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On January 7, the Conference of State Bank Supervisors (CSBS) released a report by its Fintech Industry Advisory Panel outlining progress made on several initiatives to streamline state licensing and supervision of financial technology companies. As previously covered by InfoBytes, the panel was convened in 2017 as part of Vision 2020—a state regulator initiative to modernize the regulation of fintech companies and other non-banks by creating an integrated, 50-state system of licensing and supervision. The Accountability Report charts progress on initiatives identified by the panel, which, according to the announcement, fit into four focus areas: (i) the use of CSBS regtech for licensing and exams, including expanding the use of NMLS among states across all license types for nonbank financial services, developing “state licensing requirements for multi-state consistency,” and launching a new state examination system; (ii) improved consistency among states, including 26 states signing on to the Multistate Money Service Business (MSB) Licensing Agreement, which is intended to streamline the MSB licensing process; (iii) the creation of uniform definitions and practices and the development of a 50-state MSB model law and state accreditation programs for MSBs, which will encourage greater consistency among states; and (iv) increased regulatory transparency, including online resources for state guidance and exemptions, as well as information sessions with regulators and industry to discuss fintech developments.
Federal and state banking regulators confirmed in a December 3 joint statement that banks are no longer required to file a suspicious activity report on customers solely because they are “engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations.”
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For questions about the alert and related issues, please visit our Bank Secrecy Act/Anti-Money Laundering practice page, or contact a Buckley attorney with whom you have worked in the past.
On October 1, the Conference of State Bank Supervisors (CSBS) issued a request for comments on its Draft Model Law Language for money services businesses (MSBs). According to CSBS, state regulation of MSBs is a primary part of Vision 2020—a state regulator initiative to modernize the regulation of fintech companies and other non-banks by creating an integrated, 50-state system of licensing and supervision. (Previously covered by InfoBytes here.) The model MSB law draft addresses recommendations made by the Payments Subgroup of the Fintech Industry Advisory Panel, and “is based on and overlays the Uniform Money Services Act.” In addition, the draft amends definitions and interpretations that vary between states, and consists of three primary policies: (i) regulations “must sufficiently protect consumers from harm, including all forms of loss”; (ii) regulations “must enable the states’ ability to prevent bad actors from entering the money services industry”; and (iii) regulations “must preserve public confidence in the financial services sector, including the states’ ability to coordinate.” According to the Fintech Industry Advisory Panel, differences in standards and procedures for change in control have created significant administrative burdens, which the working group addressed by standardizing change of control triggers and the definition of control persons. The draft also includes implementation language designed to provide the legal framework to facilitate interstate coordination and the adoption of consistent standards and processes. The proposed language is adapted from current state laws, which focus “on permitting interstate supervision and creating parity between national and state chartered banks.” CSBS notes that using these models will grant states the legal authority to adjust to new products, risks, processes, and technological capabilities in a coordinated manner.
Comment are due November 1.
On September 3, the U.S. District Court for the District of Columbia again dismissed the Conference of State Bank Supervisors’ (CSBS) lawsuit against the OCC over its decision to allow non-bank institutions, including fintech companies, to apply for a Special Purpose National Bank Charter (SPNB). As previously covered by InfoBytes, the court dismissed the original complaint in April 2018 on standing and ripeness grounds. Then, after the OCC announced last July that it would welcome non-depository fintech companies engaging in one or more core-banking functions to apply for a SPNB, CSBS renewed its legal challenge. (See previous InfoBytes coverage here.) In dismissing the case again, the court held that CSBS “continues to lack standing and its claims remain unripe,” adding that “not much has happened since [the original dismissal] that affects the jurisdiction analysis.” Specifically, the court noted its previous holding that CSBS’s alleged harms was “contingent on whether the OCC charters a [f]intech,” but CSBS “does not allege that any [fintech company] has applied for a charter, let alone that the OCC has chartered a [f]intech.” In addition, the court reiterated its prior conclusion that the dispute remains “neither constitutionally nor prudentially ripe for determination.”
The court further acknowledged a contrasting decision issued in May by the U.S. District for the Southern District of New York allowing a similar challenge filed by NYDFS to survive (previous InfoBytes coverage here), stating that it “respectfully disagrees” with that court’s decision “to the extent that its reasoning conflicts” with either of the dismissal decisions in the CSBS cases. Finally, the court denied CSBS’s request for jurisdictional discovery because it will lack jurisdiction “at least until a [f]intech applies for a charter,” which will be publicly disclosed.
On August 21, the Conference of State Bank Supervisors (CSBS) launched three online tools designed to assist financial institutions navigate the state regulatory landscape and protect against cyber risks. The tools are: (i) a portal of state agency guidance for nonbank financial services companies; (ii) an interactive map of agent-of-the-payee exemptions, which identifies the states that do not require a money transmitter license for receiving a payment on behalf of a third party; and (iii) a cybersecurity 101 resource center for banks and nonbanks that features a guide to help financial institutions develop comprehensive cybersecurity programs. The tools were created as part of the CSBS Vision 2020, which is geared towards streamlining the state regulatory system to support business innovation and harmonize licensing and supervisory practices, while still protecting the rights of consumers.
