Three Dates That Will Shape Fintech Compliance This Month

A May calendar where Drake, Grogu, the NBA Playoffs, and a new Fed Chair share equal billing

(Note - all views are those of Fintech Compliance Chronicles/my personal views and not affiliated with any other organization)

Over the next few weeks, a few things might catch the average person’s attention. For one, the Cannes Film Festival is coming up. Drake is dropping his 9th album, Iceman, while Paul McCartney is dropping his 21st album, The Boys of Dungeon Lane. Star Wars is back on the big screen for the first time in 7 years with The Mandalorian and Grogu. The NBA Playoffs will be wrapping up the semifinals and moving to the conference finals.

But if you’re reading this, you are not the average person, which is why in today’s edition we are going to take a look at some of the most important upcoming dates in the fintech compliance and regulatory world, and why they matter. Pop open your calendars and join me as we dig in:

May 11: Warsh Vote

What is happening? The full Senate will vote to confirm Kevin Warsh as Chair of the Federal Reserve, replacing Jerome Powell, who has served in this role since 2018. Powell’s term officially ends on May 15, which means this will be a quick turnaround.

Who is Kevin Warsh? Warsh comes in with direct Fed experience. He originally served as an FRB Governor from 2006-2011, and was in the thick of the 2008 financial crisis as he was involved in facilitating the sale of Bear Stearns to JPM, the Lehman bankruptcy, and AIG’s bailout. He resigned shortly after as a result of disagreements with then-chair Ben Bernanke. Until this year when Trump floated his name, he had been out of government and in the private sector.

Will he get confirmed? To be confirmed, Warsh only needs a simple majority in the Senate (not the 2/3 requirement that sometimes comes into play). All has been quiet on the Western Front, as no Republican Senator has come out against this appointment.

What he will likely do vs. Powell

Once he’s in place, all eyes will go straight to interest rates. The June meeting will be the first read on whether Warsh moves on rates immediately or holds for later in the year.

Warsh is proposing the elimination of much of the forward guidance that markets have come to rely on from the Fed. For example, the most recent FOMC meetings at the end of April held rates steady but notably kept language suggesting that rate cuts are still coming, even as three Fed presidents dissented, arguing this was too optimistic given inflation was still running well above the Fed’s 2% target. A hint of Warsh’s possible rationale came from one of the dissenters, Dallas Fed President Lorie Logan, shortly afterwards, who argued that the Fed’s usage of language like “In considering the extent and timing of additional adjustments to the target range for the federal funds rate…” could come across as though the Fed is subtly guaranteeing to households and businesses that a rate cut will come eventually. The downside is that stocks could get bumpier than they already have (which surprisingly is not that bumpy/volatile relative to major shocks in years past).

The thing that probably makes markets most uncomfortable about Warsh is his view on the Fed’s balance sheet. In his eyes, he believes the Fed is like a massive landlord that bought too many properties, with the bulk of the accumulation happening post-financial crisis. This is quantitative easing 101, where the Fed buys government bonds and mortgage-backed securities to stimulate the economy. The controversy is that Warsh thinks that the only way rate cuts will work is to sell the assets (bonds) first and then cut interest rates without triggering inflation. The last time the Fed tried this back in 2019, the repo rate (which is what banks charge each other to borrow cash overnight) went from 2% to 10% in a matter of hours. In other words, the Fed had drained so much cash reserve out of the system that banks didn’t have enough cash to lend each other overnight. Thus, the Fed had to rush in and start pumping liquidity back in within days, reversing course.

What Warsh means for Fintech Compliance and Regulations

Depending on who you are, this could be good news. Warsh believes the Fed has gone too far in regulatory supervision, in line with the deregulatory movement that has taken hold most notably at the CFPB. In his confirmation hearing, he said: “Politics have no place, not just in monetary policy, but in supervision and regulation. If central bankers should stand for anything, it’s to resist fads, resist trends, call balls and strikes.”

At the same time, he is looking to relocate some supervisory power from the Fed to the Treasury Department, which would in theory have the opposite effect given Treasury departments are led by political appointees while the Fed is an independent government agency and its chair cannot be removed easily. If this holds, all major federal banking and consumer regulators would have short-term political dependencies going forward, as the leadership of the OCC, FDIC, and FTC (which has growing jurisdiction over fintech and crypto consumer protection) are all subject to removal by whoever is President.

For compliance teams, the structural implication is worth tracking: a shift of supervisory authority toward Treasury would mean more federal banking regulators with leadership tied to the political cycle, which has implications for the stability of supervisory expectations over time. This also comes on the heels of the Education Department planning to transfer its student loan portfolio to Treasury, suggesting a broader consolidation of powers into the Department.

