Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
On February 8, the U.S. Senate Committee on Banking, Housing, and Urban Affairs held a hearing titled “The Financial Stability Oversight Council Annual Report to Congress” with testimony provided by U.S. Treasury Secretary Janet Yellen. Secretary Yellen discussed progress, and continued focus, related to five topics addressed in FSOC’s 2023 Annual Report (covered by InfoBytes here): capital risks posed by nonbank financial institutions; climate-related financial stability risks; cybersecurity risks; monitoring artificial intelligence (AI) use in financial services; and digital asset oversight. In response to questioning from Senator Cortez Masto (D-NV), Yellen discussed how FSOC highlighted that about 70 percent of single-family mortgages were originated by nonbank mortgage originators during the first half of 2023. When Secretary Yellen was asked if the shift from banks to nonbanks in the mortgage space poses a financial stability risk “due to non-banks’ lack of access to deposits,” she responded that FSOC is “very focused” on the issue since non-banks are reliant on short-term financing. In addition, Yellen spoke about AI and learning its impact on vulnerabilities and risk, as well as the Basel III proposal, urging regulators to “finalize these rules as quickly as possible.”
On January 12, FinCEN and the SBA issued FAQs on the Paycheck Protection Program (“PPP”), established under the CARES Act, to assist borrowers and lenders in interpreting the CARES act and the PPP Interim Final Rule. Among the issues addressed in the FAQs, FinCEN and the SBA provided guidance regarding whether under the CDD Rule, lenders are required to collect, certify, or verify beneficial ownership information for existing customers, stating that it is not necessary to re-verify “[i]f the PPP loan is being made to an existing customer, and the existing customer and the necessary information was previously verified. Additionally, FinCEN and the SBA addressed the question of whether a lender’s collection of the information required with respect to owners of 20% or greater interest in PPP applicants is sufficient to satisfy a lender’s obligation to collect beneficial ownership information under the Bank Secrecy Act. FinCEN and the SBA stated that for lenders with existing customers the lender does not need to reverify beneficial ownership information for owners that hold ownership interests of at least 20 percent, and with respect to new customers with the same ownership interest, all natural persons will need to provide the same information in order to satisfy BSA requirements. FinCEN also answered more FAQs on its April 2020 FAQs regarding the PPP on Second Draw PPP Loans, on BSA/AML compliances, and on SBA Procedural Notice 5000-835955, the last stating that a “PPP lender may reveal the existence of a SAR to the SBA when requesting a guaranty purchase (without charge-off) from the SBA.”
On December 22, 2023, the Treasury released its request for information to develop a national strategy for financial inclusion. Financial inclusion is loosely defined by the Treasury as expanding accessibility, developing financial security, and expanding opportunities for Americans to build wealth, including closing the racial wealth gap among underserved communities, where “discrimination… [has] resulted in significant disparities in access to… financial products and services across… communities, including low-income and low-wealth communities and [minority groups].” The Treasury’s initiative fulfills its requirements from the Financial Services and General Government Appropriations Act portion of the 2022 omnibus spending bill known as the Consolidated Appropriations Act, 2023, and will help the Treasury advance its strategic vision for financial inclusion and create a roadmap for any future actions. The Treasury offers its request for information to identify opportunities through “policy, government programs, financial products and services, technology, and other tools and market infrastructure.” Comments can be submitted here and will be open until February 20, 2024.
On December 8, participants in the EU-U.S. Joint Financial Regulatory Forum met, including officials from the Treasury Department, Fed, CFTC, FDIC, SEC, and OCC, and issued a joint statement. The statement regarded ongoing dialogues from December 4-5 and focused on six themes: “(1) market developments and financial stability; (2) regulatory developments in banking and insurance; (3) anti-money laundering and countering the financing of terrorism…; (4) sustainable finance; (5) regulatory and supervisory cooperation in capital markets; and (6) operational resilience and digital finance.”
The joint statement acknowledged how risks to the EU and U.S. financial sectors have been mitigated in recent months, e.g., inflation risks, although lingering concerns remain regarding the impact of increased interest rates, high levels of private and public sector debt, and the ongoing geopolitical situations. Participants reaffirmed the significance of strong prudential standards for banks, effective resolution frameworks—particularly across borders—and robust supervisory practices, along with effective macroprudential policies. Finally, the conversations covered recent cryptoasset market changes and updates on regulatory and enforcement initiatives in the U.S.
On December 8, President Biden met with over 80 federal and state officials to discuss reducing medical debts for Americans. The Biden-Harris administration desires to address medical payment products, unfair debt collection practices, surprise billing and facility fees, and charity care. This roundtable was one of several actions taken by the administration to lower Americans’ healthcare costs, in addition to (i) the CFPB’s report on how medical debt collectors pursue debts under the FDCPA, such as through misattributed billing and billing consumers without contacting them (previously covered by InfoBytes, here); and (ii) the CFPB’s proposed rule to remove medical bills from credit reports (also previously covered by InfoBytes, here). The roundtable featured speakers from the president’s council, the CFPB, the Center for Medicare and Medicaid Services, DHHS, the Treasury, and representatives from California, Colorado, and Washington.
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.
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.
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.
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.
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.