Category: News

letter – OCC blunder

Republican members of the House Financial Services (HFS) Committee have sent a letter to the Office of the Comptroller of the Currrency’s Acting Comptroller Michael Hsu (D) demanding answers for his agency’s recent hiring blunder. The OCC hired a new Deputy Comptroller and Chief Financial Technology Officer in April, but his resume was discovered to be falsified and he was quietly let go over the summer and replaced by an OCC insider – read about it in The Information.

In a Congressional letter dated December 7, Rep. Andy Barr (R, KY), Rep. Bill Huizenga (R, MI), and Rep. French Hill (R, AR), who is Chairman of the Digital Assets, Financial Technology and Inclusion Subcommittee, ask for more info on OCC hiring practices and note that “To date, there has been no clarification provided by the OCC surrounding the reports regarding the agency’s prior Deputy Comptroller and Chief Financial Technology Officer. During the hearing at which you testified on November 15, 2023, it was made clear by Chair [Patrick McHenry (R, NC)]: ‘the stakes are too high to take your eyes off the ball.’” The Members ask for a response by December 21.

Read the letter. And, read the House Financial Services press release.

what you should note: At a November HFS prudential regulator hearing, the OCC’s Hsu expressed surprising “concerns” about the Securities and Exchange Commission’s (SEC) bank custody rules and carrying digital assets on a bank’s balance sheet. Will Republicans “go hard” on a Democrat who has expressed a dissenting opinion to Democratic leadership’s (including SEC Chair Gary Gensler)?

AML/CFT compromise

In Punchbowl News, House Financial Services (HFS) Chair Patrick McHenry (R, NC) participated in another interview discussing his 2024 agenda. With the Senate looking to to address anti-money laundering (AML) and countering the financing of terrorism (CFT) in digital assets, the Chair saw opportunity for compromise with his bicameral colleagues saying, “We want to identify workable policies for [Bank Secrecy Act]-AML as it relates to digital assets. We want to make sure that the regime works and is effective. And I think we need a broader policy effort to make that work.” Read more.

Also of note, McHenry is not conciliatory on stablecoin legislation – i.e.  the Fed isn’t getting any power over state-issued stablecoins. Continue reading “Congress Sends Letter On OCC Hiring Blunder; Crypto Advertising Door Cracks Open”

warning crypto lawyers

At a continuing legal education event run by the American Bar Association last Thursday, Securities Exchange Commission (SEC) Chair Gary Gensler participated in an interview where he offered his view on lawyers involved with crypto clients.

Fintech policy publication Capitol Account, which covered the event, reported that a show of hands revealed roughly 40% of the audience’s lawyers were working in crypto.  Gensler responded, “That’s your field, if those are your clients…without pre-judging any one of them. And the public if they lose trust in this little area (crypto), this little corner of the market, and you as gatekeepers facilitate that? That hurts the rest of the market, too.” Read more in Capitol Account.

more tips:

Crypto publication CoinDesk named Chair Gensler to its 2023 Most Influential list last week. In appreciation, the Chair responded on X on Friday, “Thank you @CoinDesk, I guess?”

what you should know: The message coming from Democratic leadership – including Chair Gensler – to industry remains, “If you touch crypto, stop touching.” Its message to voters is “We are going to stop crypto in the U.S.” The big question: will voters care enough to make it a needle-mover in the 2024 general election one way or the other?

SEC sanction update

“The [Securities and Exchange Commission] wants more time to respond to a judge’s accusation that it made ‘materially false and misleading representations’ in a lawsuit against the crypto company DEBT Box.” Fortune reporter Leo Schwartz on X Continue reading “Crypto Lawyers Get Warning From SEC Chair; McHenry Talks 2024 Agenda”

Terrorism Financing Prevention

Punchbowl News’ Brendan Pedersen reported yesterday that Senator Mark Warner (D, VA) is introducing a new piece of legislation aimed at sanctioning any firm that is facilitating payments to “Foreign Terrorist Organizations” rather than the current limits of the law which focuses on Hezbollah. Read more.

Known as the “Terrorism Financing Prevention Act,” co-sponsors include the CANSEE Act [S.2355] team of Senators: Mike Rounds (R, SD), Jack Reed (D, RI) and Mitt Romney (R, UT). CANSEE takes aim at money laundering within decentralized finance or DeFi.

Pedersen provides a copy of the bill here.