May 19: BSA Modernization Hearing

What is happening / who is speaking? The House Committee on Financial Services is holding a hearing entitled “Modernizing the BSA for Financial Crime in the 21st Century” on Tuesday, May 19 at 10AM EST (livestream link here). This is specifically a session of the Subcommittee on National Security, Illicit Finance, and International Financial Institutions chaired by Rep*.* Zach Nunn (R-IA). There were two hearings prior to this which are good to check out: one on September 9 of last year, entitled “Evaluating the FinCEN” with a focus on recent Beneficial Ownership reporting requirements, and another a few weeks ago entitled “Evaluating the Effectiveness of US Sanctions Programs.” The prior witnesses were Andrea Gacki, Director of FinCEN (for the September hearing) and Jonathan Burke, Assistant Secretary for Terrorist Financing, Treasury (for the April hearing); either of these two could be possibilities for this upcoming date.

What is BSA Modernization in the Trump era? If you’re in compliance, you should already know this, but for those who are not, the Bank Secrecy Act was enacted in 1970 and compels financial institutions to assist law enforcement with combating money laundering, terrorist financing, and other financial crimes. Many in the industry felt that in recent years, the impact of BSA had evolved into companies filing massive amounts of SARs (Suspicious Activity Reports) and CTRs (Currency Transaction Reports) that created a lot of administrative work but no meaningful intelligence. In this vein, the AML Act of 2020 was implemented with the highlight being the direction for FinCEN to modernize BSA regulations with a focus on effectiveness over volume.

In this spirit, FinCEN released a notice of proposed rulemaking this past month which signaled support for risk-based approaches rather than binary compliance, and a framework that would require other regulators (OCC, FDIC, Fed) to consult with FinCEN before taking any supervisory action, another data point in the broader consolidation pattern noted above. Simultaneously, the other major development is the GENIUS Act, which we’ll talk more about in our next edition.

What does this hearing set up? This hearing is ten days before the June 9 comment deadline for two FinCEN notices of proposed rulemaking — the AML/CFT program reform rule and the GENIUS Act AML/sanctions rule. The hearing will likely build the congressional record as an input into the final rule (along with comments), surface consensus on SAR reform (i.e. how to reduce low-utility filings without creating enforcement gaps), and preview, or potentially drive momentum for, specific BSA reform legislation like the STREAMLINE Act (S. 3017) and its House companion (H.R. 1799)

May 20: Bank-Fintech Collaboration Hearing

What is happening / who is speaking? A day after the aforementioned hearing, the Committee will hold another hearing entitled “Partnering for Innovation: How Bank-Fintech Collaborations Enhance Financial Infrastructure” on Wednesday, May 20 at 10AM EST (livestream link here). This is specifically a session of the Subcommittee on Digital Assets, Financial Technology and Artificial Intelligence chaired by Rep. Bryan Steil (R-WI). This is the first Congressional Hearing on bank-fintech partnerships since 2024, which was shortly after the issuance of the Interagency Guidance on Third-Party Relationships. It’s harder to project the possible witness list given this topic has not featured prominently for some time, but possibilities could include a BaaS bank/sponsor bank representative, a fintech CEO, and/or an academic aligned with the committee’s framing.

What is the current state of Bank-Fintech Collaboration? The Synapse fallout is the most prominent story in the space, along with enforcement actions targeting sponsor banks for failures by their fintechs. Post-Synapse, questions about liability are also being raised, i.e. who is responsible when compliance or accounting fails in a bank-fintech partnership? The money flowing through bank-fintech infrastructure is bigger than ever, but the number of players doing it has shrunk, as Synapse scared off the smaller sponsor banks and the remaining ones are more rigorous.

What does this hearing set up? Given the shift in administration since the last hearing, the title of the hearing suggests a more constructive posture toward partnership going forward. This hearing could also lead to clarity on not just liability, but also reconciliation standards for FBO accounts (the root cause of the Synapse issue).

Wrapping Up

That’s the calendar. Three dates, two weeks, and a lot of structural movement in a short window. The Warsh confirmation reshapes the leadership of the Fed at exactly the moment GENIUS Act implementation rulemaking is being finalized across the federal banking regulators. The BSA modernization hearing sets the stage for the June 9 comment deadlines on two of the most consequential AML proposals in years. And the bank-fintech collaboration hearing, the first of its kind since the post-Synapse era began, could start drawing the lines on liability and FBO reconciliation that the industry has been waiting on for two years.

A reminder of what I said up top: most people will spend the next few weeks watching Drake, McCartney, the Mandalorian, or the Eastern Conference Finals. If you’re reading this, you’ll be watching all of the above plus a Senate floor vote, two House Financial Services hearings, and a slew of comment deadlines. See you soon.