Our Take: financial services regulatory update – February 28, 2025

• What happened? This week saw several actions advancing the Trump Administration’s policy to “support the responsible growth and use of digital assets”:
  • SEC drops enforcement actions. Throughout the week, the SEC closed several investigations of companies involved in digital assets and dismissed a civil enforcement action against a large trading platform that it had charged with operating as an unregistered exchange, broker-dealer and clearing agency as well as calling its staking-as-a-service program an unregistered securities offering. The dismissal announcement said that it was intended to “facilitate the Commission’s ongoing efforts to reform and renew its regulatory approach to the crypto industry.” It also noted that the SEC’s Cyber and Emerging Technologies Unit would continue to investigate cases of fraud involving blockchain technology and crypto assets. In a statement, SEC Crypto Task Force leader Hester Peirce called the dismissed action an example of the SEC’s past policy of “regulation by enforcement” but also said it did not “signal an end to the Commission’s use of its enforcement tool in appropriate cases.”
  • SEC clarifies stance on “meme coins.” On February 27th, the SEC’s Division of Corporate Finance issued a statement clarifying that it does not view transactions in “meme coins” (crypto assets “inspired by internet memes, characters, current events, or trends”) as involving the offer and sale of securities under federal securities laws. It states that the transactions do not need to be registered with the SEC and clarifies that “neither meme coin purchasers nor holders are protected by the federal securities laws.”
  • CRA on DeFi broker rule. On February 26th, the House Ways and Means Committee passed a resolution of disapproval under the Congressional Review Act (CRA) regarding a December 2024 regulation to require decentralized finance (DeFi) brokers to report digital asset transactions to the IRS beginning in 2027.
  • Senate subcommittee holds hearing. Also on February 26th, the new Senate Subcommittee on Digital Assets held its inaugural hearing to discuss bipartisan legislative frameworks for digital assets. Subcommittee Chair Cynthia Lummis (R-MT) said stablecoin legislation would be first on the agenda while Senator Mark Warner (D-VA) highlighted the need for added know-your-customer protections across stablecoin transfers. One of the witnesses, former CFTC Chair Timothy Massad, said Congress should hold off on market structure legislation for a few years.
• What’s next? Peirce said that the SEC Crypto Task Force and policy staff would take the lead in engaging with the public to build a regulatory framework for digital assets. The CRA resolution will be considered by the full House of Representatives and an identical resolution will need to be passed by a majority of both the House and Senate to overturn the rule.

Our Take

The new era of digital assets policy begins. As promised during campaigns leading up to last year’s election, the new Administration and Congressional majorities are reversing the direction of digital assets policy taken over the last four years. The SEC’s policy of “regulation by enforcement” under former Chair Gary Gensler was among the most heavily criticized by the industry so it comes as no surprise that the Commission is now sharply shifting this approach. Although Peirce and both the meme coin and dismissal statements were careful to note that there would still be enforcement against fraud, these cases are likely to be more scarce and less aggressive than in the past. It will take some time for the effects of this change in policy to play out, but the pendulum may need to swing back towards more enforcement if cases of wrongdoing cause a loss of trust in the digital assets space. Both traditional providers of financial services to digital asset companies and customers of those companies will look to the SEC for protection and clarity on what constitutes illegal conduct in this space.

Meanwhile, the actions by Congress to overturn the DeFi tax reporting rule and advance regulatory frameworks through legislation will provide the industry with greater confidence that there will be clearer rules of the road – eventually. The effort to overturn the tax reporting rule is a particularly welcome development as the rule was likely to treat many DeFi protocols, and potentially some individuals, as dealers and require them to collect and report user and transaction level data. structured regulatory framework for stablecoin issuers with clear standards for reserve requirements, licensing and interoperability would clear the way for both traditional financial institutions and nonbanks to advance new stablecoin products and services. Although it will take time to negotiate the final details of both Senate and House versions of a bill, the momentum in both chambers favors significant progress on stablecoin legislation this year.

• What happened? On February 25th, the SEC extended the compliance dates for expanded central clearing of U.S. Treasuries by one year to December 31st, 2026 for cash transactions and June 30th, 2027 for repo market transactions.
• What else changed? The Treasury clearing rule requires covered clearing agencies (CCAs) to have policies and procedures to calculate, collect and segregate margin from direct participants by March 31st, 2025. However, alongside the compliance date extension, the SEC provided temporary exemptive relief to allow CCAs to delay the enforcement of these policies and procedures until September 30th, 2025.
• What’s next? While the SEC extended the enforcement deadline for CCAs, it did not change the March 31st, 2025 deadline for CCAs to implement required changes to access models and risk management capabilities for separation of house and customer activity and the segregation of margin. The Fixed Income Clearing Corporation (FICC), currently the only U.S. Treasury CCA, confirmed that it will be able to implement new access models as well as separation and segregation procedures for market participants that are prepared to comply by March 24th, 2025. It also directed netting members that will not be ready to comply with house and customer activity separation to contact their FICC relationship manager.

Our Take

Delay provides more time to get it right. As requested by industry groups, the SEC is allowing more time for careful implementation to avoid adding risk to the world's most liquid and important market. This extra time does not mean that FICC and its direct participants can dial back their implementation efforts. The requirements will go into effect along with higher expectations for readiness. Accordingly, with the extra time, firms should take the following actions:

• Complete analysis and execution planning on operational impacts, such as those from new margin requirements on fails and reconciliations;
• Evaluate the potential and impact of the addition of other Treasury CCAs with more time for exchanges like ICE and CME to gain approval;
• Finalize access models and strategy, including how to book and designate direct and indirect activity;
• Review accounting opinions regarding how to treat sponsored and agented activities and gather internal consensus;
• Continue engagement in industry working groups and roundtables to address challenges with clearing client transactions that are not conducted with a sponsoring bank or dealer (known as “done away” trading) and seek market consensus solutions;
• Establish agreements and onboard clients; and
• Perform comprehensive tests of new systems and processes.

