Our Take: financial services regulatory update

Change remains a constant in financial services regulation

Read "our take" on the latest developments and what they mean.

Digital assets: Reforms flood in as White House outlines agenda

What happened? The past two weeks have seen several significant developments regarding digital assets:

On July 29^th, the SEC voted to permit in-kind creations and redemptions for crypto exchange-traded product (ETP) shares. Prior to the vote, crypto ETPs were restricted to cash-only redemptions.
On July 30^th, the White House released its long-awaited digital assets report containing a broad set of recommendations for a digital assets regulatory framework and tax policy, including those around market structure, combatting illicit finance, supporting responsible innovation and encouraging interagency coordination.
On July 31^st, SEC Chair Paul Atkins announced the launch of “Project Crypto,” the SEC’s initiative to implement the digital asset report’s recommendations. The announcement previewed upcoming actions on custody, disclosures and interagency coordination while emphasizing a move away from “regulation-by-enforcement.”
On August 4^th, the CFTC announced that it will launch an initiative for trading spot crypto asset contracts that are listed on a CFTC-registered futures exchange. The announcement explains that this initiative follows a recommendation from the digital assets report.
On August 5^th, the SEC released guidance on liquid staking activities, referring to an arrangement where crypto asset owners deposit their assets with a staking service and receive “receipt tokens” that evidence their ownership of the deposited asset and any rewards that may accrue. The guidance explains that liquid staking activities that meet certain conditions fall outside of federal securities laws and are not subject to registration with the agency.
On August 7^th, the White House issued an executive order directing the SEC and Department of Labor to take steps to allow alternative assets as retirement investment options.

What does the digital assets report contain? The report provides a broad set of recommendations grouped under the following categories:

Market structure. Consistent with the CLARITY Act currently before Congress, the report recommends that:
- The CFTC regulate digital asset commodities and spot markets in non-security digital assets
- The SEC have authority over securities tokens (including digital assets that are “investment contracts”)
- The SEC and CFTC coordinate to provide regulatory clarity around areas such as asset classification, registration and custody requirements as well as streamline registrants engaged in multiple business lines

Other recommendations include regulatory sandboxes and exemptions to support responsible innovation and for Congress to pass legislation clearly defining SEC and CFTC authority and clarifying that federal securities and commodities laws preempt state laws applicable to digital assets.

Banking and digital assets. The report calls on the banking regulators to provide clarity on permissible digital asset activities and associated expectations on safe and sound conduct, provide transparency regarding the process for obtaining bank charters and Fed master accounts, and review and clarify how digital assets will impact capital and liquidity requirements. It also recommends finalizing the removal of reputational risk from agency expectations.
Stablecoins and payments. Noting the recent passage of the GENIUS Act, the report recommends that all applicable agencies implement the Act as soon as possible.
Countering illicit finance. The report calls upon FinCEN to consider releasing additional guidance for different digital asset market segments and advance its proposal around the use of mixers to obfuscate user identity, and it calls upon Treasury to release requests for information around innovative methods to detect illicit activity. It also calls upon Congress to clarify the Bank Security Act’s application to foreign-located actors and specify actors within the digital assets ecosystem that should have AML obligations.

What did SEC Chair Atkins say? Atkins provided an overview of “Project Crypto,” the SEC’s digital assets agenda. Project Crypto is largely consistent with the digital assets report and contains the following themes:

Clear rules of the road. Atkins pledged to “swiftly” establish a regulatory framework to clarify which assets are securities and are thereby subject to SEC oversight. He noted that being deemed a security should not be a “scarlet letter” and that he is working to develop tailored requirements as well as exemptions and safe harbors for certain activities including initial coin offerings.
Modernizing custody rules. Noting that existing custody rules were created before the existence of digital assets, Atkins explained that he is working on adapting the current regime to facilitate digital asset custody, potentially including new rulemaking and exemptive relief.
Removing innovation roadblocks. Atkins stated that he is working to develop a framework to allow non-security crypto assets, crypto asset securities and traditional securities to be traded side-by-side on SEC-regulated platforms, and he explained that he will pursue a way for certain state-licensed platforms to list crypto assets. He also noted that he is looking into updating rules to better allow for on-chain software systems such as automated DeFi market makers. More broadly, he is examining ways to cut red tape to allow innovative firms to go to market with products and services that do not neatly fit SEC requirements.

What’s next? While some of the digital asset report recommendations have already been implemented, the rest will need to be considered by regulatory agencies and Congress in the coming months before we see proposals and draft legislation. The SEC and DOL will need to assess which changes are necessary to applicable regulations and guidance before putting out proposed rulemakings and revised guidance regarding alternative investments in retirement accounts.

