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Keeping Promises
Donald Trump entered the White House promising mass deportations, and rumors have circulated for months that the administration would incorporate immigration policy into Bank Secrecy Act/anti-money laundering compliance protocols for banks.
He also entered the White House as a friend to the crypto industry. That played out this week with two executive orders, issued on May 19, that demonstrate how the administration’s broader goals could continue to reshape the U.S. financial system.
The first instructs Treasury Secretary Scott Bessent to work with prudential regulators to propose changes to customer due diligence requirements under the Bank Secrecy Act. These would allow financial institutions to confirm an account holder’s immigration and work authorization status when “assessing risks associated with fraud, identity misrepresentation, sanctions evasion, or other illicit financial activity …” Separately, the Consumer Financial Protection Bureau has been instructed to incorporate potential deportation and related wage loss within its “ability-to-repay” standards.
The second order asks federal financial regulators to identify regulatory “barriers to entry” that benefit traditional banks and credit unions and “unduly impede” a wide range of fintechs — including those focused on digital asset activities — from accessing the banking system. These would include obstacles to partnering with regulated financial institutions or obtaining their own charters. Further, the Federal Reserve will evaluate its framework for granting nonbanks access to payment rails.
The Fed has already moved in this direction. In early March, it granted limited access to a Fed master account for the state-chartered special purpose depository Payward, doing business as Kraken Financial. That means the crypto firm can connect to U.S. payment rails without an intermediary. And on May 20, the Fed proposed a “payment account” for nonbanks that would be limited to clearing and settling payments. The account would not include access to the discount window or intraday credit, among other restrictions.
The news comes as the Clarity Act makes its way through the Senate, and bankers have expressed concerns about loopholes allowing stablecoin issuers to pay rewards. Indeed, customers can already earn rewards by holding stablecoins at PayPal, which pays 4%, or Coinbase, which pays 3.5%.
The executive orders signal that President Trump intends to keep some of his campaign promises. But that could be unfortunate for banks should that come to pass. What started as a regulatory-light administration could prove more burdensome — and more competitive — than they once hoped.
• Emily McCormick, vice president of editorial & research for Bank Director
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