Fintech Executive Order, Two Major SEC Proposed Rules, CFTC Cooperation Policy

The President signed Executive Order 14405, “Integrating Financial Technology Innovation into Regulatory Frameworks,” directing federal financial regulators to identify regulations, guidance and application processes that could be updated to facilitate fintech innovation and competition. The same day, the SEC issued two companion proposed rulemakings that, if adopted, would represent a significant overhaul of the registered offering and public company reporting frameworks, with implications for digital asset businesses contemplating registered offerings.

The CFTC Division of Enforcement released an enforcement advisory setting forth a new policy on self-reporting, cooperation and remediation. On Capitol Hill, representatives introduced the bipartisan Digital Asset PARITY Act to modernize the federal tax treatment of digital assets and three congressional committees held hearings touching on the digital asset space, including on modernizing the Bank Secrecy Act, exploring bank-fintech collaborations and examining the interaction between state sports betting frameworks and CFTC-regulated prediction markets.

White House and Regulatory Updates

White House Releases Executive Order to Streamline Fintech Regulations

• On May 19, President Donald Trump signed an executive order, “Integrating Financial Technology Innovation into Regulatory Frameworks,” directing federal financial regulators to review existing regulations, guidance and application processes to identify provisions that could be updated to facilitate innovation and competition for fintech firms. The order defines “fintech firm” to include nonbank companies that use or develop technology to offer or support financial products or services, including digital asset and blockchain-based services.
• The order also requests that the Federal Reserve Board conduct a comprehensive evaluation within 120 days of the legal, regulatory and policy framework governing access to Federal Reserve Bank payment accounts and services by uninsured depository institutions and nonbank financial companies, including those engaged in digital assets and other novel financial activities.

SEC Issues Two Major Proposals on Registered Offering Reform and Filer Status

• On May 19, the SEC issued two companion proposed rulemakings that, if adopted, would represent a significant overhaul of the registered offering and public company reporting frameworks. Chairman Paul Atkins framed the proposals as the foundation of his agenda to “Make IPOs Great Again” by incentivizing more companies to go and stay public. 
• The proposals would lower regulatory friction for digital asset businesses pursuing a registered offering, including potential registered offerings of tokenized securities, by easing public-float and seasoning constraints that have historically pushed earlier-stage and smaller issuers toward private markets. The proposals also make it more attractive to register initial public sales of digital assets not intended to be securities, but which are sold pursuant to an investment contract.
• The first proposal, “Registered Offering Reform (Release No. 33-11418),” would expand Form S-3 eligibility by eliminating seasoning requirements and the “baby shelf” limitations[1]; extend certain registration and communication accommodations, including the ability to file an automatically effective pay-as-you-go unallocated universal shelf, currently reserved for well-known seasoned issuers to a broader set of issuers; expand the ability to incorporate information by reference into Form S-1; and preempt state blue sky registration requirements for all registered offerings. 
• The second proposal, “Enhancement of Emerging Growth Company Accommodations and Simplification of Filer Status for Reporting Companies (Release No. 33-11419),” would streamline filer statuses into two principal categories, large accelerated filers and nonaccelerated filers, with a subcategory of small nonaccelerated filers receiving additional time to file annual and quarterly reports. The proposed amendments would raise the large accelerated filer public float threshold from $700 million to $2 billion and establish a 60-month IPO on-ramp during which a newly public company would not become a large accelerated filer regardless of public float. Nonaccelerated filers would be eligible to utilize the scaled disclosure accommodations currently available to smaller reporting companies and emerging growth companies. The SEC estimates the proposal would extend scaled disclosure accommodations to approximately 81% of public companies.
• The comment period for both proposed rules will close 60 days after the date of publication in the Federal Register.

CFTC Staff Issues Letter on Cooperation During Enforcement

• On May 19, the CFTC Division of Enforcement released an enforcement advisory (Letter No. 26-15) setting forth a new policy on self-reporting, cooperation and remediation. The advisory supersedes all prior CFTC advisories on these subjects.
• Chairman Michael Selig said that policing markets for insider trading, fraud and other abuses remains a top priority, and that the new policy will provide clarity, promote consistency and reinforce the Division's commitment to transparency in its enforcement practices.

Congressional Updates

Congressional Hearings

• House Financial Services Committee. On May 21, the committee held a hearing titled “Modernizing the BSA for Financial Crime in the 21st Century.” The hearing examined potential areas for modernization of the Bank Secrecy Act and its most recent amendments, the Anti-Money Laundering Act of 2020.
• House Financial Services Subcommittee on Digital Assets, Financial Technology and Artificial Intelligence. On May 20, the subcommittee held a hearing titled “Partnering for Innovation: How Bank-Fintech Collaborations Enhance Financial Infrastructure.” The hearing examined how collaboration between banks and financial technology firms can drive innovation, expand consumer access and keep the United States at the forefront of global financial innovation.
• Senate Committee on Commerce, Science and Transportation’s Subcommittee on Consumer Protection, Technology and Data Privacy. On May 20, the committee held a hearing titled “No Sure Bets: Protecting Sports Integrity in America.” The hearing examined state and tribal government sports betting frameworks and the tension with prediction market platforms offering sports event contracts under the authority of the CFTC.

Representatives Introduce Crypto Tax Bill

• On May 19, Reps. Steven Horsford (D-NV), Max Miller (R-OH), Suzan DelBene (D-WA) and Mike Carey (R-OH) introduced the bipartisan Digital Asset Protection, Accountability, Regulation, Innovation, Taxation and Yields (PARITY) Act, which would amend the Internal Revenue Code of 1986 to modernize the federal tax treatment of digital assets.