Government Relations Insights: August 7, 2025

TOP LINES

President Donald Trump issued an Executive Order to prevent the de-banking of customers based on political, religious, or lawful business activity disfavored by financial institutions. The order directs banking regulators to eliminate reputational risk as a justification for denying services. It also calls on Small Business Administration (SBA)-backed lenders to identify and re-bank affected customers and instructs prudential regulators to take remedial action, potentially including Department of Justice referrals against institutions found to have engaged in politically motivated de-banking.

President Donald Trump issued an Executive Order aimed at expanding investment options for 401(k) participants by allowing access to alternative assets such as private equity, real estate, and digital assets. The order directs the Department of Labor to clarify fiduciary responsibilities under ERISA and coordinate with federal regulators, including the SEC and Treasury, to ease regulatory barriers.

What We’re Reading:

From PYMTS: CFPB Tells Court It Will Rewrite Rule 1033

WEEKLY UPDATE

The Commodity Futures Trading Commission (CFTC) announced a new initiative to enable the trading of spot crypto asset contracts on CFTC-registered futures exchanges (DCMs). This marks the first step in the agency’s crypto sprint to implement recommendations from the President’s Working Group on Digital Asset Markets. Acting Chair Caroline Pham said the CFTC is moving full speed ahead to establish a federal pathway for digital asset trading, coordinating with the Securities and Exchange Commission’s (SEC) Project Crypto. The agency is seeking public input on how to list spot crypto contracts using existing authority under the Commodity Exchange Act. Comments are due August 18.

The SEC’s Crypto Task Force, will hold roundtables in cities across the U.S. to hear from early-stage crypto projects often left out of policymaking. The tour begins August 4 in Berkeley and includes stops in Boston, Dallas, Chicago, NYC, and more through December. Projects with 10 or fewer employees and under two years old are encouraged to request a meeting by emailing crypto@sec.gov with “Crypto on the Road” in the subject line. A list of participants will be published to ensure transparency.

The SEC launched a new AI Task Force to drive responsible AI adoption across the agency, naming Valerie Szczepanik as its first Chief AI Officer. The task force will centralize efforts to integrate AI tools, boost efficiency, and support innovation across SEC divisions. Chairman Paul Atkins said the initiative aims to empower staff with AI systems that enhance speed and accuracy, while upholding the agency’s mission. Szczepanik, formerly head of the SEC’s FinTech hub, will lead efforts to implement trustworthy and effective AI solutions agency-wide.

The SEC’s Division of Trading and Markets released new FAQs clarifying broker-dealer obligations under amended customer protection rules related to U.S. Treasury clearing. The guidance comes ahead of key compliance deadlines in 2026 and 2027 for cash and repo transactions. Chairman Atkins also announced that Commissioner Mark Uyeda will lead the agency’s ongoing efforts around Treasury central clearing. Both Atkins and Uyeda emphasized the importance of a smooth transition and continued industry engagement.

The SEC’s Division of Corporation Finance released a detailed statement concluding that, under specific conditions, liquid staking does not involve the offer or sale of securities. This guidance clarifies that staking receipt tokens, issued one-for-one when crypto assets are staked via a third party or protocol, serve as ownership receipts, not investment contracts. Citing the Howey test, the Division emphasized that liquid staking arrangements, as described, do not rely on entrepreneurial or managerial efforts by providers, key to classifying something as a security. However, the guidance warns that if providers engage in activities beyond ministerial or administrative roles, or if the staking tokens are structured differently, securities laws may still apply.

The Federal Housing Finance Agency (FHFA) announced it is doubling the annual cap on Low Income Housing Tax Credit (LIHTC) investments for Fannie Mae and Freddie Mac-from $1 billion to $2 billion each, totaling $4 billion. The move, part of President Trump’s One Big Beautiful Bill, aims to expand affordable housing supply nationwide. Half of the increased funding will target underserved LIHTC markets, with at least 20 percent of that amount reserved for rural communities under the Duty to Serve mandate.

On July 15, the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) convened government, industry, and tech leaders to discuss advancing digital asset innovation while combatting fraud and scams. The event emphasized balancing innovation with compliance and consumer protection, aligning with Executive Order 14178 on digital financial leadership. Participants shared insights on emerging risks, law enforcement efforts, and best practices in digital asset compliance. FinCEN reaffirmed its commitment to public-private collaboration and urged financial institutions to stay vigilant and informed through its guidance and advisories.