Later in the day, a press release from Sen. Warner’s office was issued with more details… “The bill also contains a key provision from the Crypto-Asset National Security Enhancement and Enforcement (CANSEE) Act the senators previously introduced, giving FinCEN authority to restrict transactions with ‘primary money laundering concerns’ that do not involve a U.S. correspondent bank account.  This provision will provide FinCEN with appropriate tools to address threats involving digital assets and non-traditional finance networks, just as they currently can where correspondent accounts are involved.” Read the release.

what you should know: Since the terrorist attacks in Israel on October 7, anti-money laundering and terrorist financing legislation related to crypto has reached a new level of urgency.  Whether a bill such as Senator Warner’s can pass both houses while digital assets remains a key part of the House Financial Services’ agenda remains a question.

updating BSA

Senator Elizabeth Warren (D, MA) continued her media campaign in support of her Digital Assets Anti-Money Laundering Act [S.2669] and appeared on CNBC’s Squawk Box.  CNBC’s Andrew Ross Sorkin asked Warren if she supported approval of a Bitcoin Spot market ETF by the SEC and its implications for Americans who would invest.  She demurred but wanted to focus on the law enforcement aspects of crypto and the Bank Secrecy Act (BSA), specifically, which hasn’t been amended since the 70s according to the Senator. She added, “What we need to do is we need to update [the BSA] again.”  See the clip on X. Continue reading “AML Legislation Keeps Rolling In Senate; New Terrorism Financing Prevention Act From Senator Warner, Others”

close it down

Yesterday’s Senate Banking hearing brought together leaders of the traditional financial system of the United States for an annual oversight hearing (video). Senators took the opportunity to ride various hobby horses of the moment.  Senator Elizabeth Warren (D, MA) used her 5-minute Q&A to promote her Digital Asset Anti-Money Laundering legislation [S.2669] while questioning JP Morgan CEO Jamie Dimon, a well-known critic of all things crypto.

Dimon may hate on crypto, but his bank is full-steam ahead on using blockchain rails for his own projects such as JPM Coin.

The Warren Q&A included the following:

Senator Warren: “Today’s terrorists have a new way to get around Bank Secrecy Act: cryptocurrency. Last year, an estimated $20 billion in illicit crypto transactions funded every kind of dangerous criminal. North Korea has funded at least half its missile program, including nuclear weapons, using the proceeds of crypto crime. And Israeli officials have confirmed that Hamas received millions of dollars through crypto transactions including ‘large sums from Iran.’ Mr. Dimon, you’ve been CEO of JP Morgan for almost two decades. Can you explain why crypto is such an attractive financial tool for terrorists, drug traffickers and rogue nations?” Continue reading “Senate Banking Hearing Gets Warren-Dimon Treatment; NDAA Amendment Flames Out”

McHenry exits

Shortly after the news was leaked, House Financial Services Chair Patrick McHenry (R, NC) announced on X that the jig was up: “I will be retiring from Congress at the end of my current term. I believe there is a season for everything and—for me – this season has come to an end. I look forward to what comes next for my family and me.”

In a press release, McHenry expressed confidence that his departure after 20 years, Congress was in “good hands” with the Members who remain and are to come: “I truly feel this institution is on the verge of the next great turn. Whether it’s 1974, 1994, or 2010, we’ve seen the House evolve over time. Evolutions are often lumpy and disjointed, but at each stage, new leaders emerge. There are many smart and capable members who remain, and others are on their way. I’m confident the House is in good hands.” Read the statement.

McHenry exits – reaction

Politico’s Eleanor Mueller reported on X that fellow HFS Committee member Rep. Jim Himes (D, CT), who supported both the stablecoin and digital asset market structure bills during the HFS markup, was “devastated” by McHenry’s decision: “He’s one of the real voices of sanity around here. This institution is gonna be a lot weaker for his absence.”

Proving that McHenry impact reached across TradFi and decentralized finance advocates, the American Bankers Association tweeted in appreciation of Chair McHenry and “for his years of dedicated service to the people of North Carolina and his ongoing efforts in the House [Financial Services Committee] to ensure our banking system remains the envy of the world. ABA looks forward to working with you as you serve out your term.” And, Crypto Council of Innovation CEO Sheila Warren said on X that Chair McHenry’s “consistent approach to coalition building, willingness to work in a bipartisan nature, and constructive engagement with industry. He will be deeply missed when he leaves Congress.”

According to Punchbowl News’ Brendan Pedersen, former Speaker Kevin McCarthy (R, CA) said that “McHenry’s done a ‘tremendous’ job… ‘When Rep. [Steve Scalise (R, LA)] was shot, doing the whip job — I don’t think there’s a better whip than Patrick. I think he would have been a great speaker…”

DeFi Education Fund said in a statement on X, “Chairman McHenry’s level-headed, bipartisan leadership and receptiveness to the idea that novel technologies require fit-for-purpose regulations has been (and will continue to be over the next year) a great service, and we wish him all the best in his future endeavors.”

