STATE GOVERNMENT RELATIONS
A number of bills saw legislative action this week. The following list contains a few bills the IBA continues to monitor:
- SB 65 – Salvage Motor Vehicles
- HB 1332 – Department of Insurance Regulatory Matters
- HB 1328 – Department of Local Government Finance
- HB 1284 – Deposit Account Agreements
FEDERAL GOVERNMENT RELATIONS
Lawmakers Worry AI Could Fuel Future Bank Runs
During the hearing on the Fed discount window, subcommittee members voiced concern that the rise of new artificial intelligence technologies could exacerbate the speed of future bank runs by producing convincing misinformation or even taking the decision of whether to pull money from a bank out of a person’s hands.
“I'm afraid we're soon going to be living in a world where individuals and artificial intelligence financial advisors on their phones will be continuously monitoring social media buzz, seeing if the bank in which you have your deposits looks like it's rumored to be getting in trouble, and pulling your money,” Rep. Bill Foster, D-Ill., said. “We’re talking about something that will proceed not at the speed of social media, but at the speed of artificial intelligence, and we have to make sure that we have some defense against this.”
Rep. Blaine Luetkemeyer, R-Mo., raised the prospect of bad actors short selling a bank’s stock and then using AI to create deepfake videos of a well-known investor falsely claiming the bank is in trouble, which is then spread through social media. “We live in a different world where this instantaneous ability to do things today is such that we have to have this instantaneous ability to react,” he said. “If we don’t, I’m fearful.”
FinCEN Proposes Applying BSA Requirements to Investment Advisers
The Financial Crimes Enforcement Network Tuesday proposed a new rule to require certain investment advisers to comply with Bank Secrecy Act regulations regarding anti-money laundering and countering the financing of terrorism. Under the proposal, covered advisers would need to implement risk-based AML/CFT programs, report suspicious activity to FinCEN and fulfill recordkeeping requirements. Also, to coincide with the release of the proposal, the Treasury Department published a new report on ALM/CFT risk in the investment advisory sector.
The sector is a key entry point into the U.S. financial system for criminals, terrorists and other bad actors, Under Secretary for Terrorism and Financial Intelligence Brian Nelson said in a video announcing the proposed rule. “Investment advisers have never been subject to comprehensive regulation to detect and prevent money laundering and terrorism financing,” he said. “We know that bad actors have been exploiting the sector to access the U.S. financial system for nefarious purposes.”
The proposed rule would add investment advisers to the list of businesses classified as “financial institutions” under the BSA, according to FinCEN. At the same time, the agency is proposing to delegate examination authority under the rule to the Securities and Exchange Commission, “given the SEC’s expertise in the regulation of investment advisers and experience in examining other financial institutions with respect to AML/CFT responsibilities.”
Read the Treasury Department risk assessment
Watch Nelson's video on the proposed rule
Bowman: Regulators Shouldn’t Set Bank Strategy
The Federal Reserve’s role as supervisor is not to replace a bank's management and board of directors in adopting a banking strategy and risk appetite, Fed Governor Michelle Bowman said Tuesday. In an essay on bank and regulator accountability, Bowman said it is important that regulators implement the laws that Congress has passed as they are written and not stretch that authority to venture into other areas of policymaking.
“As an example, consider the distinction between making sure institutions are managing all of their material risks and instructing banks to make certain credit allocation decisions by influencing banks to make or not make loans to certain industries,” Bowman writes. “The first objective – the management of material risks – is a central function of a bank supervisor and is fundamental to safety and soundness. But it is equally clear that the second objective – influencing a bank to make certain credit allocation decisions – is not the role of a banking regulator, nor of a central bank.”
The Fed’s supervisory role should be to apply targeted regulation and supervision to assess whether a bank is operating in compliance with applicable laws and in a safe and sound manner, Bowman writes. “This can be a difficult balance to strike but it is something we must always keep in mind whenever the Federal Reserve uses or proposes using its regulatory or supervisory tools. Banking regulation and supervision is not the appropriate method to implement new policies that are not mandated by Congress.”
Committee Debates Crypto Ties to Terrorist Financing
At a House Financial Services Subcommittee on Digital Assets hearing, Chairman French Hill, R-Ark., disputed reports about the outsized role of virtual currencies in terrorist financing. Hill cited testimony earlier this week from Treasury Undersecretary for Terrorism and Financial Intelligence Brian Nelson that terrorists still prefer to use traditional finance over digital assets. The remarks counter previous reports on the role of virtual currency in October’s Hamas attacks against Israel.
During the hearing, Committee Ranking Member Maxine Waters, D-Calif., expressed concerns with crypto’s impact on national security and said the Financial Crimes Enforcement Network should have resources to combat crypto-related crime. Subcommittee Ranking Member Stephen Lynch, D-Mass., separately highlighted a Treasury risk assessment on the growing use of crypto in ransomware attacks and sanctions evasion.
Meanwhile, federal agencies continue to target the role of crypto in terrorist financing.
- Treasury’s Office of Foreign Assets Control has announced multiple rounds of sanctions on individuals and a crypto exchange related to the use of crypto to support terrorist activities.
- FinCEN has issued a proposed rule that identifies international convertible virtual currency mixing as a primary money-laundering concern, spotlighting its use by Hamas, Palestinian Islamic Jihad and North Korea.
- Deputy Treasury Secretary Wally Adeyemo has said Congress should expand his department’s authorities to go after illicit actors in the digital asset space, including transnational criminal organizations, terrorists and rogue states.
Durbin Announces Hearing on Credit Card Routing Bill
Senate Judiciary Committee Chair Dick Durbin, D-Ill., recently announced he will hold a hearing on the industry-opposed legislation to impose credit card routing restrictions.
The Credit Card Competition Act (S. 1838/H.R. 3881), introduced by Durbin and Sen. Roger Marshall, R-Kan., would allow merchants to process credit card transactions based solely on which network offers them the lowest cost. The Independent Community Bankers of America has repeatedly said the bill would reduce access to credit, weaken cybersecurity protections and eliminate funding for popular credit card rewards programs.
Durbin said the Senate Judiciary Committee hearing is scheduled for Tuesday, April 9, and called on the chief executives of Visa, Mastercard, American Airlines and United Airlines to testify. Major airlines oppose the Durbin-Marshall legislation because of its impact on rewards programs.
During a Senate Judiciary hearing in May 2022, Durbin proposed expanded interchange standards, such as requiring disclosures on interchange fees in consumers’ monthly statements and stopping interchange fees on sales tax amounts, which resulted in bipartisan pushback from committee members. Ahead of that hearing, industry groups expressed opposition to any efforts to expand Durbin Amendment price controls.