Regulatory Roundup: CFPB on the Chopping Block, Stablecoins in Focus

It was an earth-shaking week for regulatory agencies, and a groundbreaking week for stablecoins.

For those seeking to keep up with the dizzying pace of job cuts, court rulings, orders to “stop all work” and even attempts to consolidate departments, the long weekend may offer welcome respite to step back and mull what comes next.

The biggest headlines, arguably, swirled around the Consumer Financial Protection Bureau (CFPB), where even as late as Friday (Feb. 14) afternoon, layoffs are continuing, and where Congressional Review Act (CRA) resolutions introduced in the U.S. House and Senate would overturn a final rule capping overdraft fees. The agency’s ultimate fate is in flux, given the fact that there have been various acting and newly appointed heads in rotation. As reported here, President Donald Trump has named Jonathan McKernan, who was until recently a director on the board of the Federal Deposit Insurance Corp. (FDIC) to head the CFPB.

1033 in the Courts, FDIC May Shrink

As for the courts, a Washington, D.C.-based trade group, the Financial Technology Association (FTA), is seeking to intervene in a lawsuit challenging Rule 1033, which governs financial data and how that data is shared and used. The FTA argues that its members, including companies like Plaid, Ribbit Capital, Stripe and Wise, would be directly affected by a judgment vacating the rule, arguing the data helps fuel innovation within financial service.

The CFPB is not the only agency in the midst of upheaval.

The Federal Deposit Insurance Corp. (FDIC) may see significant changes, as Acting Chairman Travis Hill last month promised “wholesale review of regulations, guidance, and manuals” and has called for the withdrawal of “problematic proposals from the past three years, such as proposals on brokered deposits and corporate governance.”

But more recently, and elsewhere, reports came this week that Trump administration is reportedly considering plans to shrink one of America’s banking regulation bodies. These talks propose folding FDIC into the Treasury Department. There’s also the possibility of having one person oversee both the Office of the Comptroller of the Currency (OCC) and the FDIC. This would let the OCC take over all of the FDIC’s supervision efforts — including its role in shutting down failed banks — while the FDIC would handle deposit insurance.

Framework for Stablecoins?

Capitol Hill-related activity was marked by the introduction of a “draft bill” that Rep. Maxine Waters, D- Ca., introduced that would create a framework for stablecoins, digital assets pegged to a stable value, like the U.S. dollar.

At the heart of the bill from Waters is a requirement that all stablecoin issuers be either a registered payment stablecoin issuer, a licensed nonbank entity or a subsidiary of an insured depository institution. Unregistered or unlicensed entities would face stiff penalties, including fines of up to $1 million per violation and imprisonment of up to five years.

Under the proposed legislation, payment stablecoin issuers would be subject to strict reserve requirements, on a one-to-one basis, where the reserves consist of U.S. coins and currency, funds held as insured demand deposits, short-term Treasury bills, or repurchase agreements backed by Treasury securities. Nonbank entities must apply to the Board of Governors of the Federal Reserve System to become licensed payment stablecoin issuers.