On June 25, the House Financial Services Committee’s Task Force on Financial Technology held its first-ever hearing, entitled “Overseeing the Fintech Revolution: Domestic and International Perspectives on Fintech Regulation.” As previously covered by InfoBytes, the Committee created the task force to explore the use of alternative data in loan underwriting, payments, big data, and data privacy challenges. The hearing’s witness panel consisted of high-ranking innovation officials across various agencies and associations, including the CFPB, OCC, SEC, CSBS, and the U.K.’s Financial Conduct Authority. Among other things, the hearing discussed whether digital currency is considered a security, the OCC’s special purpose national bank charter, and the U.K.’s regulatory sandbox approach.
SEC representative, Valerie Szczepanik, stated that she believes the SEC has been “quite clear” with regard to initial coin offerings, noting that “[e]ach digital asset is its own animal. It has to be examined on its facts and circumstances to determine what in fact it is. It could be a security, it could be a commodity, it could be something else. So we stand ready to provide kind of guidance to folks if they want to come and talk to us. We encourage them to come talk to us before they do anything so they can get the benefit of our guidance.”
While much of the OCC special purpose bank charter discussion focused on a social media’s plan to launch its own virtual currency, CSBS representative, Charles Clark, emphasized that “[s]tate regulators oppose the special purpose charter because it lacks statutory authority” and that it should be up to Congress to decide whether the OCC can regulate non-bank entities. Clark noted that a federal system would create an unlevel playing field compared to a state system where “a small company can enter the system, scale up, and be competitive with an innovative idea.”
Lastly, the FCA representative, Christopher Woolard, emphasized that fintech firms participating in the country’s sandbox program are “fully regulated” and probably the U.K.’s “most heavily supervised,” noting that the FCA believes “sandbox firms have to work in the real world from day one.” Additionally, Woolard asserted that the sandbox program is making a difference in the market stating that of their 110 tests, 80 percent of the firms that enter the program go on to fully operate in the market. He concluded asserting, “we believe that around millions of consumers have  access to new products  geared around better value or greater convenience.”
On June 24, the Conference of State Bank Supervisors (CSBS) announced that financial regulators from 23 states have now agreed to a multi-state compact that will offer a streamlined licensing process for money services businesses (MSB), including fintech firms. As previously covered by InfoBytes, in February 2018, the original agreement included seven states. According to the announcement, 15 companies are currently involved in the initiative, and as of June 20, they have received 72 licenses. The 23 states participating in the MSB licensing agreement are: California, Connecticut, Georgia, Iowa, Idaho, Illinois, Kansas, Kentucky, Louisiana, Massachusetts, Mississippi. North Carolina, North Dakota, Nebraska, Ohio, Rhode Island, South Dakota, Texas, Tennessee, Utah, Vermont, Washington, and Wyoming.
On March 25, the OCC, Federal Reserve Board, FDIC, NCUA, and the Conference of State Bank Supervisors (collectively, the “agencies”) issued a joint statement providing guidance to financial institutions impacted by flooding in the Midwest. In the statement, the agencies encourage lenders to work with borrowers in impacted communities and to consider, among other things (i) modifying existing loans based on the facts and circumstances; and (ii) requesting expedited approval to operate temporary bank facilities if faced with operational difficulties. The agencies ask institutions to contact their appropriate federal and/or state regulator if they experience disaster-related difficulties complying with publishing or regulatory reporting requirements. The agencies further note that institutions may receive favorable Community Reinvestment Act consideration for community development loans, investments, and services in support of disaster recovery. The statement also provides links to previously issued examiner guidance for institutions affected by major disasters.
Find continuing InfoBytes coverage on disaster relief here.
On February 21, the Conference of State Bank Supervisors (CSBS) issued a request for information (RFI) on issues related to state money transmission and payments regulation as state regulators begin coordinating model legislation for all 50 states to adopt in whole or in part. CSBS’ RFI is based upon recommendations made by the Fintech Industry Advisory Panel (a part of CSBS’ Vision 2020 previously covered by InfoBytes here) and seeks feedback on several areas of law and regulation to help states create harmonized definitions and interpretations on a national level. According to the Advisory Panel, “despite the general similarity of state money transmission laws, each state defines and interprets money transmission and its exemptions differently.” The RFI solicits comments framed towards outlined policy standards and risks on the following issues:
(i) The scope of covered money transmission activities and applicable exemptions; (ii) the change in control process, including the personal vetting requirements for individuals deemed new control persons; (iii) prudential regulations—in particular, permissible investment, net worth, and surety bond requirements; (iv) supervision processes; and (v) coordination—in particular, how states can ensure the areas outlined above are implemented consistently without state-by-state policy diversion or needless duplication of effort.
Comments on the RFI are due April 20 and will be made publically available here.
On February 14, the Conference of State Bank Supervisors (CSBS) agreed to implement specific recommendations from the CSBS Fintech Industry Advisory Panel. The Advisory Panel, which was formed in 2017 and consists of 33 fintech companies, works to “identify and remove unnecessary pain points in the multistate experience of fintechs and other nonbanks operating regionally or nationwide while improving financial supervision.” Of the 19 recommended actions by the Advisory Panel, CSBS supported 14, including: (i) creating a 50-state model law to license money services businesses; (ii) creating a standardized call report for consumer finance businesses; (iii) expanding the use of the Nationwide Multistate Licensing System across all license types; and (iv) building an online database of state licensing and fintech guidance. Recommendations related to small business lending were among the items saved for future action or implementation.
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