Treasury Targets Corrupt State Prosecutor in Bosnia and Herzegovina

WASHINGTON — Today, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) designated Diana Kajmakovic, a state prosecutor in Bosnia and Herzegovina (BiH), pursuant to Executive Order (E.O.) 14033 for being responsible for or complicit in corruption or the undermining of democratic processes or institutions in the Western Balkans. Today’s action furthers the United States’ strategy to hold accountable those who carry out destabilizing activity in the Western Balkans. These activities occur against the backdrop of BiH’s most serious political crisis since 1995, as ethno-nationalist politicians and affiliated patronage networks continue to undermine the country.

“Diana Kajmakovic has continued to undermine democracy and the rule of law in Bosnia and Herzegovina,” said Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson. “Today’s designation reinforces the United States’ commitment to a stable and prosperous Bosnia and Herzegovina by targeting an individual who has played a central role in enabling corruption in the country.”

Corrupt State Prosecutor

The BiH State Prosecutor’s Office was established with a number of objectives including ensuring respect for human rights and the rule of law in the country. Its work is carried out according to the constitution and laws of BiH and requires that prosecutors perform their duties without favor, bias, or prejudice. The independence of the BiH judicial system is a prerequisite to the rule of law.

Despite these obligations to avoid prosecutorial malfeasance, Diana Kajmakovic (Kajmakovic) is a brazenly corrupt BiH state prosecutor with links to criminal organizations. As part of a larger crackdown on organized crime and narcotics trafficking in BiH, investigators analyzed private conversations conducted via encrypted messaging applications. Criminals in these encrypted conversations mentioned Kajmakovic, who worked on some of the investigations concerning this activity. In support of narcotics traffickers and other criminals, Kajmakovic helped hide evidence, prevent prosecution, and otherwise assist criminal activity in exchange for personal gain. She also attempted to block an investigation into her apparent criminal affiliates.

Kajmakovic was designated today pursuant to E.O. 14033 for being responsible for or complicit in, or having directly or indirectly engaged in, actions or policies that undermine democratic processes or institutions in the Western Balkans. Kajmakovic was additionally designated pursuant to E.O. 14033 for being responsible for or complicit in, or having directly or indirectly engaged in, corruption related to the Western Balkans.

SANCTIONS IMPLICATIONS

As a result of today’s action, all property and interests in property of the designated individual that are in the United States or in the possession or control of U.S. persons are blocked and must be reported to OFAC. OFAC’s regulations generally prohibit all transactions by U.S. persons or persons within (or transiting) the United States that involve any property or interests in property of designated or otherwise blocked persons, unless authorized by a general or specific license issued by OFAC, or exempt. U.S. persons may face civil or criminal penalties for violations of these prohibitions.

The power and integrity of OFAC sanctions derive not only from OFAC’s ability to designate and add persons to the Specially Designated Nationals and Blocked Persons (SDN) List, but also from OFAC’s willingness to remove persons from the SDN List consistent with U.S. law. The ultimate goal of sanctions is not to punish, but to bring about a positive change in behavior. For information concerning the process for seeking removal from an OFAC list, including the SDN List, please refer to OFAC’s Frequently Asked Question 897Detailed information on the process to submit a request for removal from an OFAC sanctions list.

For identifying information on the individuals designated today.

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READOUT: Financial Stability Oversight Council Meeting on September 23, 2022

WASHINGTON – Today, U.S. Secretary of the Treasury Janet L. Yellen convened a meeting of the Financial Stability Oversight Council (Council) in executive session by videoconference. 

During the meeting, the Council received an update from Treasury staff on the Council report being prepared in response to the Executive Order on Ensuring Responsible Development of Digital Assets.  The Council expects to issue the report in October 2022. 

The Council also heard a presentation from staff of the Federal Housing Finance Agency (FHFA) on FHFA’s upcoming review of the Federal Home Loan Bank System, which will include an evaluation of the system’s mission, membership eligibility requirements, and operational efficiencies. 

