Weekly RoundUp August 25, 2022

FDIC Takes Action Against False or Misleading Crypto-Related Representations

Editor's Note

In This Issue. The Federal Deposit Insurance Corporation (FDIC) took action against false or misleading crypto-related representations; the Board of Governors of the Federal Reserve System (Federal Reserve) released a supervision and regulation letter about risks related to crypto-assets; the FDIC issued supervisory guidance on multiple re-presentment non-sufficient funds  fees; the Commodity Futures Trading Commission’s (CFTC) Market Participants Division announced it has issued a temporary no-action letter regarding capital and financial reporting for certain non-U.S. nonbank swap dealers (NBSDs); and the U.S. Securities and Exchange Commission’s (SEC) Division of Investment Management observed differences in how registered investment companies (Funds) investing in Treasury Inflation-Protected Securities (TIPS) calculate their standardized yield. These developments are discussed in more detail below.

Editor's Note
Editor's Note
Editor's Note

Regulatory Developments

FDIC Takes Action Against False or Misleading Crypto-Related Representations

On August 19, the FDIC issued letters (the Letters) to five companies demanding that they  cease and desist from making false and misleading statements about the FDIC and  take immediate action to correct and address such claims. The Letters are part of an effort by the FDIC to educate the public about the scope of FDIC deposit insurance coverage and to protect the public from confusion related to crypto companies making false claims of protection. In July 2022, the FDIC released a fact sheet explaining that crypto companies are not backed by FDIC deposit insurance despite the claims of such coverage by some crypto companies. The Letters stem from FDIC-collected evidence showing false misrepresentations on the companies’ websites and social media suggesting that certain crypto products are FDIC-insured. The Federal Deposit Insurance Act (the FDI Act) “prohibits any person from representing or implying that an uninsured product is FDIC-insured or from knowingly misrepresenting the extent and manner of deposit insurance.”

“The FDI Act further prohibits companies from implying that their companies are FDIC-insured by using ‘FDIC’ in the company’s name, advertisements, or other documents.”
- The FDIC

Federal Reserve Provides Additional Information for Banking Organizations Engaging or Seeking to Engage in Crypto-Asset-Related Activities

On August 16, the Federal Reserve released a supervision and regulation letter about risks related to crypto-assets. This letter provides that a Federal Reserve-supervised banking organization engaging, or seeking to engage, in crypto-asset-related activities should notify its lead supervisory point of contact at the Federal Reserve. The Federal Reserve  is closely monitoring related developments and banking organizations’ participation in crypto-asset-related activities. While the emerging crypto-asset sector presents many opportunities to banking organizations, it also presents heightened and novel risks. Crypto-asset-related activities may pose risks related to safety and soundness, consumer protection and financial stability, including technology and operations, terrorism funding, consumer protection, compliance and financial stability. Prior to engaging in any crypto-asset-related activity, a supervised banking organization must ensure such activity is legally permissible and determine whether any filings are required under applicable federal or state laws, and supervised banking organizations should have in place adequate systems, risk management and controls to conduct such activities in a safe and sound manner consistent with all applicable laws, including applicable consumer protection statutes and regulations.

FDIC Issues Supervisory Guidance on Multiple Re-Presentment NSF Fees

On August 18, the FDIC issued guidance to FDIC-supervised institutions that charging additional non-sufficient funds (NSF) fees after the first presentment of a certain transaction exposes financial institutions to a variety of risks, including: (1) violations of Section 5 of the Federal Trade Commission Act, prohibiting unfair or deceptive acts or practices; (2) third-party core processors responsible for identifying and tracking re-presented items and providing systems to determine when NSF fees are assessed; and (3) class action lawsuits or other litigation. The FDIC encourages institutions to employ risk mitigation strategies to reduce potential consumer harm and to avoid potential legal violations, such as (1) eliminating NSF fees; (2) declining to charge more than one NSF fee on a given transaction; (3) re-assessing policies, procedures and practices; (4) disclosing in detail to customers how the institution charges NSF fees; or (5) ensuring customers are alerted of NSF transactions so they may take action to avoid further charges.

CFTC Staff Extends Temporary No-Action Letter Regarding Capital and Financial Reporting for Certain Non-U.S. Nonbank Swap Dealers

On August 17, the CFTC Market Participants Division announced it has issued a temporary no-action letter extending the CFTC Staff Letter No. 21-20 (the Letter 21-20), issued September 30, 2021, to now include NBSDs who are domiciled in a foreign jurisdiction and are the subject of a pending CFTC review for comparability determinations. A no-action position is also being extended to provisionally-registered NBSDs domiciled in Japan, Mexico, the United Kingdom and the European Union, with the requirement that they remain in compliance with existing home-country capital and financial reporting requirements and submission of certain financial reporting information to the CFTC.

The temporary no-action letter is in response to a multi-entity request from the Securities Industry and Financial Markets Association, the Institute of International Bankers and the International Swaps and Derivatives Association on behalf of NBSD members. The no-action position will expire on the earlier of October 1, 2024 or if the CFTC issues a final Capital Comparability Determination with respect to each jurisdiction.

SEC Division of Investment Management Published ADI Regarding Investment Companies Related to TIPS and SEC Yield

On August 17, the SEC’s Division of Investment Management Disclosure Review and Accounting Office recently published an accounting and disclosure information (ADI) regarding Funds that both invest heavily in TIPS and advertise their standardized yield (the SEC Yield). ADIs are publications that summarize the staff’s views on the federal securities laws. 

In this recent ADI, the staff expressed concerns about TIPS Funds reporting potentially misleading SEC Yields during periods of volatile inflation. In particular, the inflation-protection features of TIPS may result in Funds disclosing exceptionally high SEC Yields during periods of rising inflation. As a result, the staff strongly encourages TIPS Funds that choose to advertise their SEC Yield to carefully consider their calculation methodology and the adequacy of their disclosures, such as using tailored and timely explanations to make any statements about their SEC Yields not misleading.

Check Out Goodwin’s Latest Industry Insights

FinReg + Policy Watch Blog
Stay on top of developments affecting the financial services community.

LenderLaw Watch Blog
Stay on top of news and legal issues in the consumer finance industry.

Consumer Finance Enforcement Watch Blog
Stay on top of enforcement actions, trends and issues.

Digital Currency + Blockchain Perspectives Blog
Stay on top of digital currency industry news, regulatory developments and issues.

Nicole Griffin
Samantha M. Kirby
William McCurdy

Josh Burlingham
Keith Kessinger
Rose Phipps
Serena Qandil
Nico Ramos