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Hey ya’ll, John here.

And another week of regulatory and political fun (note: always been surprised no one has ever glommed onto “fintech...more like FUNtech. I’ll keep trying to make it happen.)

So many developments, gotta catch 'em all. Kinda like that one, sad summer we all looked in parks and while driving (safely, I’m sure!) trying to find AR Pokemon characters. Simpler times.

True Lender: It Happened

Two weeks ago, I wrote about the Trump-era True Lender Rule [Refresher: The “true lender” rule allowed consumers to access loans with interest rates above their states maximums, which banks are not beholden.] and the Congressional Review Act (CRA) in the U.S. Senate that would reverse it. As we discussed….

“Chairman [of the Senate Banking Committee, Sherrod] Brown said he was increasingly confident that the Senate had the votes to reverse the rule. They could do it via what’s called a Congressional Review Act (CRA) resolution of disapproval, which he and other Democrats introduced in late March. Passage of the resolution would invalidate the final rule...

​According to Politico’s Zach Warmbrodt, following the hearing, Brown said, "I am almost certain we're going to do it….We've got to count votes. We are awfully close to 50, or maybe above 50 because there is some Republican interest."

….No one knew any Republicans were interested in voting for the resolution. It was (still is?) hazy as to whether or not all of the Senate’s Democrats would even vote for it.

TBH, it’s still unclear. No word yet on who the mysterious Republican(s) could be.”

Welp, it’s not hazy anymore. The Senate passed the CRA earlier this week by a vote of 52-47, with *three Republicans* voting for it, and all of the Democrats. The now-not-so-mysterious Republican Senators: Marco Rubio of Florida, Cynthia Lummis of Wyoming, and Susan Collins of Maine.

Both Rubio and Lummis cited “states rights” as their reason for support, with Lummis saying, “This is a basic tenet of states maintaining sovereignty within their own borders, limited only by the US Constitution and federal law.”

With Republicans jumping on board, it gave little political lee-way to more moderate Democrats who may have voted against it. Also, the CRA going to the Senate floor was quick - announced only a day or so before the vote. This left little time for political maneuvering, which one could assume was the idea…...

So, the CRA goes to the House now where it’s expected to pass. The White House has already put out a statement of support. Critics say it didn’t have to be this way and that the OCC could have tweaked the rule under its existing authority, as former Acting Comptroller of the Currency, Brian Brooks did to begin with. The current Acting Comptroller and Trump appointee, Blake Paulson, made this argument in a letter to the Hill a few weeks ago. He was, not surprisingly, lambasted for it. This was before Michael Hsu, the new Acting Comptroller, was appointed by Secretary of the Treasury Janet Yellen, last week.

For now, everyone is still trying to figure out what impacts it might have for those fintechs and others affected by the change, if the CRA does indeed pass.

There’s something about Gary

(I stole this title from some tweet a while ago)

Earlier this week, the Securities and Exchange Commission (SEC) warned investors in mutual funds that hold Bitcoin futures to “carefully consider the risk disclosures of the fund” as it is a “highly speculative” asset. The note said that SEC staff, “will closely monitor the impact of mutual funds’ investments in Bitcoin futures on investor protection, capital formation, and the fairness and efficiency of markets.” Many in the crypto industry are disappointed with the warning, having viewed Gensler’s appointment as a good sign for the space given his background as a former instructor at MIT where he taught a course about blockchain and crypto. IMO, this doesn’t mean we won’t see more progressive, forward thinking guidance on crypto from Gensler and the SEC, at all. That said, any dreams that all the coins would be set free because he was appointed Chair was nonsense to begin with…Retweets do not equal endorsement!

The real gut-punch for the crypto industry is that the SEC’s note would seem to indicate that a Bitcoin ETF, which the Winklevoss twins first applied for over 8 years ago and many others have since, seems as far away as ever.

However, the warning did not stand without some push back. SEC Commissioner Hester Peirce, the SEC’s most crypto-friendly Commissioner, offered public criticism of the note yesterday at WSJ Future of Everything Festival. She said, “I didn’t love the tone of yesterday’s sentiment,” in reference to the warning. Some interpreted this as a sign that Republicans will clash with Democratic SEC Chair Gary Gensler on oversight of cryptocurrencies. Maybe? Like the GOP and Dems do on everything? By design?

But Commissioner Peirce actually spent more time saying positive things about the new Chair. "I expect that he'll take investor and investor protection seriously as far as any SEC chairman would," said Peirce. "But I think he also appreciates the value that a good, well-articulated regulatory framework can have. And so I'm looking forward to working with him on that."

Remember the phrase “Regulatory Frameworks”...I suspect you’ll hear a lot more about them in the coming year…..

Binance

This just came out so there’s not a lot to go on, but, according to Bloomberg, Binance is allegedly under investigation by the U.S. Department of Justice, IRS, and CFTC.

Probably important to note a few things here:

1. No indication that law enforcement or regulators have actually accused them of any wrongdoing yet
2. It doesn’t appear that Binance.us is a part of this investigation, just Binance not the dot US

To industry observers (me, and you maybe), this isn’t necessarily a surprise. As with many rumors, it’s been talked about for years and years. There are similarities that some are drawing between what’s being discussed here and the BitMex case. But, who knows. Binance has had problems with European and Asian regulators as well.

What’s clear, going back up a section in this piece, are the concerns that the SEC and others have regarding the lack of controls for crypto exchanges, worries about market manipulation, etc., continue.

In particular, U.S. regulators and law enforcement continue to be skeptical about offshore exchanges that they have little (if any) visibility into. All of this doesn’t give them a great deal of confidence when these exchanges handle so much of the global crypto trading market. Without confidence, you aren’t getting an ETF. Also, important to note, this doesn’t help U.S. based exchanges either when they feel like they’re doing the right thing whilst having their lunch eaten by foreign exchanges.

So, whether the investigations come to anything or not, clearing the air and putting some guardrails in place could bring more comfort to these quickly developing markets. This would probably help an ETF’s prospects.

Finally, I can’t miss this opportunity to mention one of my favorite articles about Binance and crypto generally. Another Bloomberg piece, a profile of CZ (Binance’s CEO), that is ::chef’s kiss:: great. My favorite excerpt because it involves fancy hotels, which I too enjoy but, obviously, not to this extent:

“Zhao keeps the locations of Binance’s offices and servers secret….He said he never stays in one place for too long, living out of short-term rentals and hotels in Singapore, Taiwan and Hong Kong (where he prefers the Mandarin Oriental or the Ritz-Carlton).”

Who doesn’t?

Oh, and this tweet is also good.

Talk soon, and follow me on twitter @johncollins - where you can see musings on fintech, regulation, Taylor Swift, and some of my best basketball plays of the week.

John Collins is a Founding Partner at FS Vector, a fintech regulatory advisory firm based out of Washington, DC, where he leads the firm’spublic affairs and regulatory strategy group. Prior to that he was a senior staffer in the U.S. Senate and helped lead the American Banker’s Assocation international fintech policy work. He was early employee of Coinbase, where he served as Head of Policy, explaining the company (and bitcoin) to policymakers around the world.