REGULATORY DEVELOPMENTS
FEDERAL RESERVE SEEKS COMMENT ON PROPOSED CHANGES TO DURBIN AMENDMENT
On May 7, the Federal Reserve issued a Notice of Proposed Rulemaking inviting public comment on proposed changes to Regulation II (Debit Card Interchange Fees and Routing), better known as the Durbin Amendment. The proposal clarifies that debit card issuers should enable, and allow merchants to choose from, at least two unaffiliated networks (for example, a PIN debit and a signature debit network) for card-not-present debit card transactions, such as online purchases. In the proposal, the Federal Reserve indicated that it views these clarifications as necessary in light of information indicating that often only one network is enabled for such transactions. However, banking trade associations warned that the proposal would make it harder for banks to deliver low transaction prices to acquirers and consumers and threatened to stifle innovation, including security protections, in the payments system. Comments must be received within 60 days after publication in the Federal Register.
SEC DIVISION OF IM STAFF STATEMENT ON MUTUAL FUNDS INVESTING IN THE BITCOIN FUTURES MARKET
On May 11, the staff of the SEC’s Division of Investment Management provided its first public statement on funds registered under the Investment Company Act of 1940 (the 1940 Act) potentially investing in digital assets, including cryptocurrencies or cryptocurrency-related investments since January 2018. In the statement, the staff acknowledged that some mutual funds are investing or seeking to invest in Bitcoin futures and expressed concerns about such funds’ ability to invest those futures while also complying with the substantive requirements of the 1940 Act, its rules and other federal securities laws. The staff stated that it intends to “closely monitor and assess” such compliance with applicable rules and laws in coordination with staff from the Division of Economic and Risk Analysis and Division of Examinations, and it highlighted specific compliance-related areas where the staff anticipates focusing. The staff further noted its belief that, at this time, only mutual funds with appropriate strategies that support this type of investment and full disclosure of material risks, should pursue investments in the Bitcoin futures market. The staff invited further input from ETFs and other market participants, particularly input that focuses on efforts to ensure compliance with the 1940 Act and its rules and promote investor protection. Because closed-end funds do not provide for daily redemption of their shares, they do not present the same types of liquidity challenges as open-end funds. Therefore, staff encourages any closed-end fund that seeks to invest in the Bitcoin futures market to consult with the staff, prior to filing a registration statement, about the fund’s proposed investment, anticipated compliance with the 1940 Act and its rules, and how the fund would provide for appropriate investor protection. The staff of the Division of Investment Management vowed to be transparent about its approach to registered funds’ investment in the Bitcoin futures market, as well as other types of cryptocurrency and digital asset investing.
“By reopening the rules surrounding debit card transactions, the Fed could put the convenience, safety, and security that Americans have come to expect when they use their debit card at risk. We will vigorously oppose any attempt to undermine the payments system at the expense of consumers.”
– Joint Financial Trade Association Statement on the Federal
Reserve’s Decision to Revisit the Durbin Amendment
SENATE VOTES TO REPEAL OCC TRUE LENDER RULE
On May 11, the U.S. Senate passed, by a 52-47 vote, a resolution to repeal the OCC’s “true lender” rule. The rule, which was finalized in 2020, established a test to determine when a bank is considered the true lender on a loan made in a partnership with a nonbank entity. Under the Congressional Review Act, the rule will be repealed if the U.S. House of Representatives also votes to repeal the rule and the resolution is signed by President Biden, both of which are highly likely to occur. Such a repeal would prohibit the OCC from promulgating a substantially similar rule, eliminating the possibility of a revised rule or compromise taking effect.
MICHAEL J. HSU BECOMES ACTING COMPTROLLER OF THE CURRENCY
On May 7, the U.S. Department of the Treasury announced that Michael J. Hsu would become Acting Comptroller of the Currency on May 10, 2021. Prior to joining the OCC, Mr. Hsu served as an Associate Director in the Division of Supervision and Regulation at the Federal Reserve, where he led the Large Institution Supervision Coordinating Committee Program, which supervises the global systemically important banking companies operating in the United States. His career has included serving at the International Monetary Fund, the U.S. Department of the Treasury and the SEC.
In his initial statement to OCC employees, Mr. Hsu listed the disproportionate impact of the pandemic on vulnerable communities, especially communities of color and rural communities; climate change; technological change and digitalization; and complacency about risk-taking as areas of “increasing supervisory concern” for the OCC.
FDIC PUBLISHES 2021 RISK REVIEW
On May 10, the FDIC published its 2021 Risk Review, a comprehensive summary of emerging risks in the U.S. banking system. The 2021 Risk Report summarizes conditions in the U.S. economy, financial markets and banking sector, and presents key credit and market risks to banks. The report focuses on the effects of these risks on community banks in particular, as the FDIC is the primary federal regulator for the majority of community banks in the U.S. banking system.
