Banking Nominees Advance, SEC Tackles Tokenization and OCC Issues Custody Guidance

Several significant regulatory and policy developments took place this week in Washington. The Senate Banking Committee advanced several key nominations, including Michelle Bowman to serve as Vice Chair for Supervision at the Federal Reserve and John Hurley to lead Treasury’s Office of Terrorism and Financial Intelligence. Secretary of the Treasury Scott Bessent announced President Trump’s intent to nominate Jonathan McKernan for Undersecretary of Domestic Finance. McKernan had been awaiting confirmation to lead the Consumer Financial Protection Bureau (CFPB). If confirmed, these appointments will place crypto policy in the hands of officials with financial services experience, including banking, fintech, and asset management.

The SEC hosted a roundtable on tokenization, focusing on how tokenization may modernize capital markets infrastructure and bridge traditional finance with on-chain systems. The panels covered the evolution of capital markets, the potential of tokenized assets, and ongoing legal and technological challenges. Separately, SEC Commissioner Hester Peirce previewed a potential exemptive framework that would allow companies to use blockchain technology to issue, trade, and settle tokenized securities.

The OCC issued new guidance reaffirming that national banks may offer crypto custody and execution services at a customer’s direction, including through third-party providers, if appropriate risk controls are in place. The guidance further clarified the agency’s position following its recent rollback of prior restrictions on crypto activity. Meanwhile, Congressional scrutiny of the Administration’s crypto policy continued, with new legislation and oversight letters raising concerns about potential conflicts of interest for government officials.

Nomination Updates

Senate Banking Committee Advances Top Financial Oversight Picks

• On May 6, the Senate Banking Committee advanced two nominations for senior financial regulatory roles at the Federal Reserve and the U.S. Department of the Treasury.
  • Federal Reserve. Michelle Bowman moved closer to confirmation as the Federal Reserve’s Vice Chair for Supervision. Bowman has served on the Federal Reserve Board of Governors since 2018 and previously served as the Kansas State Bank Commissioner. If confirmed, she would oversee the supervision and regulation of depository institutions and serve a four-year term. She would succeed Michael S. Barr in the role.
  • Treasury. John Hurley was approved to serve as Undersecretary for Terrorism and Financial Crimes at the Treasury Department. In this role, Hurley would lead the Office of Terrorism and Financial Intelligence, which develops policies to combat money laundering and terrorist financing. Hurley is the Managing Partner of Cavalry Asset Management and Managing Member of TGK Ventures, both based in San Francisco. Cavalry focuses on investments in publicly traded technology companies, while TGK invests in privately held companies and real estate.

McKernan Tapped for Key Role at the Treasury Department

• On May 9, Treasury Secretary Scott Bessent announced that President Trump intends to nominate Jonathan McKernan to serve as Undersecretary for Domestic Finance at the U.S. Department of the Treasury. The Undersecretary for Domestic Finance is responsible for overseeing debt management and the Treasury market. McKernan is already the president’s nominee to lead the CFPB, a role for which the Senate Banking Committee approved him in March but has yet to receive a full Senate vote.
• In the interim, McKernan has been serving in an advisory capacity within the Treasury Department, assisting Bessent’s senior leadership team. With Bessent’s announcement, the future leadership of the CFPB is unclear.
• Russell Vought, the current Director of the White House Office of Management and Budget, has been serving as the acting CFPB Director since February, while continuing in his role at OMB.

Congressional Updates

Congress Overturns Two CFPB Rules Impacting Payments and Banking

• On May 9, President Trump signed two Congressional Review Act resolutions into law, overturning rules issued by the Consumer Financial Protection Bureau (CFPB) during the Biden administration.
  • S.J. Res. 18 repeals a CFPB rule that would have imposed price caps on overdraft fees charged by large financial institutions.
  • S.J. Res. 28 repeals a CFPB rule that expanded its authority to supervise providers of general-use digital payment apps.
• Chairman Tim Scott (R-SC) led the resolution to overturn the CFPB's final rule, which imposed new price controls on overdraft services offered by banks and credit unions.
• House Financial Services Committee Chairman French Hill (R-AR) issued a statement applauding President Trump’s signing of the two Congressional Review Act resolutions.
• Both measures passed narrowly in the House, signaling strong partisan division over the CFPB’s role in banking and fintech oversight.

Senator Murphy Introduces the MEME Act

• On May 6, Senator Chris Murphy (D-CT) introduced the Modern Emoluments and Malfeasance Enforcement (MEME) Act, a bill aimed at preventing potential conflicts of interest among high-ranking government officials. The legislation would prohibit the president, vice president, members of Congress, senior executive branch officials, and their spouses and dependent children from issuing, sponsoring, or endorsing any security, futures contract, commodity, or digital asset. Violations would carry both civil and criminal penalties.

