Friday Focus: Is Banking Innovation and Interagency Coordination on the way?
Wrapping up our coverage of the Lummis-Gillibrand Responsible Financial Innovation Act, here is a review of Titles VII and VIII, Responsible Banking and Responsible Interagency Innovation.
- The bill seeks to insure a level playing field between existing financial institutions and newer, digital native upstarts by requiring the Federal Reserve to study how distributed ledger technology might reduce operational risk and settlement times in depository institutions, and make available payment, clearing and settlement services to any state chartered depository institution
- Requires Federal banking institutions to decide on new applications within one year
- Codfies common principles relating to custody for depository institutions
- Prevents use of reputation risk in the examination ratings of depository institutions
- Makes it easier for financial companies operating within a state authorized “sandbox” to cross state lines.
- Requires the Treasury Department to study certain topics in decentralized finance
- Directs the CFTC and SEC to study self regulation in the digital asset markets, develop comprehensive, principles based guidance related to cybersecurity
Establishes an Advisory Committee on Financial Innovation to study and report to regulators on the evolving digital asset market to assure regulations keep up with market innovation.
Why this matters:
These two sections of the bill encourage competition between traditional and digital financial institutions, and nudge the various government regulatory bodies to move away from a reactive patchwork of overlapping and unclear regulations toward a proactive, coordinated approach that provides clarity to the burgeoning digital asset industry. If successful, the Lummis-Gillibrand bill could be the most influential and important pending digital legislation in the world. We will continue to stay on top of all of the latest developments.
Please feel welcome to contact either Richard Barnett or Hugh Meyer with questions.