HOUSE FINANCIAL SERVICES COMMITTEE
SUBCOMMITTEE ON DIGITAL ASSETS, FINANCIAL TECHNOLOGY, & AI
For questions on the note below, please contact the Delta Strategy Group team.
On March 26, the House Financial Services Committee Subcommittee on Digital Assets, Financial Technology, and Artificial Intelligence held a hearing entitled, “Innovation at the Speed of Markets: How Regulators Keep Pace with Technology.” Witnesses in the hearing were:
- Randall Guynn, Director, Division of Supervision and Regulation, Federal Reserve Board
- Jay Gallagher, Senior Deputy Comptroller and Chief of National Bank Examiner, Office of the Comptroller of the Currency
- Ryan Billingsley, Director, Division of Risk Management Supervision, Federal Deposit Insurance Corporation
- Amanda Parkhill, Acting Director, Office of Examinations and Insurance, National Credit Union Administration
Below is a summary of the hearing prepared by Delta Strategy Group. It includes several high-level takeaways, followed by summaries of opening statements and discussion.
Key Takeaways
- Committee Chairman Hill (R-AR) framed the discussion on whether agencies have the structure and expertise to respond effectively, emphasizing coordination, technical capacity, and a more agile regulatory approach to promote innovation. Subcommittee Chairman Steil (R-WI) raised whether the regulatory framework is prepared to meet the accelerating pace of technological change. He emphasized that regulators evolving alongside it requires tools, expertise, flexibility, and engagement with innovators to maintain U.S. global leadership, with Congress providing clear direction, oversight, and guardrails to reduce fragmentation and uncertainty.
- Witnesses outlined how regulators are facilitating innovation consistent with safety and soundness, preserving financial stability, and taking a technology-neutral approach, with increased transparency, public feedback, and supervisory visibility, while identifying and mitigating risks. They discussed the importance of regulatory approaches that right-size supervisory expectations and balance prudent risk management with evolving innovation.
- Guynn highlighted efforts underway to review and revise regulations and to integrate financial technology expertise into supervision, while ensuring supervision evolves to support adoption of new technologies and improve efficiency. He raised how AI, digital assets, and bank financial technology (fintech) partnerships are three of the Fed’s focus areas. Billingsley said that regulators are reducing regulatory barriers to bank relationships with third parties, including removing prior notification requirements and updating guidance, to support these relationships and the adoption of digital asset activities.
- Witnesses referenced how agencies are enabling banks to engage with digital asset technologies, providing clarity for permitted activities, including payment stablecoins under the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, facilitating bank fintech partnerships, and clarifying banks’ ability to engage in permitted digital asset activities. Comments included regulators are working to ensure banks manage and mitigate risks appropriately and integrating them into the supervisory process to facilitate innovation and enhance competitiveness
- Subcommittee Ranking Member Lynch (D-MA) questioned whether a pattern of insider trading in prediction markets rises to systemic risk, if it should be regulated as gambling, and whether existing legal and regulatory frameworks are sufficient. Guynn stated it does not concern the Fed, noting how banks are not allowed to trade in such contracts. Ranking Member Waters (D-CA) raised oversight of agency employees profiting from material non-public information in prediction markets. Gallagher responded that the OCC does not have rules on prediction markets and that it is not its place to make rules. Guynn stated that the Fed has rules to ensure staff do not trade on material non-public information.
- Representative Davidson (R-OH) raised the need for a clear standard for Fed master account decisions to be objective and reproducible rather than selective. Guynn responded how the process for granting one is made with systemwide guidelines but also discretion, noting the Kansas City Fed granted a master account to Kraken but not to Custodia. He said that guidance on granting master accounts will be reviewed later this year and raised the possibility that Congress could consider making the process more mandatory.
SUMMARY
Opening Statements and Testimony
Subcommittee Chairman Steil (R-WI)
The question is not whether the transformation from technological change will occur, but whether our regulatory framework is prepared to meet the moment. Regulators must evolve as quickly as the technologies that they oversee, with a static approach to supervision in a dynamic environment as a recipe for failure. Agencies need the tools, expertise, and flexibility to understand the emerging risks without stifling innovation and the innovation that drives economic growth. That means embracing new supervisory technologies, investing in talent, and engaging directly with innovators, not as adversaries, but as partners in building a safer and more resilient system. We must be clear that fostering innovation is not optional, but essential to maintaining U.S. global leadership. If we fail to create an environment where financial institutions and entrepreneurs can reasonably innovate, innovation will move elsewhere. We want the next generation of financial technologies to be developed in the U.S., grounded in transparency, accountability, and the rule of law. Congress has an important role to play in providing clear direction to ensure that agencies approach innovation in a consistent, accountable, and transparent manner. Through thoughtful oversight and, where necessary, legislative action, we can establish guardrails that encourage innovation and protect consumers. More here.
