Our Take: financial services regulatory update – April 25, 2025

• What happened? On April 17^th, the CFTC issued an advisory on referrals to its Division of Enforcement (DOE). Then on April 21^st, the CFTC issued two requests for comment (RFCs) on potential market shifts: 24/7 trading and perpetual contracts in derivatives markets.
• How is the CFTC’s enforcement policy changing? The advisory outlines how the CFTC’s operating divisions (Market Participants, Clearing and Risk, and Market Oversight) will determine whether to refer compliance or supervisory issues to the DOE. It states that only material violations - such as those involving client harm, market integrity concerns, or significant financial losses - will typically be referred to the DOE. Other material issues could include systemic deficiencies in risk or compliance controls, knowing or willful misconduct by senior management, or prolonged failure to remediate known issues over multiple years. In a shift from past practice, the advisory allows registrants to self-report issues to their primary oversight division and still receive credit for cooperation.
• What is 24/7 trading? 24/7 trading would extend market activity to a continuous basis rather than stopping on nights and weekends. The RFC asks about the risks and operational implications of 24/7 trading and clearing, specifically how exchanges, clearinghouses, and futures commission merchants would manage risk, surveillance, and staffing in a continuous environment. The CFTC also asks whether changes to customer protection rules, risk disclosures, or technology standards may be needed to support safe implementation.
• What are perpetual contracts? Perpetual contracts have no fixed expiration and track spot market prices continuously. Non-US crypto exchanges launched crypto perpetuals in the mid 2010’s and drove significant adoption of the product across the industry. The RFC asks for public feedback on potential risks, regulatory classification, use cases, manipulation concerns, and whether existing disclosures are sufficient. The CFTC is particularly interested in understanding how these products differ from traditional futures, and how they should be supervised if listed on U.S. markets.
• What’s next? Comments on the RFCs are due by May 21^st.

Our Take

Evolution in enforcement and innovation. The CFTC’s recent releases reflect a meaningful recalibration of its regulatory posture toward more targeted enforcement and greater openness to innovation. Changes to enforcement focus were expected after the election, and firms should consider this new policy statement when identifying what they choose to self-disclose. Given the policy statement, self-disclosure practices may well trend towards focusing on violations that implicate market integrity rather than solely technical or operational lapses. Importantly, this is not a free pass: the CFTC still expects timely and meaningful corrective action, and the new framework is expected to influence how the agency approaches penalties in ongoing enforcement matters.

Meanwhile, the two RFCs representing initial steps to formulate CFTC policy, signal openness to market evolution, following market trends driven by “always on” crypto trading. If they have not done so already, firms should take the RFCs as an opportunity to carefully consider the implications of these shifts, both from the perspective of their competitive landscape as well as from the feasibility of implementing covered operations and products.

What’s the bottom line? Firms should evaluate their self-disclosure practices, maintain robust controls to prevent market abuse, and evaluate the strategic impact of proposed market and product changes.

• What happened? On April 24^th, the Fed withdrew 2022 and 2023 guidance on advance notification requirements for crypto-asset and dollar token activities. It also joined the FDIC and OCC in withdrawing past joint statements on crypto-asset risks and liquidity risks from crypto market vulnerabilities.
• What guidance has been withdrawn?
  • Engagement in Crypto-Asset-Related Activities by Federal Reserve-Supervised Banking Organizations. This bulletin formalized the need for Fed-supervised banks to notify supervisors and demonstrate that they had controls to manage digital asset risks.
  • Supervisory Nonobjection Process for Dollar Tokens. This guidance required state member banks to seek supervisory nonobjection before issuing or transacting in stablecoins used for payments. Banks had to demonstrate robust risk management covering operational, cybersecurity, AML, and liquidity risk.
  • Joint Statement on Crypto-Asset Risks to Banking Organizations. This statement highlighted regulators’ concern over heightened risks from crypto activities, including fraud, legal uncertainty around custody, price volatility, and risk management weaknesses. The statement also cautioned banks about reputational and consumer harm and underscored the importance of sound risk governance if engaging in digital asset activities.
  • Joint Statement on Liquidity Risks to Banking Organizations Resulting from Crypto-Asset Market Vulnerabilities. This statement outlined how crypto-related deposits, especially from stablecoin issuers and exchanges, could be subject to rapid outflows and that deposit stability depends not only on digital asset firms but on the behavior of their customers.
• What’s next? The banking agencies are jointly “exploring issuing additional clarity with respect to banking organizations’ crypto-asset and related activities in the coming weeks and months.”

