How the Southern District of New York Has Changed Our Understanding of How Regulation E Applies to Digital Assets
Two years ago, if you had asked most consumer compliance experts whether products and services involving digital currencies fall within the scope of the Electronic Funds Transfer Act (EFTA or Regulation E), they would have shrugged their shoulders and said to get an opinion from legal counsel (spoiler alert: that is what most of us will still say today). The general consensus then was that it was too soon to tell and that we all just needed to patiently wait while the federal regulators figured out the EFTA-digital-asset-regulatory-conundrum. Once they did, then they would tell us what to do. In the meantime, we would advise entities in the digital asset space to obtain a sound legal opinion and to proceed with caution.
But in the past two years, we have seen the Securities and Exchange Commission (SEC) bring enforcement action after enforcement action against digital asset firms for failing to register as broker-dealers of securities, while the Consumer Financial Protection Bureau (CFPB), Federal Depository Insurance Corporation (FDIC), Office of the Comptroller of Currency (OCC), and Federal Reserve Board (FRB) have remained relatively silent on digital currencies. In November 2022, the CFPB published a bulletin analyzing the rise in crypto-asset complaints. The bulletin identified trends in consumer complaint activity, at-risk populations, and the ongoing risks that digital asset products and services present to consumers. However, the CFPB took no further position on whether digital assets might be subject to the notice of error requirements of Regulation E or any of its other provisions. Similarly, in January 2023, the FDIC, FRB, and OCC issued joint guidance that outlined key risks that crypto-assets and crypto-asset sector participants present to banking institutions, and that engaging in such activities or with such entities may not align with minimal standards of banking safety and soundness. However, the joint guidance provided no stance on the applicability of consumer banking regulations like Regulation E to digital currencies.
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© Copyright 2023. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.