The Council also received an update from Treasury staff on the development of the Council’s 2022 annual report. 

Additionally, the Council voted to approve its fiscal year 2023 budget and the minutes of its previous meeting on July 28, 2022. 

In attendance at the Council meeting by videoconference were the following members: 

  • Janet L. Yellen, Secretary of the Treasury (Chairperson of the Council)
  • Jerome H. Powell, Chair, Board of Governors of the Federal Reserve System
  • Michael J. Hsu, Acting Comptroller of the Currency
  • Rohit Chopra, Director, Consumer Financial Protection Bureau
  • Gary Gensler, Chair, Securities and Exchange Commission
  • Martin Gruenberg, Acting Chairman, Federal Deposit Insurance Corporation
  • Rostin Behnam, Chairman, Commodity Futures Trading Commission
  • Sandra L. Thompson, Director, Federal Housing Finance Agency
  • Todd M. Harper, Chairman, National Credit Union Administration
  • Thomas Workman, Independent Member with Insurance Expertise
  • James Martin, Acting Director, Office of Financial Research (non-voting member)
  • Steven Seitz, Director, Federal Insurance Office (non-voting member)
  • Charles G. Cooper, Commissioner, Texas Department of Banking (non-voting member)
  • Elizabeth K. Dwyer, Superintendent of Financial Services, Rhode Island Department of Business Regulation (non-voting member)
  • Melanie Lubin, Securities Commissioner, Office of the Attorney General of Maryland, Securities Division (non-voting member)

Additional information regarding the Council, its work, and the recently approved budget and meeting minutes is available at http://www.fsoc.gov

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Remarks by Under Secretary for Domestic Finance Nellie Liang at the Brookings Institution

Introduction

Thank you for inviting me to join you today to talk about recent reports led by Treasury as part of President Biden’s Executive Order on Ensuring Responsible Development in Digital Assets.  My remarks today will focus primarily on how digital assets could alter the future money and payments system in the US, and recommendations in the report to prepare for that.  But I will first take a few minutes to talk about the here-and-now of digital assets—how they are currently being used and their effects on consumers, investors, and businesses.  And next month, the Financial Stability Oversight Council will issue a report on the financial stability risks of digital assets and regulatory gaps. 

Crypto-assets

For the report titled “Crypto-assets: Implications for Consumers, Investors, and Businesses,” the charge was to focus specifically on current use cases for crypto assets, and especially use by and effects on more vulnerable communities.  A main finding of the report is that the most prevalent current uses of crypto-assets are for trading, lending, and borrowing.  Use of crypto-assets to deliver other types of financial services, like payments at lower cost, higher speed, and without intermediaries, has not materialized yet.    

The report finds significant areas of concern.  There are frequent instances of operational failures, market manipulation, frauds, thefts, and scams.  Consumers and investors are exposed to improper conduct in crypto-assets for a variety of reasons, including a lack of transparency, non-compliance with existing regulations, as well as that crypto-assets have novel and rapidly developing applications.  In addition, while the data for populations vulnerable to disparate impacts remains limited, available evidence suggests that crypto-asset products may present heightened risks to these groups, and little evidence of financial inclusion benefits. 

Based on these findings, our first recommendation is for agencies to continue to aggressively pursue their enforcement efforts focused on the crypto-asset sector.  A second recommendation is for agencies to clarify their existing authorities to ensure they are applied appropriately to crypto-assets, and for regulators to work cooperatively so they can be more comprehensive and increase compliance with existing rules.  These recommendations recognize that agencies — including the CFPB, SEC, CFTC, and DOJ – have been hard at work to address this unlawful activity and to protect consumers and investors.  Agencies have expanded and prioritized resources – the SEC, for example, has brought more than 80 cases.  The recommendations also reflect a principle that financial services, whether provided by crypto technology or traditional financial firms, should be subject to the same rules if they pose the same risks.  That is, rules should be technology neutral.