Committee Chairman Hill (R-AR)
Federal agencies must keep pace with these new technologies and how rapidly financial innovation is accelerating, a challenge within a federal compliance and supervisory bureaucracy. This raises important questions about whether the agencies have the structure and the expertise to respond effectively. That means examining how agencies organize their innovation efforts and ensure strong coordination with industry and technical leaders, whether through dedicated offices, embedded capabilities, or designated leadership. More here.
Subcommittee Ranking Member Lynch (D-MA)
New tools and products can expand access to credit and capital, lower costs for consumers, and help build financial security. But that promise depends on whether new products serve those goals and whether adequate consumer protections are in place to ensure that they do. I am concerned that recent regulatory developments suggest we might be moving in the opposite direction. Under the Trump administration, FinHub, the dedicated office that built the agency’s technical expertise on digital assets and fintech, was dismantled and there is no cop on the beat for crypto. The SEC has dropped most of the cases that they have had against firms that had been charged with misconduct.
Randall Guynn, Director, Division of Supervision and Regulation, Federal Reserve Board (Fed)
Innovation is not without risk, and the Fed is committed to identifying and encouraging firms to mitigate any risks that threaten safety and soundness or U.S. financial stability. One way to strike the right balance between facilitating innovation and protecting safety and soundness is to be more transparent and encourage public feedback. The Vice Chair for Supervision and I are deeply committed to making supervision more visible and publicly accountable. We demonstrated that by releasing to the public our statement of supervisory operating principles, and when we published the operating manuals for supervising the largest and most complex banking organizations. We will continue to demonstrate this by releasing many other procedure manuals and instructions to staff that have previously been kept confidential. To facilitate the deployment of AI tools to improve operational efficiencies and enhance risk management capabilities, we are working to better understand the available and emerging technologies, and we are also exploring potential use cases to improve our assessment and supervision of banking risk. Digital assets can offer benefits to both banks and customers. The Fed has taken steps to better enable banks to engage with digital asset technologies. Looking ahead, we are considering how to provide additional clarity for banks that want to engage in digital asset activities. Bank fintech partnerships can provide a channel for banks to access new technologies and promote a level playing field.
Jay Gallagher, Senior Deputy Comptroller and Chief of National Bank Examiner, Office of the Comptroller of the Currency (OCC)
One of the Comptroller’s strategic priorities is supporting and keeping pace with responsible innovation within the federal banking system. The OCC plays a central role in facilitating and defining responsible innovation and champions safe and sound innovation through its chartering process, approach to digital assets and AI, and by facilitating bank and technology firm relationships and partnerships. As a technology-neutral regulator, the OCC evaluates applicants in an even-handed fashion based on proposed activities and consistent with applicable law and regulations. The technology used to deliver financial services should not determine whether a charter is approved or denied. The OCC fosters safe and responsible innovation by providing a supervisory environment for digital asset-focused businesses to grow safely and clarifying banks’ ability to engage in permitted digital asset activities, including through a payment stablecoin regime under the GENIUS Act. Digital assets and DLT offer banks opportunities to remain dynamic and competitive. As adoption increases, the OCC’s goal is to ensure banks understand, manage, and mitigate risks appropriately while providing opportunities to engage with payment stablecoins. The OCC is also facilitating the adoption of AI to improve business functions, including through developments in generative and agentic AI, while ensuring adoption proceeds consistent with applicable law. As banks increasingly rely on third-party technology providers, the OCC is developing regulatory approaches that right-size supervisory expectations, emphasize institution-specific risk management, and support those that utilize these relationships. We are modernizing supervision and providing banks with a path to safely embrace new technologies.
