Our Take: financial services regulatory update – January 10, 2025

Change remains a constant in financial services regulation. Read "our take" on the latest developments and what they mean.

Current topics – January 10, 2025

1. Barr to step down as Vice Chair for Supervision
2. CFPB actions: Medical debt, open banking, digital payments and more
3. SEC adopts updates to broker-dealer customer protection rule
4. On our radar

1. Barr to step down as Vice Chair for Supervision

What happened? On January 6th, the Fed announced that Michael Barr will step down as Vice Chair for Supervision on February 28th, 2025 unless a successor is confirmed sooner. This was a reversal from his previous statement in a post-election Congressional hearing that he intended to serve out the remainder of his term, which ends in July 2026.
What did announcement say? Barr said that “the risk of a dispute over the position could be a distraction from our mission” and that he would stay on as a Fed Governor, which he can do until January 2032. The Fed said it does not intend to take up any major rulemakings until a new VCS is confirmed.
What’s next? President-elect Trump will select a new VCS from the existing Fed Board unless one of the current Governors steps down. The next term to expire is that of Adriana Kugler in January 2026.

Our Take

Barr backs down. As indicated in his statement, Barr likely expected that Trump would take the unprecedented action of demoting him and wanted to avoid the ensuing protracted legal battle. His and FDIC Chair Martin Gruenberg’s decisions to step down early will now clear the way for Trump to select all three primary negotiators from the Fed, OCC and FDIC for interagency banking rules such as Basel III endgame – to an extent. With no open seats on the Board, Trump will either select one of the two Governors he appointed in his first term – Michelle Bowman and Christopher Waller – or nominate a current Governor to a position at another agency. Of these options, we believe the most likely is for Trump to select Bowman and immediately name her as Acting VCS. Whereas Waller’s background and statements as a Governor have focused on economics, Bowman previously served as the state bank commissioner of Kansas and has been outspoken on supervision and regulation since her appointment in 2018. For example, Bowman’s most recent speech on January 9th provides a blueprint for the goals she would pursue as VCS - better tailoring requirements to bank size and complexity, increasing transparency, and thoroughly considering the economic consequences of new requirements. Banks will strongly support actions in these directions, but proposed and final rules will need to gain the support of a majority of the Board - which has five members nominated by President Biden, including Barr and Chair Jerome Powell. Even so, a new VCS will have primary influence over new rulemaking and will have the most immediate impact through redirecting supervisory priorities and policies.

2. CFPB actions: Medical debt, open banking, digital payments and more

What happened? This week, the CFPB took several actions:
- Medical debt. On January 7^th, the CFPB finalized a rule that bans consumer credit reporting agencies from including medical debt on credit reports and scores sent to lenders. The rule also ends a carveout in the regulation implementing the Fair Credit Reporting Act, Regulation V, that allowed creditors to use certain medical information in making lending decisions or use medical devices as collateral.
- Open banking standard setter. On January 8^th, the CFPB approved Financial Data Exchange, Inc. (FDX) to develop a standard for the transfer of information under its personal financial data rights, or open banking, rule. The open banking rule was finalized in October 2024 and immediately challenged in court by industry groups. The requirements for recognition by the CFPB as a standard-setting body were established in a separate rule. The CFPB also issued policy statements on no-action letters and compliance assistance sandbox approvals.
- Digital payments. On January 10^th, the CFPB proposed an interpretive rule to clarify consumer protections that apply to new and emerging digital payment mechanisms, including video game purchases and currency, under the Electronic Fund Transfer Act (Reg E). The CFPB asked for comment on the rule as well as broader information on consumers’ experience with video game transactions, currency and purchases. The Bureau also requested information on how companies providing consumer financial products or services collect, use, share, and protect consumers’ personal financial data, such as data harvested from consumer payments. The request asks about the effectiveness of existing privacy regulations, including those related to the Gramm-Leach-Bliley Act and the Fair Credit Reporting Act, as well as ways to strengthen protections.
- Payday lending. On January 10^th, the CFPB announced that its 2017 payday lending rule would go into effect on March 30^th, 2025 after lengthy litigation that ended with an appeals court affirming the rule and rejecting further delays. The rule bans payday lenders from making more than two failed attempts to withdraw money from a borrower’s account.
What’s next? Comments on the CFPB’s interpretive rule on digital payments must be submitted by March 31st, 2025 while information on financial data privacy can be submitted until April 11^th, 2025. The medical debt rule will be effective 60 days after publication in the Federal Register. The recognition of FDX as the standard setter calls for it to adopt a written conflicts of interest policy within 180 days and begin providing written reports to the CFPB in the first quarter of 2026. The first compliance date for the open banking rule is April 1^st, 2026 for banks with over $250b in total assets and non-depository institutions with over $10b in revenue in 2023 or 2024.