The report also recommends that agencies work together, through the Financial Literacy and Education Commission, to improve the quality of information about crypto-assets for consumers, investors, and businesses.  The goal is to make trustworthy and consumer-friendly materials accessible and inclusive. 

Future of money and payments

I’ll now turn to the report on the future of money and payment systems.  Here we focus on digital assets used for money and payments, as well as instant payment systems, and make a set of recommendations to put us on a path to a more efficient, innovative, and inclusive money and payments system, and to reinforce U.S. global economic and financial leadership.   

The current money and payment system has many strengths.  The system has supported over a century of U.S. growth, processes an enormous volume of transactions, and supports privacy, civil rights, and other democratic values.  But some parts of the payment system are expensive and carry high fees, and other parts are slow.  It also is not as inclusive as it should be:  The percentage of the United States that is unbanked is higher than in all other G-7 countries.

Looking forward, recent innovations in digital assets and other technologies could have far-reaching implications for money and payments.  These innovations include a central bank digital currency (CBDC), retail instant payment systems, and stablecoins.  The report builds on the work of the President’s Working Group on Financial Markets, which recommended legislation for consistent and comprehensive oversight of stablecoins.  The report does not make any new recommendations regarding stablecoins, but instead considers implications of stablecoins for the payment system. 

I’ll now discuss the money and payment systems and the recommendations reviewed in the report.

CBDC

I’ll turn first to CBDC.  A CBDC is a digital form of a country’s sovereign currency.  It is a liability of the central bank.  A U.S. CBDC would serve as legal tender, be convertible one-for-one into paper currency (Federal Reserve notes) or reserve balances (deposits at the Fed).  It would clear and settle with finality and nearly instantly. 

The report’s first recommendation is for the U.S. to advance work on a possible CBDC should one be determined to be in the national interest.  There are potential benefits that could affect a decision to adopt a U.S. CBDC, such as preserving the uniformity of the currency, or providing a base for further innovation.  There are many important design choices that would require additional consideration.  For example, a retail CBDC would be broadly available to the public, while a wholesale CBDC would be limited to banks and other financial institutions.  This choice could affect private credit availability in normal times and in periods of stress.  There also is a need for further research and development on the technology to support a U.S. CBDC, which could take years.

For the U.S. to build capacity to adopt a CBDC, even as deliberations continue about whether one is in the national interest, the report suggests work in a number of areas.  In addition to supporting continued evaluation and periodic updates to the public by the Federal Reserve,  Treasury will lead an inter-agency working group to support the Fed’s efforts and advance further work on a possible U.S. CBDC.  The CBDC Working Group will consider the implications of CBDC in areas such as financial inclusion, national security, and privacy.  Leadership from the Federal Reserve, the White House, and the Treasury Department will meet regularly to discuss the progress of the CBDC Working Group, and to share updates on CDBC and other payments innovations.

Instant payments

I’ll turn now to instant payments.  Retail instant payment systems transfer funds nearly instantly, as opposed to the multi-day settlement period that occur on some legacy systems.  In the U.S., examples include the Clearing House’s RTP Network, launched in 2017, and the FedNow Service, which the Fed plans to launch in 2023.  Global experience suggests that instant payments can contribute to making the payment system, as a whole, more competitive, efficient, and inclusive.  Yet frictions may limit the extent to which the potential benefits of instant payment systems are realized.  Consumers, businesses, and financial institutions may be slow to adjust their habits and procedures to new technologies.  In addition, instant payment systems are generally accessible only to depository institutions. 

To maximize the benefits from instant payments, the report suggests efforts in three areas.  First, the U.S. government should continue outreach efforts around instant payments, with a focus on inclusion of underserved communities.  Second, the U.S. government should promote development and use of innovative technologies that allow consumers to more readily access instant payment systems.  And third, in settings where appropriate, U.S. government agencies, which send and receive millions of payments a day, should consider and support the use of instant payment systems. 