For more on expanded central Treasury clearing see:

• U.S. Treasury clearing: The countdown continues
• FICC proposes access rule amendments
• FICC proposes margin amendments
• Expanded central Treasury clearing: The countdown begins

• What happened? On February 21st, President Trump issued a memorandum (memo) instructing federal agencies to implement policies encouraging an open investment environment while also safeguarding the economy from foreign adversaries such as China (including Hong Kong and Macau), Cuba, Iran, North Korea, Russia, and Venezuela.
• What are the key elements of the memo? The memo highlights the administration’s economic security concerns over foreign investments in U.S. critical technology, infrastructure, personal data, and other sensitive areas. It calls for several changes to the U.S. inbound and outbound investment review framework:
  • Restrictions on adversary investment. The memo says the U.S. will use “all necessary legal instruments, including the Committee on Foreign Investment in the United States (CFIUS)” to restrict persons affiliated with China from investing in U.S. sectors including technology critical infrastructure, healthcare, agriculture, energy, and raw materials. It also states that the Trump Administration will conduct an ongoing review of sectors subject to U.S outbound investment restrictions and may consider new or expanded restrictions on semiconductors, artificial intelligence, quantum, biotechnology, hypersonics, aerospace, advanced manufacturing, directed energy, and other areas. The memo also expands CFIUS jurisdiction to include greenfield investments (i.e. investments by a foreign country by constructing new facilities from the ground up), which were previously considered to be exempt from CFIUS review.
  • Streamlined investment for allies. The memo calls for agencies to ease restrictions on foreign investors who can demonstrate “verifiable” distance from “predatory investment and technology-acquisition” practices of foreign adversaries. It also says the Administration will create a “fast-track” process to facilitate investment from allied countries in U.S. advanced technology sectors including requirements that investors in these countries avoid partnering with U.S. foreign adversaries. It also directs them to replace “mitigation” agreements with concrete actions that companies can complete within a specific period and to expedite environmental reviews for investments greater than $1 billion.
• What’s next? The directives contained in the memo will need to be operationalized by the relevant agencies, including the Treasury and Commerce Departments, potentially with the promulgation of new regulations and guidance.

Our Take

A notable shift in U.S. investment policy with open questions on implementation. Although the Biden Administration also took steps to limit “countries of concern” from benefiting from U.S. outbound investments in sensitive technologies, this memo signals a significantly more expansive approach by the Trump Administration to restrict investments from adversary countries while welcoming those from allied countries. Firms outside of the listed adversary countries considering investment in the U.S. sectors highlighted in the memo should note its secondary sanctions-like construct limiting their connections to entities in adversary countries. The specific nature of such restrictions will need to be clarified by the implementing agencies but firms should consider pre-emptively assessing their strategies with respect to U.S. investment and exposure to entities in the listed adversary functions. They should also prepare to ramp up their due diligence programs, capabilities, technology, and resources to cover further restrictions on certain transactions, sectors and countries.

These notable developments hit our radar recently:

Judge strikes down orders on agency reductions in force as OPM and OMB issue new guidance. On February 26th, Judge Alsup of the U.S. District Court for the Eastern District of California, ordered the Office of Personnel Management (OPM) to rescind the directives which told federal agencies to fire their probationary employees and other recent hires. Judge Alsup stated that “OPM does not have any authority whatsoever under any statute in the history of the universe to hire and fire employees at another agency.” The judge noted that he would follow up shortly with more details on this initial decision with the next hearing in this case scheduled for March 13th. While the full impact of this decision is not immediately clear, some agencies will be required to put a stop to the mass terminations that have been underway across the government. Also on February 26th, the OMB and OPM issued another memo to the heads of executive departments and agencies providing guidance for them to develop agency reduction in force and reorganization plans with Phase 1 due on March 13th and Phase 2 due by April 14th.

Barr speaks on responsible innovation before stepping down as VCS. On February 27th, Fed Vice Chair for Supervision (VCS) Michael Barr spoke on the Fed’s Novel Activities Supervision Program which launched in summer 2023. He noted that two dozen firms were initially identified for supervision by the program but that it continually adjusts its scope of firms, technologies and tactics. On February 28th, he stepped down as VCS.

Nomination hearing for FHFA lead. On February 27th, the nominee to lead the Federal Housing Finance Agency (FHFA), Bill Pulte testified in front of the Senate banking committee in the same hearing as McKernan. In his testimony, Pulte stated that the conservatorships of Fannie Mae and Freddie Mac “should not be indefinite, any exit from conservatorship must be carefully planned to ensure the safety and soundness of the housing market without upward pressures on mortgage rates.”

More Treasury appointments announced. On February 27th, Treasury Secretary Scott Bessent announced additional new appointments for the department. JR Gibbens will serve as Senior Advisor to the Secretary and advise the Secretary on policy and plans related to strategic investments and a U.S. sovereign wealth fund; Derek Theurer will serve as Counselor to the Secretary and advise the Secretary on domestic and international tax policy; Tyler Williams will serve as Counselor to the Secretary and advise the Secretary on digital assets and blockchain technology policy; and Gene Lange will serve as Counselor to the Secretary.