Ryan Billingsley, Director, Division of Risk Management Supervision, Federal Deposit Insurance Corporation (FDIC)
It is essential that we enable banks to adopt technologies like AI and DLT while maintaining expectations that they conduct activities in a safe and sound manner and in compliance with consumer protection laws. The FDIC takes a technology-neutral, open-minded approach to innovation that strikes the right balance between prudent risk management and evolving with the times. Supervision reform has been a significant focus area over the past year and we are taking steps to support bank adoption of new technologies that remove unnecessary involvement from supervisory staff. We are seeing banks adopt a range of technologies to improve operational efficiencies, expand product offerings to meet customer needs, and enhance customer interactions. Banks are increasingly using AI and machine learning while testing and implementing new technologies. Banks are providing banking services to crypto asset entities, and we expect additional use cases to continue to emerge. A critical component of banks’ adoption of technology pertains to their ability to engage and partner with third parties. We are evaluating a number of options to reduce regulatory barriers to banks’ relationships with third parties, including working to update examination guidelines and refocus our priorities on material financial risks. Under Chairman Hill, the FDIC has taken a more open-minded approach to banks seeking to engage in digital asset activities while maintaining our supervisory expectation that these activities are conducted in a safe and sound manner. Last year, the FDIC rescinded a prior notification requirement for banks, removing a barrier to responsibly participating in permissible crypto asset activity. The FDIC recently issued a proposed rule to implement elements of the GENIUS Act that would establish a framework for FDIC-supervised banks to issue payment stablecoins. Consistent with the Act, we expect to propose credential requirements for FDIC-supervised payment stablecoin issuers soon, and we look forward to receiving comments on that proposal. Just as the FDIC must allow banks to adopt new technologies and enhance the efficiency of their operations, it is critical that the FDIC’s own technology adoption keeps pace. The FDIC continues to advance a multi-year IT modernization initiative designed to enhance the agency’s technology environment. We are also piloting AI for internal staff use and expect to roll tools out to the workforce later this year, and are investing in workforce training to support the adoption of AI and other technologies.
Amanda Parkhill, Acting Director, Office of Examinations and Insurance, National Credit Union Administration
Overregulation can stifle innovation and growth. The NCUA deregulation project is a long-term initiative aimed at methodically reviewing all regulations and revising them as needed, with the initial focus on any that are obsolete, duplicative of statute, intended to serve as guidance, or unduly burdensome. NCUA actively seeks stakeholder feedback on challenges related to technology adoption, including regulatory interpretation and due diligence burdens. In December 2024, the NCUA Board voted to integrate financial technology expertise into the agency’s examination and supervision program, with this realignment ensuring supervisory staff can effectively assess new technologies and their associated risks and opportunities. The GENIUS Act establishes a comprehensive framework for payment stablecoins and NCUA has moved promptly alongside other regulators to implement this law. A forthcoming rulemaking will address issuer standards, including reserves, capital, liquidity, and risk management requirements, as NCUA is working toward meeting Congress’s deadline.
DISCUSSION
Representative Steil (R-WI): What is one concrete example of an action your agency has taken to keep pace with the technological change? Guynn: The Fed issued a new policy statement on innovation where it stated that it would facilitate innovation as opposed to inhibit it, provided that it is consistent with safety and soundness, and that animates what we are doing; Gallagher: OCC created an Office of Innovation, now the Office of Financial Technology, which continues to serve in that role on advancing modern technologies and ensuring that information flows to our field staff as timely and readily as it can; Billingsley: Earlier this month, FDIC issued FAQs on tokenized securities, which are informative to capital requirements for those types of instruments, essentially stating that the capital rules are generally technology neutral; Parkhill: The NCUA Chairman also held multiple roundtables on AI and digital assets to get information from credit unions and industry about challenges and resources that would be helpful, and we are taking that information back and including it in future guidance.
Representative Steil (R-WI): What is the most effective way your respective agency is using technology like AI? Guynn: We put together a group that focuses on AI and have started using it. One of the things we want to do is look at the 500 plus Supervision and Regulation Letters (SRs) issued, and AI has been incredibly helpful to identify those that might need to be repealed that go back to the 1990s, to summarize them, and to provide something that would have taken staff a couple of months to put together; Gallagher: The OCC has a similar project internally where we are testing and utilizing new technologies, including AI, as it relates to evaluating where we can improve our guidance to the industry. We are not currently using AI directly in supervision, but we are exploring use cases as a way to enhance and inform us going forward; Billingsley: The FDIC is piloting AI right now. There is promise there with things like alert monitoring, transaction testing, and other areas.
