US consumer watchdog considers including cryptocurrency in e-banking regulations

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The director of the U.S. Consumer Financial Protection Bureau is contemplating the issuance of guidelines regarding the applicability of crypto assets to the Electronic Fund Transfer Act (EFTA).

The principal U.S. agency responsible for safeguarding consumer financial interests is exploring the utilisation of the EFTA as a safeguard against fraudulent cryptocurrency transactions.

Speaking at a payments conference hosted by the Brookings Institution think tank on October 6th, Rohit Chopra, the director of the Consumer Financial Protection Bureau (CFPB), disclosed that his agency is actively exploring the potential extension of the EFTA’s coverage to encompass “private digital currencies and other virtual tokens.”

Chopra emphasized that the CFPB’s aim is to mitigate the adverse effects of errors, cyberattacks, and unauthorised transfers within the crypto sphere.

To achieve this, the bureau is considering providing comprehensive guidance to industry participants, addressing their inquiries about the applicability of the Electronic Fund Transfer Act to private digital currencies and other virtual tokens.

This proactive approach is driven by the EFTA, a federal statute enacted in 1978, which serves to safeguard consumers engaged in electronic fund transfers, whether conducted via debit cards, ATMs, or traditional bank accounts.

Its overarching objective is to curtail consumer losses stemming from unauthorised fund transfers.

In adherence to the EFTA’s regulations, financial institutions are obligated to apprise consumers about their potential liability for unauthorised transfers.

These liability disclosures should be communicated prior to the initiation of any electronic transfers from a user’s account.

The CFPB’s initiative is timely, given the recent surge of over 150% in year-on-year crypto platform breaches and the ongoing criminal trial of Sam Bankman-Fried, co-founder of FTX, who stands accused of illicitly accessing and utilizing customer funds.

FTX itself experienced a breach exceeding $400 million shortly after declaring bankruptcy.

Director Chopra further revealed the CFPB’s intent to issue directives to “certain prominent tech companies” in order to gain insights into their data handling practices and issuance of private currencies.

Additionally, the agency plans to scrutinise non-bank entities offering payment platforms.

In a broader context, Chopra suggested that the Treasury’s Financial Stability Oversight Council should classify specific crypto activities as “systemically significant payment clearing or settlement operations.”

This classification would empower other regulatory agencies with the essential oversight and tools required to ensure the stability of stablecoins.