Focus on Non-Bank Financial Firms, P2P Platforms, and Crypto Exchanges
Banks and non-banks should anticipate heightened regulatory attention
December 2022
KPMG Insight. Regulators are increasingly focused on the risks associated with non-bank, fintech, and exchange providers – both as independent entities and as interconnected parties to the broader banking and capital markets. Spurred on by technological advancements, financial innovation, and regulatory arbitrage, the nonbank sector has experienced significant growth, both in terms of the number of participants and the volume of activities they provide, raising concerns regarding consumer/investor protections and financial stability. Regulators are actively using their existing authorities to address these concerns by “modernizing” current regulations, expanding reporting and disclosure requirements, and in certain cases seeking new authorities through Congressional action. Regulatory attention on the role of non-banks will not abate; banks’ relationships with non-banks entities (through third-party and affiliate relationships) and non-banks directly should anticipate heightened attention from regulators and the public, as well as increasing levels of oversight and enforcement.
Recent legislative and regulatory developments in these key areas highlight the increasing focus on non-bank financial services firms:
- Oversight, Regulation, and Enforcement
- Peer-to-Peer (P2P) Platforms
- Crypto Assets and Exchanges
Oversight, Regulation, and Enforcement
Regulators have demonstrated a growing interest in expanding oversight and pursuing enforcement of non-bank financial firms (including hedge funds, asset managers, insurance companies, mortgage companies, and cryptocurrency exchanges). This expansion of the regulatory perimeter is prompted in large part by the significant growth in the non-bank sector and the volume of traditional banking activities they offer as non-federally-regulated entities, raising both financial stability and consumer/investor protection concerns.
Examples of regulatory efforts to increase oversight of non-banks include:
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Separately, it is notable that industry participants have petitioned the CFPB to adopt a larger participant rule for fintech (non-bank) consumer lenders.
Examples of increased regulatory enforcement and other activities focused on non-banks are highlighted in the following tables.
Recent Enforcement Themes | ||
SEC | FTC | CFPB |
The SEC has been reviewing which crypto assets are determined to be securities under the Howey test along with the platforms that offer these products and related services, and pursuing enforcements for non-compliance or misconduct under federal securities laws. Example allegations include:
| The FTC has taken up numerous enforcement actions against non-bank firms in pursuit of various priorities. Examples include:
| CFPB has also pursued non-banks’ violations and non-compliance around consumer protections. Examples include:
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Example Actions, Reports, and Statements | |||
Treasury | CFTC | CFPB | |
The Treasury published a report examining the impacts, opportunities, and risks of new, non-bank firms on competition in the consumer finance market, and recommends:
| CFTC Commissioner Goldsmith Romero gave a speech addressing multiple areas of emerging global threats posed by fintech firms that are priorities for regulators, in areas such as:
| The CFPB issued orders to:
| The CFPB published a Complaint Bulletin outlining an analysis of consumer complaints related to crypto-assets and platforms. The findings highlight:
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Peer-to-Peer Platforms
Recently, a significant amount of attention from both legislators and regulators has focused on payments platforms, consumer protections, and associated risks, such as frauds and scams. In particular:
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Congressional hearings have focused on P2P payments networks, including a payments network owned by several very large banks.
- A report issued by Senator Elizabeth Warren’s office focused on the bank-owned network found that fraud, theft, and scams are “rampant” and increasing, and that banks, in most cases, do not repay customers that were fraudulently induced into authorizing/making payments.
- The seven banks that own the P2P platform reportedly are considering an internal rule change that would shift some liability to member banks in certain instances of fraud on the P2P platform and could require a member bank to reimburse consumers.
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Crypto Assets and Exchanges
While crypto assets and platforms were already a topic of legislative and regulatory focus and discussion, recent volatility in the market, including the collapse of a cryptocurrency exchange and associated market instabilities, have added to the number and urgency of calls to address the risks and regulatory gaps around them. Among these are:
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