Our Take

Chopra tries to beat the buzzer. As the clock runs out on Rohit Chopra’s time as CFPB Director, he is not slowing down on taking actions while he still can. However, the fate of many of these final actions will ultimately be determined by a new Director. While the requirements for a CFPB standard-setting body were established by a separate rule, the open banking rule is at risk of being nullified or changed through a number of mechanisms – it could be overturned by Congress through the Congressional Review Act,¹ it could be struck down in court, or the new Director could decline to defend the rule against challenges. While there is uncertainty about the future of the current version of the open banking rule, there remains a statutory mandate to issue consumer data access requirements and many fintech stakeholders are interested in advancing them. At the very least, the compliance deadlines could be pushed out while the new Director considers their options and the competing arguments of banks and fintechs. Tech companies will also provide feedback on this week’s actions related to digital payments, but it is unlikely that the new CFPB Director will use this effort to formulate new consumer protection requirements.

In contrast, removing medical debt from credit reporting is popular with consumers and would be more challenging for the new Administration to reverse. The payday lending rule has also survived several years of legal challenges and is poised to go into effect without further fanfare.

¹ A simple majority in both chambers of Congress can vote to overturn (and prevent future similar) Biden Administration regulatory actions finalized after August 1st via the Congressional Review Act without the threat of a filibuster.

3. SEC adopts updates to broker-dealer customer protection rule

What happened? On December 20^th, the SEC adopted amendments to Rule 15c3-3, its broker-dealer customer protection rule that stipulates requirements for broker-dealers to safeguard their customers’ securities and funds.
What will be required and what changed from the proposal? The amendments require certain broker-dealers to perform daily, rather than the current weekly, computations of reserve requirements for customer accounts and proprietary accounts of broker-dealers (PAB). Details include:
- Threshold: The amendments apply to broker-dealers with average total customer and PAB credit balances equal to or over $500 million, up from $250 million in the July 2023 proposal. The SEC estimates that this $500 million threshold will apply to 49 of the 191 carrying broker-dealers subject to the customer and PAB reserve requirements of Rule 15c3-3. Firms below the threshold may voluntarily perform a daily computations but must provide written notification to their designated examining authority 60 days prior to reverting to weekly computations.
- Monitoring period: Firms must calculate their average credit balances over 12 months, starting from June 2024 through June 2025. The amendments define average total credits as “the arithmetic mean of the sum of total credits in the customer reserve computation and the PAB reserve computation reported in the carrying broker-dealer’s 12 most recently filed month-end FOCUS Reports.”
- Aggregate debit reduction: Under Rule 15c3-1, a carrying broker-dealer using the alternative method for calculating net capital must reduce aggregate debit items by 3% when performing customer reserve computations. The adopted amendment reduces this charge to 2% for broker-dealers performing daily computations and using the alternative method.
What’s next? The amendments will be effective 60 days after publication in the Federal Register. Firms meeting the $500 million threshold must implement daily reserve computations by December 31st, 2025. Broker dealers exceeding the $500 million threshold in the future must start daily computations within six months of exceeding the threshold.