Representative Steil (R-WI): Have you seen a shift in tone at the OCC as it relates to embracing technology? Gallagher: As Comptroller Gould has stated before and continues to reiterate, a failure to innovate is in itself a significant risk to the banking system. Consistent with that view, the Comptroller has publicly noted the last administration focused heavily on preventing downside risk, particularly in areas like digital assets, often at the expense of innovation. Under the Comptroller’s leadership, the OCC is focused on partnering with banks to ensure legally permissible banking activities, including digital asset-related activities, have a place in the financial system if they are conducted in a safe and sound manner. We are clearly embracing the opportunity to see that the industry can do what they can.
Representative Lynch (D-MA): Does the rapid escalation and scaling of prediction markets and the documented pattern of what appears to be insider trading rise to the level of systemic risk that is a concern for the Fed? Do you think it should be perhaps regulated as gambling if this is the way it is going to be used? Are the existing legal and regulatory frameworks sufficient to address the risks? What might Congress do to address the risk of insider trading? Guynn: I am not sure that it does concern the Fed now. As far as I am aware, banks, at least the institutions that we regulate, are not allowed to trade in these contracts. I think perhaps they lend to institutions that are involved in this business. I do not know if the Fed would have a view on that. The SEC is the one that generally regulates insider trading, so that is probably the place for Congress to look, or maybe the CFTC; Billingsley: I do not know if the FDIC has a role to play here and am not aware of any FDIC involvement.
Chairman Hill (R-AR): Are you working on the oversight necessary to allow a bank to tokenize a deposit on a blockchain? Guynn: Before the Fed, I wrote opinions on whether it was permissible to tokenize deposits, and they were mostly positive. The FDIC Chair gave a speech recently suggesting that the FDIC is going to clarify that tokenized deposits can be FDIC-insured just like any non-tokenized deposit.
Ranking Member Waters (D-CA): Since the explosion of prediction markets, especially betting on political events, how is the agency responding? Is your agency increasing its oversight of agency employees profiting from the use of material non-public information? Gallagher: All of our staff are subject to the Office of Government Ethics rules as well as our internal policy. We will follow them accordingly. The OCC does not have rules on prediction markets, and it is not our place to respond or make rules. To the extent exposures or risks would come into the banking system, we would, as we would with any safety and soundness issue, take appropriate efforts to ensure we understand it and make sure the banks are complying with applicable law. On oversight, that is best directed at our Chief Counsel’s office; Guynn: We have always and continue to oversee and have rules so that they do not engage in insider trading and trade on material non-public information.
Ranking Member Waters (D-CA): With the Fed considering skinny Fed master accounts to allow direct access to payment rails and the Kansas City Fed approving Kraken for a master account, how are you responding to concerns about consistent standards and access across institutions? Guynn: We have a request for information out on the proposed skinny master account, and the public comments will be visible.
Representative Rose (R-TN): How is reducing unnecessary regulatory friction in bank third-party partnerships helping banks adopt new tools? How is the OCC supporting the adoption of AI tools in maintaining strong supervisory standards? Billingsley: We are in the process of updating outstanding guidance on third-party risk management standards more generally to see if we can better tailor that. We have taken a more open-minded approach over the last twelve to eighteen months with respect to banks’ engagement with third parties, which has helped to remove any potential barriers for banks that have wanted to adopt that sort of partnership or engagement with a third party; Gallagher: We regularly meet with banks, firms, and other stakeholders to understand how the industry is approaching these technologies. We have for years expressed an appetite to encourage banks to look for ways to improve their systems using technologies that can help them do so. We also went out last year with a request for information for feedback on banks’ challenges with significant third parties, and we are evaluating that. We are also evaluating and are in the process of determining if we need to update our guidance on third-party risk management.
Representative Sherman (D-CA): Should financial activities that are essentially the same, such as tokenized deposits, be subject to the same regulation whether conducted by banks or non-banks, given concerns about non-banks escaping oversight? Guynn: That is certainly a principle the Fed adheres to, which is same risk, same regulation, same activity, same regulation. Part of the problem, though, is that we do not have jurisdiction over some of the non-bank institutions that are engaged in this activity, so our ability to look at that or oversee it is limited.