Senator Warren Lays Out Conditions for Democratic Support of the GENIUS Act

• On May 5, Senator Elizabeth Warren (D-MA), Ranking Member of the Senate Banking Committee, delivered a floor speech outlining five critical areas where the GENIUS Act must be revised for Democrats to support its passage. Her proposed changes include: (1) prohibitions on government officials profiting from stablecoin ventures; (2) a ban on Big Tech and commercial entities issuing stablecoins; (3) stronger consumer protections; (4) robust national security safeguards; and (5) financial stability measures to prevent systemic risk.
• Republican sponsors of the GENIUS Act and other Senate supporters have pushed back, arguing that a legislative framework is urgently needed to address the very risks Warren highlights, including gaps in consumer protection, anti-money laundering oversight, and regulatory clarity. They contend that continued delays only increase exposure to the kinds of abuses the legislation aims to prevent and have expressed openness to further negotiations to refine the bill.

Agency Updates

OCC Confirms Banks May Offer Crypto Custody and Execution Services via Third Parties

• On May 9, the Office of the Comptroller of the Currency (OCC) issued Interpretive Letter 1184, clarifying that national banks and federal savings associations may provide crypto custody and execution services at the direction of their customers. Banks may also outsource these services to third parties, such as sub-custodians, provided they implement appropriate third-party risk management practices.
• Reaffirmed Prior Guidance. The OCC reaffirmed its prior guidance from Interpretive Letter 1170, stating that crypto custody is a modern extension of traditional banking services. Banks may, at a customer’s direction, buy or sell crypto assets held in custody and provide related services, such as trade execution, settlement, and exchange between crypto and fiat. If acting in a fiduciary capacity, banks must comply with applicable fiduciary regulations. All activities must be conducted in a safe, sound, and lawful manner.
• Evolution of OCC Guidance. The OCC’s position on crypto custody has evolved through a series of interpretive letters.
  • On July 22, 2020, the OCC issued Interpretive Letter 1170, confirming that national banks and federal savings associations may provide cryptocurrency custody services, including holding private keys, as part of their permissible banking activities.
  • On November 18, 2021, under Acting Comptroller Michael Hsu, the OCC issued Interpretive Letter 1179, which did not rescind 1170 but imposed a significant constraint by requiring banks to obtain prior written supervisory non-objection before engaging in crypto custody and related services.
  • On March 28, 2025, this policy shift was reversed, when the OCC issued Interpretive Letter 1183, expressly rescinding 1179 and reaffirming the validity of 1170 (along with ILs 1172 and 1174), thereby fully restoring the authority of banks to provide crypto custody services without prior approval, subject to safe and sound banking practices.
  • On May 9, 2025, the OCC issued Interpretive Letter 1184, further clarifying that banks may also provide execution services and outsource crypto custody functions to third parties, as long as appropriate risk management frameworks are in place.

SEC Commissioner Peirce Proposes Conditional Exemption to Advance Tokenized Securities

• On May 8, SEC Commissioner Hester Peirce previewed a potential exemptive framework that would allow companies to use blockchain technology to issue, trade, and settle tokenized securities, at the SEC’s 31st International Institute for Securities Market Growth and Development.
  • Peirce noted that the SEC is weighing a conditional exemptive order that would permit live-market experimentation while preserving investor protection. Peirce stated that companies may be reluctant to tokenize securities due to limited trading venues and operational uncertainty. In contrast, trading venues are hesitant to support tokenized assets in the absence of demand from issuers.
  • Conditions under discussion include:
    • Disclosure Obligations. Provide users with material and relevant disclosures about a platform’s products, services, operations, conflicts of interest and risks, including risks associated with smart contracts.
    • Supervisory Cooperation. Comply with recordkeeping and reporting requirements, subject to monitoring and examination by SEC staff, and have adequate financial resources for operations.
    • Custody and Wallet Security. Supplemental requirements for participants offering crypto custodial services may include customer disclosures about custody arrangements and risks, as well as a requirement to implement policies and procedures or substantive requirements related to blockchain and wallet security.
    • Restrictions. The exemption could include initial limits on asset types, trading volumes, or participant classes, with potential for expansion as firms demonstrate compliance and operational stability.
  • By offering a narrowly tailored pathway to tokenize securities under real-world conditions, the proposed exemption could allow firms to test distributed ledger technology-based infrastructure at scale.