Coinbase CEO Brian Armstrong chimed in on X to McHenry’s tweet saying, “Thank you for your service to the country!” Continue reading “House Financial Services Chair McHenry Announces Retirement; What’s Next”

events – today

Today’s House Energy and Commerce Committee Full Committee Markup begins at 2 p.m. ET at Rayburn House Office Building.  Chair Cathy McMorris Rodgers (R, WA) and Ranking Member Frank Pallone (D, NJ) will preside as 44 bills will be considered including two bipartisan bills with blockchain technology implications. [Hearing announcement; live video]

Also today, the House Financial Services (HFS) Subcommittee on Digital Assets, Financial Technology and Inclusion will hold a hearing titled: “Fostering Financial Innovation: How Agencies Can Leverage Technology to Shape the Future of Financial Services.” The hearing – led by Subcommittee Chair French Hill (R, AR) and Ranking Member Stephen Lynch (D, MA) – begins at 10 a.m. at Rayburn House Office Building. [Hearing landing page; Committee memorandum]

Judging from the memo, the HFS Digital Assets Subcommittee hearing looks to be an efficient way to understand at a high level what each U.S. financial services regulator is doing to address innovation or “novel activities” – i.e. do they have their own office of innovation; do they address it within existing infrastructure; what does that approach look like; and so on. The Consumer Financial Protection Bureau, run by Democratic appointee Rohit Chopra, may attract criticism from the Republican Members of the Committee due to the CFPB’s move away from an innovation-specific office in the past couple years.

more tips:

HFS Digital Assets Subcommittee prepared testimony for Michael Gibson, Director, Division of Supervision and Regulation, Federal Reserve – Federal Reserve

offshore – El Salvador Bitcoin

Good news for El Salvador President Nayib Bukele who tweeted yesterday that after the most recent Bitcoin price rally, his country’s horde of Bitcoin is now “in the black.”  See his tweet on X with a graphic showing his country’s $130 million + in Bitcoin holdings. He wants a retraction from journalists who questioned his strategy. Continue reading “Blockchain Hearings Today In Congress; Hamas And The Stock Market”

deceptive regulator

A federal judge may be close to sanctioning lawyers with the Securities and Exchange Commission (SEC) for allegedly lying to the Court about a request to seize assets without informing the defendant. Fortune’s Leo Schwartz and Jeff John Roberts reported on Friday,  “In his Thursday order, U.S. District Judge Robert Shelby explained he had agreed to grant the SEC’s request because the agency’s lawyer, Michael Welsh, had said the crypto company was actively closing bank accounts—including 33 in the last 48 hours—as part of a bid to move the firm to Abu Dhabi and beyond the reach of U.S. regulators. This turned out to be untrue, however.” Read more. Shelby was nominated by President Barack Obama in 2011.

what you should know: Does this speak to a wider initiative within the SEC and government (i.e. Choke Point)? This anecdote looks like a “lay up” for further exploration by Congress – Senate Banking and House Financial Services, in particular.

alert to Hill staffers: New Congressional letters appear imminent. Can a hearing or investigation on this alleged SEC over-step be far behind given scrutiny around the Federal Deposit Insurance Corporation’s (FDIC) harassment scandal and the Office of the Comptroller of the Currency (OCC) fintech hiring mishap?

blockchain markup

The Energy & Commerce Committee led by Chair Cathy McMorris Rodgers (R, WA) and Ranking Member Frank Pallone (D, NJ) has a full markup hearing scheduled for tomorrow involving at least two bipartisan bills with blockchain technology implications among the 44 bills to be considered.

Read the E&C announcement.

“H.R. ___, Deploying American Blockchains Act” from Reps. Larry Bucshon (R, IN) and Lisa Blunt Rochester (D, DE). The seeds of this bill was discussed at an E&C hearing in September.

• • The stated purpose of the bill is to enable the Secretary of Commerce to “promote the leadership of the United States with respect to the use of blockchain technology.” The bill lists examples of policies and recommendations that could arise such as “the issues of decentralized identity, cyber security, key storage and security systems, artificial intelligence, fraud reduction, regulatory compliance, e-commerce, health care applications, and supply chain resiliency.”

Continue reading “SEC Lawyers May Be Sanctioned In Crypto Case; Blockchain Legislation Gets Energy And Commerce Markup”