Our Take

This last-minute rule will probably survive, with some adjustments. Like Chopra, SEC Chair Gary Gensler is counting down his final days at the Commission; and like the open banking rule, these amendments are subject to being overturned by Congress or amended by a new Chair. However, this rule is less controversial, receiving somewhat guarded support from Republican Commissioner Hester Peirce and just one dissent from the other Republican Commissioner Mark Uyeda. Peirce said she looks forward to feedback on issues with “cash in motion” and operational challenges that arise as broker-dealers implement the amendments. Uyeda called for consideration of a number of changes, including a narrower hybrid threshold and omitting daily calculation on days when markets close early or a broker-dealer experiences disruptions outside of its control. It is not yet clear what Chair nominee Paul Atkins thinks of the amendments, but his prior advocacy for reducing compliance burdens suggests that he would favor adjustments that address the issues raised by the current Republican Commissioners. In addition, he may delay the compliance deadlines while he considers these adjustments.

What should broker-dealers do now? As the core requirement to perform daily reserve calculations will likely survive in some form, impacted broker-dealers should prepare for compliance. For some, this will require significant changes to their processes, systems, policies, and workflows. They will also likely need additional staffing and training to ensure teams are equipped to handle the operational and regulatory demands. Increased frequency of computations will put a burden on manual processes, so firms should identify opportunities to automate these processes through systematic data feeds, elimination of manual adjustments (where practicable), more robust calculation tools. Daily reserve requirements may also affect liquidity for firms heavily reliant on overnight financing. For these firms, evaluating cash flow models and diversifying funding sources will be essential to mitigate liquidity risk. As firms evaluate and prepare to implement these changes, they should take Commissioner Peirce up on her request for feedback on operational challenges and suggest reasonable modifications that maintain the amendments’ goal of reducing the risk that investors are delayed in recovering their assets in the event of a broker-dealer failure.

4. On our radar

These notable developments hit our radar recently:

Fed to seek comment on stress tests. On December 23^rd, the Fed announced that due to the evolving legal landscape and changes to the framework of administrative law, it will soon seek public comment on significant changes to improve the transparency of its bank stress tests and to reduce the volatility of resulting capital buffer requirements.

FDIC Vice Chairman speaks on FDIC policy outlook. On January 10^th, FDIC Vice Chair Travis Hill spoke on policy changes he expects to see at the FDIC after current Chair Martin Gruenberg steps down on January 19^th. He was critical of supervisory polices that focus on compliance with risk management processes, stating that the FDIC will need to make adjustments to how it implements the CAMELS rating system, to its examination manuals, and to examiner training. He also foreshadowed more openness to innovation and experimentation with new technology, including reinvigoration of the FDiTech and new guidance on fintech partnerships, digital assets, AI and tokenization. With respect to digital assets, he spoke out against “debanking” of these companies. Hill called for further changes to Basel III endgame to address overlap with stress testing and the fundamental review of the trading book (FRTB) as well as amend the capital treatment of credit risk transfers. He also stated that he expects the FDIC to withdraw from the International Network for Greening the Financial System and refrain from issuing any climate disclosure requirements for U.S. banks under new leadership.

CFTC sets new reporting compliance date for DCOs. On January 10^th, the CFTC’s Division of Clearing and Risk announced a change to the date for registered derivatives clearing organizations (DCOs) to comply with the recently amended daily reporting requirements under Regulation 39.19(c)(1). The new expected compliance date for DCOs is December 10th, 2025. In the announcement, the Division stated that additional time was needed to conform and release an updated version of the Reporting Guidebook.

Treasury issues new sanctions against Russia and Venezuela. On January 10^th, the Treasury Department’s Office of Foreign Assets Control (OFAC) issued additional sanctions against targeting Russia’s energy sector and new sanctions against leaders of key Venezuelan economic and security agencies. The new sanctions against Russia target its key revenue sources from energy, including blocking oil traders, and oil producers.

Download Our Take: PwC financial services update – January 10, 2025

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Change remains a constant in financial services regulation. Read "our take" on the latest developments and what they mean.

Current topics – January 10, 2025

1. Barr to step down as Vice Chair for Supervision

Download Our Take: PwC financial services update – January 10, 2025

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