Our Take

The final domino falls for bank crypto permissiveness. With the Fed now formally joining the OCC and FDIC in rescinding past guidance, banks of all sizes can more confidently proceed with plans to provide custody services, lend against crypto assets, and extend traditional banking services to crypto businesses (see our previous Our Take for more information). However, the recission of the joint statements does not mean that the risks they outline have gone away. Banks providing new services should remain aware of the potential impact of market volatility, run risk, and concentration risk on their liquidity programs; fraud risk; cybersecurity risk; and risks associated with the interconnectedness of digital asset market participants. This new permissive posture towards crypto activities extends a certain amount of trust in banks to exercise due caution and it is important to remember that trust can be lost if engaging in these activities harms consumers or threatens bank safety and soundness. The regulators will still expect robust controls related to cybersecurity, liquidity, third-party risk, and consumer disclosures. Institutions should focus on operational readiness, risk governance, and data transparency as they assess opportunities in custody, payments, and banking services for crypto-native firms.

What’s the bottom line? The door for offering crypto services is wide open but banks should still exercise prudent risk management and customer acceptance reviews.

These notable developments hit our radar recently:

SEC chair sworn in. On April 21^st, Paul Atkins was sworn in as chairman of the SEC. Chairman Atkins was originally appointed by President George W. Bush to serve as a Commissioner of the SEC from 2002 to 2008. During his tenure, he advocated transparency, consistency, and the use of cost-benefit analysis at the agency.

Judges halt enforcement of FinCEN’s southern boarder GTO. On April 21^st, a California District Judge became the second federal judge to issue a temporary restraining order (TRO) halting the enforcement of a Geographic Targeting Order (GTO) issued in March by the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN). The GTO, if enforced, would require money services businesses (MSBs) located in certain areas along the southwest border to file currency transaction reports (CTRs) in connection with cash transactions at a $200 threshold – in contrast to the usual, much higher CTR filing threshold of $10,000. A Federal judge in Texas previously issued and has now extended a TRO for the ten MSBs who filed a similar suit in Texas.

Fed publishes Financial Stability Report. On April 25^th, the Federal Reserve Board published its latest semi-annual Financial Stability Report, which presents the Federal Reserve Board’s current assessment of the stability of the U.S. financial system. The current assessment indicates that while the system remains resilient, there are notable vulnerabilities. Asset valuations are high, and liquidity in financial markets is low, which could amplify market volatility. Additionally, while borrowing by businesses and households is moderate, and the banking sector is sound, there are concerns about leverage in the financial sector and funding risks, particularly in non-traditional liabilities and cash-management vehicles.

Upcoming hearing on regulatory overreach. On April 29^th, the House Financial Services sub-committee on financial institutions will hold a hearing entitled “Regulatory Overreach: The Price Tag on American Prosperity.” The hearing is scheduled to address pending legislation concerning accountability in bank supervision and improving interagency coordination. The objective is to develop a more efficient and tailored regulatory framework that accounts for the size and complexity of financial institutions while preserving financial stability and public trust.

Upcoming hearings in CFPB open banking case. The lawsuit surrounding the CFPB’s finalized open-banking rule has two hearings coming up in May. First, on May 5^th, a hearing has been scheduled regarding the Financial Technology Association’s (FTA) renewed motion to intervene. FTA has requested the court to first clarify if the current stay in place applies to the motion to intervene and require both parties to respond to the motion so it can be resolved before the stay expires at the end of May. Second, a hearing regarding the summary judgement motions filed by both parties will be held on May 30^th.

Bessent scheduled to appear before House Financial Services committee. On May 7^th, Treasury Secretary Scott Bessent will make his first appearance before the House Financial Services committee to testify on the state of the international financial system.