SEC Hosts Roundtable on Tokenization

• On May 12, the SEC’s Crypto Task Force held its fourth roundtable entitled “Tokenization — Moving Assets Onchain: Where TradFi and DeFi Meet.” The first panel discussed the evolution of finance and capital markets, while the second panel explored the future of tokenization.
  • Opening Remarks from the SEC.
    • Chairman Paul Atkins. In his keynote, Chairman Atkins emphasized that the migration of securities to blockchain-based systems could revolutionize capital markets, likening it to the digital transformation of the music industry from vinyl records to digital software. Atkins noted the SEC’s past regulation by enforcement approach and committed instead to using rulemaking, exemptions and interpretive guidance to create “fit-for-purpose” standards. He identified three priorities: (1) issuance — establishing clear registration pathways and exemptions for crypto offerings and clarifying which assets fall outside securities laws; (2) custody — clarifying “qualified custodian” standards and potentially allowing self-custody by advisers and funds; and (3) trading — modernizing the ATS regime, enabling broker-dealers to offer both securities and non-securities and considering conditional exemptive relief for new product structures.
    • Commissioner Caroline Crenshaw. Commissioner Crenshaw urged caution, questioning both the technological readiness and regulatory rationale for overhauling the financial system to accommodate blockchain. She challenged assumptions that tokenization, particularly on public or private blockchains, offers meaningful improvements over existing infrastructure, noting that benefits like instant settlement could undermine vital market functions such as netting, liquidity, and fraud prevention.
    • Commissioner Mark Uyeda. Commissioner Uyeda highlighted the potential benefits of tokenizing real-world assets, including the possibility of new use cases, such as tokens representing title to real estate or intellectual property rights. Tokenized real estate titles or intellectual property could increase market liquidity and transparency. He emphasized that greater transparency may reduce transaction costs and compliance burdens, whereas opaque markets tend to raise compliance costs and complicate regulatory oversight.
    • Commissioner Hester Peirce. Commissioner Peirce emphasized that tokenization enhances traditional financial assets by enabling them to operate on programmable crypto networks, increasing efficiency, accessibility, and interoperability. She noted that tokenized assets, like mutual fund shares or private securities, can facilitate faster settlement, greater liquidity, and use in DeFi applications. However, she cautioned that legal uncertainty, especially around transfer agent rules and custody requirements, remains a barrier. Peirce called for the SEC to treat tokenized securities the same as traditional ones unless a clear legal basis justifies different treatment.
  • Tokenization as a New File Format. Participants described tokenization as the next evolution in how securities are recorded and managed, comparable to the shift from paper certificates to immobilized securities in the 1970s. Tokenized assets can embed compliance features, automate distributions (like dividends), and enable programmability across platforms.
  • Industry Use Cases and Opportunities. Moving assets on-chain introduces new utility, including the ability to transfer securities globally and outside of traditional brokerage hours, allowing for continuous market access. Tokenization can enable operational efficiencies across various areas, such as shareholder communications, proxy voting, dividend distribution, and transfer agency. Some firms are already managing tokenized funds and running books and records on public blockchains without incident, reporting improved accuracy, lower costs, and broader investor access to diversified and previously hard-to-access asset classes, such as intellectual property. Tokenization is viewed not as disruptive, but additive, modernizing existing infrastructure rather than replacing it.
  • Regulatory Innovation and Sandboxes. Panelists expressed strong support for Commissioner Peirce’s proposal of an exemptive order or formal pilot program to test tokenized securities issuance and trading. Some recommend moving beyond conceptual “tech sandboxes” toward practical experimentation to test actual rules. They urged global regulatory coordination to ensure cross-border consistency and legal recognition of tokenized assets.
  • Investor Protection and Market Trust. Tokenization should enhance, not disrupt, investor protections. Building trust, ensuring transparency, and preserving core market functions are essential.

CFPB Moves to Withdraw Dozens of Guidance Documents, Including on Digital Intermediaries

• On May 12, the Consumer Financial Protection Bureau (CFPB) announced its intent to withdraw  67 guidance documents, including interpretive rules, policy statements, advisory opinions, and compliance bulletins. The Bureau stated that the move is part of a broader deregulatory shift aimed at reducing compliance burdens, streamlining bureaucracy, and limiting reliance on non-binding agency guidance.
• The documents slated for withdrawal span a wide range of consumer financial topics, including student loans, debt collection, fair credit reporting, and remittance rules.
• The agency also cited overlapping jurisdiction with state regulators and federal agencies, such as the Federal Trade Commission (FTC), the Department of Justice (DOJ), the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC), as a reason for scaling back its supervisory footprint.

Crypto Unit Leadership Change at the IRS

• On May 5, the IRS appointed Trish Turner as head of the digital asset division, after the exit of two crypto leads. Turner has over 20 years of experience working at the IRS and most recently served as a senior advisor within the Digital Assets Office. The Office was previously co-led by Raj Mukherjee and Seth Wilks, who left the IRS after receiving deferred resignation offers from the Department of Government Efficiency (DOGE).