Representative Stutzman (R-IN): How has the Fed integrated supervision of fintech and crypto activities by member banks into the supervisory process? How will this integration improve U.S. competitiveness and enhance innovation? Guynn: The novel banking program was not consistent with the policy that we announced a few months ago of facilitating innovation consistent with safety and soundness. We decided, after watching it in practice for a while, that we would change it. Now innovation is encouraged or facilitated like any other activity. The more we integrate into our supervisory process, the more we will understand it and be able to facilitate it safely. If we can do that, then the U.S. will be a leader in innovation in a way that the public feels comfortable with and will be viewed as beneficial, which does make us more competitive relative to other countries.
Representative Timmons (R-SC): How is the Division of Supervision and Regulation is working to foster an environment where banks can responsibly pursue financial innovation, including digital assets? As these activities are integrated into the supervisory process, how have examinations evolved and what steps has the Fed taken to ensure examiners have the expertise needed? Guynn: We wait for the banks to say what they would like to do and the direction they would like to go, and we try to be responsive. If banks said they have limits in their power and would like to have more authority to be able to engage as agent or principal with respect to digital assets, we would consider that and try to facilitate that. We are enhancing our training on technology and are also trying to change the cultural view of this in facilitating. The job of an examiner is not to micromanage the bank, but rather to let the bank choose its business model and its risk profile and then only raise yellow or red cards when there is a safety and soundness issue, and not to artificially discourage innovation because of a fear of the new.
Representative Davidson (R-OH): How do we make sure skinny master accounts and other master account decisions follow a clear standard, so the process is objective, repeatable, and reproducible rather than selectively picking winners and losers? Guynn: Right now, the process for deciding whether to grant someone a master account is made by the Fed, so it is discretionary. There are guidelines that they are subject to systemwide, but there is a fair amount of discretion. The Kansas City Fed recently decided to grant a master account, although it looks a lot like a skinny master account, to Kraken, but has not yet granted it to Custodia. We have not yet started but will be reviewing later this year guidance for granting master accounts. Congress may want to think about if they want it to be more mandatory over discretionary, but right now it is mostly discretionary.
Representative Davidson (R-OH): Following President Trump’s executive order prohibiting a central bank digital currency (CBDC), has the Fed ceased all work on both retail and wholesale CBDCs, or is work on a wholesale CBDC or related payment infrastructure still ongoing? Guynn: Chair Powell has spoken to that and said that it is not ongoing. The Chair does not believe that we have the legal authority to issue a CBDC without some action by Congress. To my knowledge, it is not ongoing.
Representative Downing (R-MT): Do regulatory sandboxes allow time for incremental adaptation necessary to enable long-term frameworks for innovation? Gallagher: Like any other legally permissible banking activity, activities that promote innovation have a place in the federal banking system if conducted in a safe and sound manner. We are committed to supporting responsible innovation and working collaboratively with banks, fintech firms, and other stakeholders to understand their goals and identify a path forward, regardless of whether that is a sandbox; Billingsley: We see our institutions very frequently and successfully pilot or test new technology before they roll it out more broadly, and that works quite well; Guynn: The most important thing you can do in legislation is to make it clear that things that are a bit uncertain in terms of powers can be done on a limited basis, like engaging with digital assets, developing AI, and developing general purpose technology used for financial services.
Representative Downing (R-MT): Where does your implementation of the GENIUS Act stand? Billingsley: FDIC published a notice of proposed rulemaking on part of our responsibilities under the GENIUS Act last year. We have another one forthcoming very soon, and are working hard to meet the deadline; Guynn: We are still working on it. We will have something out very soon, and we think it will be very good; Gallagher: OCC’s rule was published for comment, and we are eagerly awaiting the feedback. We will take that into consideration as we work to finalize the rules consistent with Congress’s intention.
Representative Nunn (R-IA): Given the risks of adversarial AI use and the need for a whole-of-government approach, can the AI Plan Act help avoid duplicative or conflicting regulations? In recognizing that agencies are not fully aligned and gaps exist, do you believe a whole-of-government strategy is necessary and achievable? Would clear direction from Congress, such close some of the gaps highlighted? Guynn: It clearly is capable. Your bill is focused on defending against economic and national security risks, and it is hard to say that would not be helpful. It would further encourage interagency coordination to identify the problems and solve them; Gallagher: Yes, I do; Billingsley: I agree.
Representative Nunn (R-IA): What is the most important step Congress could take on real-time detection of foreign adversary advanced AI model learning? Billingsley: A more whole-of-government approach. The more we can coordinate and share information, the better.