US Regulators Seek New Guidance for Nonbanking Regulatory Oversight

Jimmy Aki
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Following last month’s banking crisis, U.S. regulators are looking to further tighten the reins, especially on nonbanking institutions. According to officials, the guidance for nonbanking institutions needs to be revised to give the Federal Reserve more leeway.

Work Is Not Yet Done

The top regulators in the United States were taken aback after crypto and tech-friendly domestic banks, including Silvergate Bank, Signature Bank, and Silicon Valley Bank, shuttered their base of operations.

To forestall a recurrence of this event, U.S. Treasury Secretary Janet Yellen has boldly stated that their work is not yet finished, even though the world’s largest economy has returned to normalcy.

Janet Yellen’s remarks were recorded during the Financial Stability Oversight Council (FSOC) meeting on April 21.

In the press release, Yellen stated that the FSOC meeting aimed to vote on two key proposals.

One bordered on the proposed framework for the financial stability of the U.S. economy, while the second sought new guidance on nonbank financial institution designations.

According to the Treasury Secretary, the need for clear supervision of nonbanking financial institutions was apparent, given their ability to directly cause contagion in the U.S. economy.

As a result, the FSOC meeting would focus on creating new guidance for the Federal Reserve to supervise these financial disruptors.

Yellen proposed reviewing the country’s 2019 existing guidance, claiming that it created unnecessary barriers to the proper designation of non-government acting bodies.

One such hurdle is the six-year wait time required to satisfy the designation process fully.

During the designation process, the proposed review would establish a direct communication channel between the Feds and nonbank agencies.

The term “nonbank” is largely used to refer to companies and businesses such as crypto companies, hedge funds, and venture capital firms. These entities provide financial services without holding a license to do so.

Given the lack of clear supervision and oversight by regulatory agencies, the Federal Deposit Insurance Corporation (FDIC) does not insure these companies. This could lead to a possible economic crisis if they suffer economic distress.

To further protect the general public, Yellen says new guidance with clear supervision would suffice. This would significantly improve the chances of the US economy remaining robust and stable even as times change.

North America Is Crypto Harsh and Europe Is Leaving It Behind

The U.S. economy is the largest in the world, which is why many businesses aim to establish a presence there.

The crypto industry has followed the same trend, with many companies opening operational headquarters in the North American nation.

However, the need for clarity on its crypto stance has driven several businesses abroad. A recent example is New York-based Gemini Exchange, which has announced an upcoming launch of a crypto derivatives platform that exclusively restricts U.S. customers from accessing it.

The Winklevoss-owned Bitcoin exchange has also opened an engineering and tech hub in India to expand its international presence.

Coinbase has also followed suit, given its recent troubles with the U.S. Securities and Exchange Commission (SEC).

According to a recent announcement, Coinbase has secured a regulatory license from the Bermuda Monetary Authority to offer digital assets service in the country. This includes the digital transfer of funds.

Despite this growing mass exodus, U.S. regulators have maintained that crypto businesses are up to no good. However, its counterparts in Europe and other regions have been more welcoming.

According to a recently published announcement, the European bloc has finally launched the hugely-anticipated Markets in Crypto Assets (MiCA) law.

The decision was ratified by 517 votes in favor, 38 votes against, and 18 abstentions, and the European Commission’s Mairead McGuinness termed it a “world first” for the emerging crypto landscape.

Industry bigwigs like Binance CEO Changpeng Zhao have publicly applauded the new act stating that it provides clear roadmaps through which crypto-native businesses can tow.

However, this has led to many pointing out that the U.S. may end up playing catchup due to its often slow regulatory machine.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.