The New York State Department of Financial Services (NYDFS) fined Paxos Trust Company $26.5 million for failing to properly vet its former partner, Binance, and for systemic anti-money laundering (AML) deficiencies. Paxos will also invest $22 million to strengthen its compliance program under DFS oversight. DFS found that Paxos neglected required due diligence of Binance, allowing $1.6 billion in illicit transactions between 2017 and 2022.

At the APEC Digital and AI Ministerial Meeting in South Korea, White House Office of Science and Technology Policy Director Michael Kratsios announced the launch of the American AI Exports Program, offering allies full-stack AI tech, from chips to models, under President Trump’s AI Action Plan. Director Kratsios framed the U.S. as the global AI leader, urging APEC economies to reject overregulation and partner with America for innovation, sovereignty, and growth.

Senators Elizabeth Warren (D-MA) and Mike Rounds (R-SD) called on the Trump administration to reinstate and strengthen the AI Diffusion Rule, warning that offshoring U.S. AI infrastructure could threaten national security and economic opportunity. In a letter to Secretaries Marco Rubio (Department of State) and Howard Lutnick (Department of Commerce), the senators emphasized the risk of ceding AI leadership to foreign powers and urged new export controls to prevent U.S. firms from relocating critical AI operations overseas.

Senators Bill Hagerty (R-TN) and Angela Alsobrooks (D-MD) introduced an amendment to the National Defense Authorization Act (NDAA) to extend deposit insurance to transaction accounts used by businesses and municipalities.

House Financial Services Committee Chair French Hill (R-AR) and Financial Technology Subcommittee Chair Andy Barr (R-KY) are soliciting public feedback on federal consumer financial data privacy laws, including updates to the Gramm-Leach-Bliley Act (GLBA), in light of shifts in the financial services sector. Comments and responses to the committee’s questions are due by August 28, 2025.

Rep. Nydia Velázquez (D-NY), Ranking Member of the House Small Business Committee, condemned the Small Business Administration’s recent actions targeting the 8(a) Business Development Program. Rep. Velázquez called the move deeply disappointing, accusing SBA of weakening a vital contracting tool for disadvantaged businesses based on a single enforcement case. She criticized the timing, late in the fiscal year and ahead of a pending audit,as potentially harmful to small business participation in federal contracting.

Colorado Governor Jared Polis announced he will call a special legislative session to consider changing the state’s first-in-the-nation law barring algorithmic bias in employment, finance, and other sectors. Governor Polis ordered the state Senate and House of Representative to reconvene on Aug. 21 to consider changes to S.B. 205.

ICYMI

The President’s Working Group on Digital Asset Markets released a report outlining legislative and regulatory recommendations to position the U.S. as a global leader in digital assets. Backed by Executive Order 14178, the report calls for a fit-for-purpose market structure, expanded oversight authority for the CFTC, modernization of banking regulations, and implementation of the GENIUS Act to support dollar-backed stablecoins. In remarks at the White House regarding the report, Treasury Secretary Scott Bessent emphasized that the next step is enacting market structure legislation like the CLARITY Act and implementing the Working Group’s 100+ recommendations to modernize crypto oversight, banking, and taxation.

House Financial Services Committee Chairman French Hill (R-AR) and Subcommittee on Financial Institutions Chairman Andy Barr (R-KY) issued a request for feedback from the public on current federal consumer financial data privacy law and potential legislative proposals to account for changes in the consumer financial services sector. Interested members of the public may send their comments and answers by August 28, 2025.

Rep. Hill, Rep. Ritchie Torres (D-NY), and a bipartisan group of House and Senate members introduced the Unleashing AI Innovation in Financial Services Act (H.R. 4801). The bill would establish regulatory sandboxes at federal financial agencies to support supervised testing of AI technologies in the financial sector. The legislation aims to encourage responsible innovation, strengthen consumer protections, and help maintain U.S. leadership in financial technology. The proposal aligns with the Trump administration’s AI Action Plan and reflects growing bipartisan momentum for a national AI strategy.