Our Take

All systems go for crypto

While the White House report did not contain any surprises, it set forth a comprehensive agenda that largely aligns with industry wishlists – and the prompt action from the SEC and CFTC that followed shows that the Administration is united in its efforts to quickly advance its crypto priorities. As such, we expect to see many of the agency-led recommendations, including coordinating regulatory jurisdiction, providing clarity through guidance, and developing rules around areas such as custody and disclosures, in the near future. Recommendations involving Congress such as passing market structure legislation, applying Bank Security Act requirements to various crypto market participants, and establishing federal preemption authority may take more time or face challenges depending on Congressional priorities. Further, certain recommendations such as those around federal preemption and supervision of DeFi may face legal challenges that could take time to wind their way through courts.

A notable exclusion from the report is the proposed “strategic Bitcoin reserve,” demonstrating that the Administration may be taking into account additional risks that a reserve may present and re-focusing on areas that it views as the most critical: providing regulatory clarity, supporting innovation through sandboxes and exemptive relief, and countering illicit finance.

What’s the bottom line? The White House report and swift agency follow-through reflect their commitment to bring digital assets into the mainstream. Firms should assess their operational, legal, compliance, and tax readiness for a future where digital assets are embedded across trading, payments, investment, and settlement ecosystems.

Clarity and green lights bring crypto closer to mainstream

The actions from the Administration to provide clarity and remove roadblocks for various crypto use cases will further mainstream adoption of digital assets, and firms should consider their operational, risk, tax and compliance readiness. Considerations include:

Investment advisors and retirement funds should consider thee business case and their risk appetite for offering digital asset products, including reviewing whether they have the expertise to understand these product offerings and ensure that their advice is suitable for customers. When evaluating their risk appetite, they should consider recent litigation around alternative investments and potential reputational damage from riskier investments.
Trading platforms should be prepared to disclose to customers how in-kind redemption may differ from cash and how it may impact fund performance, NAV tracking and market pricing. They should also consider how in-kind trading could present unique liquidity risks during market stress. Trading platforms should further consider the implications of the use of in-kind redemptions to authorized participants for vehicles treated as regulated investment companies in avoiding the recognition of embedded capital gains and for certain other vehicles, such a partnerships and grantor trusts, in deferring recognition of taxable income through in-kind redemptions to holders.
Even organizations with no current plans to engage with digital assets will likely be impacted as usage becomes more prevalent. All firms should assess their exposure to digital assets through vendors, customers, payment rails and tokenized financial products as digital assets are poised to impact treasury operations, liquidity, taxation and settlement infrastructure across the broader financial system.

Trump signs debanking EO

What happened? On August 7^th, President Trump signed an Executive Order (EO) aimed at eliminating “politicized or unlawful debanking,” which it defines as denying, restricting, or modifying access to financial services based on a customer’s political or religious beliefs or lawful business activities that are disfavored for political reasons.

Who is affected? The EO applies to “all federal banking regulators,” defined as the members of the Financial Stability Oversight Council (FSOC) with supervisory authority over banks, credit unions, or savings associations (i.e., the Fed, FDIC, OCC, CFPB, and NCUA) as well as the Small Business Administration (SBA).

What actions does the EO direct?

Agency	Directed action
All federal banking regulators	Remove all references to “reputation risk” or equivalent terms from supervisory guidance, examination manuals, and related materials, unless required by regulation Identify financial institutions that have had past or current, formal or informal, policies encouraging or requiring politicized or unlawful debanking and take remedial actions (e.g., fines, consent decrees, disciplinary measures) Review complaint and supervisory data to identify instances of debanking based on religion and refer violations of the Equal Credit Opportunity Act to the DOJ
Small Business Administration (SBA)	Notify all SBA-supervised lenders that they must evaluate whether they previously denied service due to politicized or unlawful debanking Require supervised lenders to identify and offer reinstatement to clients or potential clients who were previously denied access to services due to politicized or unlawful debanking
Treasury Department	Develop a comprehensive federal strategy to address politicized and unlawful debanking, including recommendations for additional legislation, interagency coordination, and regulatory safeguards to prevent recurrence

What’s next? Key deadlines in the EO include:

October 6th, 2025: SBA notification to lenders
December 5th, 2025: SBA-supervised lender reviews and outreach
February 3rd, 2026: Banking agency and Treasury actions

Shortly after the EO was signed, new OCC Comptroller Jonathan Gould issued a statement stating that the OCC would soon propose a rule to remove references to reputational risk from its regulations and will “commence a review to assess the extent to which the institutions it supervises have or are engaged in politicized or unlawful debanking and take remedial actions if appropriate.” Acting FDIC Chairman Travis Hill issued a similar statement announcing future rulemaking and review of FDIC-supervised institutions.

