoing inflationary pressures, uncertainties in the global economic outlook, and geopolitical tensions as a result of Russia’s war on Ukraine. During discussions, participants emphasized the significance of strong bank prudential standards, effective resolution frameworks, and robust supervision practices. They also stressed the importance of international cooperation and continued dialogue to monitor vulnerabilities and strengthen the resilience of the financial system. Participants took note of recent developments relating to, among other things, recent bank failures, digital finance, the crypto-asset market, and the potential adoption of central bank digital currencies.

    Federal Issues Bank Regulatory Financial Crimes Digital Assets Of Interest to Non-US Persons EU Department of Treasury Federal Reserve CFTC FDIC SEC OCC Anti-Money Laundering Combating the Financing of Terrorism

  • CFPB holds hearing on medical billing and collections

    Federal Issues

    On July 11, CFPB Director Rohit Chopra delivered prepared remarks at a public hearing on medical billing and collections. Chopra commented on the prevalence of medical debt in the country, which affects over 100 million Americans, while $433.2 billion of the national GDP is sourced from consumers’ out-of-pocket expenses. Specifically, the CFPB hearing addressed the effects of medical payment products, including special-purpose credit cards and installment loans used to cover the cost of medical treatment, which Chopra claimed can leave patients “worse off.” The Bureau highlighted the predatory nature of such medical credit cards, which typically have a higher interest rate than other cards and are often presented to consumers by their providers. According to Chopra, the Bureau recently launched a public inquiry (covered by InfoBytes here) to answer questions related to these products.

    During the expert panel discussion, multiple panelists raised issues regarding the federal requirements for hospital financial assistance programs that exist in exchange for tax benefits. Panelists criticized the complicated processes patients must follow for such programs and compared it to the simple and fast online application process for medical credit cards. Panelists also highlighted the need to include stronger, clearer federal requirements for hospital financial assistance programs, such as setting standards on income and setting minimums or floors, so consumers can access such services more easily. Panelists commonly noted that state requirements for hospital financial assistance programs are more robust than the federal requirements. In response to Chopra’s question on what the panelists wish to see from the Bureau regarding regulation, one panelist asked for a ban on deferred interest, noting the “special regulatory authority” the Bureau has. Another panelist requested that the agency ban medical credit cards from being offered in a medical setting, citing her communication with clients who claim they feel “pressured” to sign the paperwork in that setting. Additionally, another panelist requested that the Bureau prohibit the reporting of medical debt on credit reports—mentioning Colorado’s headway in being the first state to ban such reporting and noting the Bureau’s potential to ban it at a federal level. The panelists each applauded the agency’s efforts to bolster regulations on medical payment products.

    Federal Issues Agency Rule-Making & Guidance CFPB DHHS Department of Treasury Credit Cards Consumer Finance Medical Debt Installment Loans

  • CFPB launches medical-debt inquiry with HHS and Treasury

    Agency Rule-Making & Guidance

    On July 7, the CFPB, Department of Health and Human Services, and the Treasury Department announced they are looking into high-cost specialty financial products such as medical credit cards and installment loans used by patients to pay for health care. These products, the agencies explained, were once primarily used to pay for medical treatments not traditionally covered by health insurance but may now be more widely used even when medical care may be covered by insurance or financial assistance. The agencies released a request for information (RFI) seeking feedback on a range of topics, including costs associated with medical payment products, how prevalent the products are, health care providers’ incentives to offer these products to patients, and whether patients fully understand the risks and consequences associated with medical payment products.

    Specifically, the agencies are soliciting comments “on whether these products may allow health care providers to operate outside of a broad range of patient and consumer protections.” Feedback is also requested on whether use of these products is contributing to health care cost inflation, displacing hospitals’ provision of financial assistance, causing patients to pay inaccurate or inflated medical bills, increasing the amount patients must pay due to financing costs, or otherwise contributing to consumer harm, including through downstream credit reporting and debt collection practices. The agencies also want to know if using these products is creating disparities across different demographic groups, as well as policy options to protect consumers from harm.

    The agencies commented that the RFI will assist in their understanding of consumer harms and financial challenges caused by specialty medical payment products and will serve to guide next steps, including future Bureau actions focusing on credit origination, debt collection, and credit reporting practices of the financial companies that originate and service these products.

    Comments on the RFI are due within 60 days of publication in the Federal Register.

    Additionally, the Bureau is hosting a hearing on July 11 to address medical billing and collection concerns with a focus on medical payment products.

    Agency Rule-Making & Guidance Federal Issues CFPB Department of Health and Human Services Department of Treasury Credit Cards Consumer Finance Installment Loans

  • OFAC sanctions Mexico-based human smuggling organization

    Financial Crimes

    The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) recently announced sanctions pursuant to Executive Order 13581 against a human smuggling organization, and several individuals and entities in its support network. OFAC claimed the Mexico-based organization, Hernandez Salas transnational criminal organization (TCO), earns billions of dollars per year smuggling and creating false documentation for migrants. The leader of the TCO has been sanctioned, among four other supporters. OFAC reported that the individuals are currently incarcerated in Mexico and awaiting extradition to the U.S. for trial before a federal grand jury. Also sanctioned are two Mexican hotels that have taken part in the TCO’s smuggling operations. OFAC noted that the sanctions were pursued in close collaboration with Mexico’s Financial Intelligence Unit.

    As a result of the sanctions, all property and interests in property belonging to the sanctioned persons subject to U.S. jurisdiction are blocked and must be reported to OFAC. Additionally, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are also generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons.

    Financial Crimes Of Interest to Non-US Persons OFAC OFAC Designations OFAC Sanctions Department of Treasury SDN List Mexico

  • OFAC sanctions Burma Ministry of Defense and supporting financial institutions

    Financial Crimes

    On June 21, pursuant to Executive Order 14014, the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced sanctions against Burma’s Ministry of Defense and two regime-controlled financial institutions. In announcing the sanctions, OFAC explained that the Burmese military, which overthrew the country’s democratic government in February 2021, has increased its reliance on air strikes in civilian populated areas, resulting in the death of more than 3,600 civilians and displacing nearly than 1.5 million people, and that Burma’s Ministry of Defense has imported goods from sanctioned entities in Russia to support the Burmese military. OFAC detailed that the two sanctioned financial institutions, which primarily function as foreign currency exchanges, “enable Burma’s Ministry of Defense and other sanctioned military entities to purchase arms and other materials from foreign sources.” As a result of the sanctions, all property and interests in property belonging to the sanctioned persons that are in the U.S. or in the possession or control of U.S. persons are blocked and must be reported to OFAC. Additionally, “any entities that are owned, directly or indirectly, 50 percent or more by one or more blocked persons are also blocked.” U.S. persons are generally prohibited from engaging in any dealings involving the property or interests in property of blocked or designated persons, unless authorized by a general or specific OFAC license, or if otherwise exempt.

    In conjunction with the sanctions, OFAC issued a Burma-related special license (See General License 5).

    Financial Crimes Of Interest to Non-US Persons OFAC OFAC Designations OFAC Sanctions Department of Treasury Burma Russia SDN List

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