Our Take

From preventing future debanking to retrospective scrutiny

The EO fortifies anti-debanking efforts already in motion across the regulatory agencies and Congress, turning what had been a directional shift into an enforceable mandate. By requiring agencies to identify prior instances of politicized or unlawful debanking and take corrective action, it transforms a policy stance into a compliance obligation – and one that could potentially penalize firms for following the previous Administration’s expectations around reputation risk. In the wake of heightened attention on debanking this year, banks have likely already reviewed their client onboarding and account closure practices to ensure that they are thoroughly documented and based on objective, individualized risk criteria like AML, legal, operational risk or weak business purpose.

However, they will now also have to determine, and be ready to explain, whether past client decisions should be reconsidered based on this changed direction. Firms should review any customer denied service or exited on reputational grounds (and any complaints alleging such improper denial or closure) over the last few years to understand why the decisions were made and whether such decisions might be considered politicized or unlawful. Going forward, banks may no longer be supervised for reputation risk, but they must still make – and be prepared to defend – hard choices about which clients align with sound risk management practices, their strategy and their corporate values.

What’s the bottom line?

The EO escalates debanking prevention into a backward-looking compliance obligation. Firms should reassess past account closures or service denials made on reputational grounds, recognizing that while reputational considerations may still factor into client decisions, they must be grounded in clear, risk-based justifications – now more than ever.

On our radar

These notable developments hit our radar recently:

Fed Governor Kugler resigns; Trump nominates replacement. On August 2nd, the Federal Reserve Board announced that Adriana Kugler will resign from the Fed on August 8th. On August 7^th, President Trump announced that he will nominate Stephen Miran, currently the Chairman of the Council of Economic Advisors, to fill the remainder of Kugler’s term until January 31^st, 2026.

Fed debit card fee rule overturned. On August 6th, a U.S. District Court judge in North Dakota vacated the Federal Reserve’s 2011 rule governing debit card interchange fees, ruling it exceeded statutory limits under the Durbin Amendment of the Dodd-Frank Act. The court found that the Fed improperly allowed banks to recover costs such as fraud prevention, but stayed the ruling pending appeal to avoid disrupting the market. The Fed may still move forward with its pending 2023 proposal to reduce swipe fees by nearly 30%, while banks and retailers continue their long-standing dispute over what constitutes “reasonable and proportional” fee recovery.

Federal regulators allow banks to use third-party sources for customer identification. On July 31st, the Fed, in coordination with the FDIC, OCC, NCUA, and FinCEN, announced that banks and credit unions may use an alternative method to collect certain information under their Customer Identification Program (CIP) obligations. Specifically, institutions are permitted to obtain a customer’s tax identification number (TIN) from a third party rather than directly from the customer.

Fed and FDIC release resolution plan public sections. On August 6th, the Federal Reserve and FDIC published the public sections of resolution plans submitted by eight U.S. G-SIBs, 56 foreign banks, and 12 large insured depository institutions.

SEC issues FAQs on US Treasury clearing rules. On August 6th, the SEC’s Division of Trading and Markets published FAQs to assist broker-dealers in implementing recent amendments to the customer protection rule related to central clearing of US Treasury securities. The FAQs aim to provide clarity ahead of key compliance deadlines – December 31st, 2026 for cash transactions and June 30th, 2027 for repo transactions.

CFPB requested stay of open banking lawsuit to amend rule. On July 29th, the CFPB obtained a court-approved stay of its open banking rule to implement Section 1033 of the Dodd-Frank Act, finalized in October 2024. In its motion for a stay, the Bureau announced plans to revise the rule in light of stakeholder concerns and release an advance notice of proposed rulemaking within three weeks.

CFPB seeks information in definition of larger money transfer participants. On August 8th, the CFPB requested feedback on raising the threshold for defining “larger participants” in the international money transfer market. The Bureau is evaluating whether raisin the current 1m transfer threshold (e.g., to 10m or 30m transfers) would better focus supervisory resources on firms with the largest market impact while reducing compliance burdens for smaller providers

Senate Republicans urge reforms to bank supervisory MRA process. On August 6th, Senator Katie Britt, along with 10 colleagues including Senate Banking Committee Chair Tim Scott, sent a letter to the Fed, OCC, FDIC, and Treasury calling for reforms to the Matters Requiring Attention (MRA) supervisory framework, citing the lack of legal grounding, consistency, and transparency.