Federal framework

The report’s third recommendation is to consider establishing a federal regulatory framework for nonbank providers.  This recommendation recognizes that nonbanks are increasingly providing payment services.  These newer entrants may contribute to higher enhanced competition, inclusion, and innovation.  Today, oversight of nonbank payment providers is generally at the state level, varies significantly, and may not address certain risks in a consistent and comprehensive manner.  A federal framework could provide a common floor for minimum financial resource requirements and other standards that may exist at the state level.  It also would complement existing federal AML/CFT obligations and consumer protection requirements that apply to nonbank payment providers.

A federal framework for payments regulation could work in conjunction with a U.S. CBDC or with instant payment systems.  It could provide oversight of firms that a potential U.S. CBDC system may rely on for a range of financial services.  It also could lay out a path for nonbank payment providers to participate directly in instant payment systems. 

Cross-border

The report’s final recommendation prioritizes work to develop a faster, cheaper, and more transparent international payment system, while considering potential risks of greater integration of cross-border payment systems.  Indeed, private sector payment innovations have been driven in part by inefficiencies in the current cross-border payment systems.  Cross-border payments can take multiple days to clear, and may carry high fees.   

The U.S. has a strong national interest in supporting global standards for cross-border payment systems that reflect U.S. values, including privacy and human rights; are consistent with AML/CFT considerations; and protect U.S. national security.   

Conclusion

To conclude, as laid out in the Executive Order, new technologies when developed responsibly can lead to significant efficiencies and further innovation.  The future of money and payments report sets out a set of recommendations with a deliberate path forward to determine if a CBDC is in the national interest and to support the development and adoption of other innovations.  This path will achieve the potential benefits of innovations while mitigating risks to consumers and economic growth and stability. 

Fact Sheet: Treasury Report on Crypto-Assets: Implications for Consumers, Investors, and Businesses 

U.S. Treasury Issues Iran General License D-2 to Increase Support for Internet Freedom

WASHINGTON – Today, the U.S. Department of the Treasury issued Iran General License (GL) D-2 to increase support for internet freedom in Iran by bringing U.S. sanctions guidance in line with the changes in modern technology since the issuance of Iran GL D-1. On Wednesday, the Iranian government cut off access to the Internet for most of its 80 million citizens to prevent the world from watching its violent crackdown on peaceful protestors sparked by the brutal death of Mahsa Amini in the custody of Iran’s Morality Police. While Iran’s government is cutting off its people’s access to the global internet, the United States is taking action to support the free flow of information and access to fact-based information to the Iranian people. The updated guidance will authorize technology companies to offer the Iranian people with more options of secure, outside platforms and services.

 “As courageous Iranians take to the streets to protest the death of Mahsa Amini, the United States is redoubling its support for the free flow of information to the Iranian people,” said Deputy Secretary of the Treasury Wally Adeyemo. “Today, Treasury is announcing the expansion of Iran General License D-2, which will expand the range of internet services available to Iranians. With these changes, we are helping the Iranian people be better equipped to counter the government’s efforts to surveil and censor them. In the coming weeks, OFAC will continue issuing guidance to support the Administration’s commitment to promoting the free flow of information, which the Iranian regime has consistently denied to its people.”

The expanded GL tackles the following key issues:

  • Adds covered categories of software/services to include social media platforms, collaboration platforms, video conferencing, as well as cloud-based services in support of such services, as well as tools that incorporate communication functions and are often included with authorized items or services (e.g., online maps, e-gaming, e-learning platforms, automated translation, web maps, and user authentication services)
  • Provides additional authorization for the services that support the communication tools to assist ordinary Iranians in resisting repressive internet censorship and surveillance tools deployed by the Iranian regime.
  • GL D-2 continues to authorize anti-virus and anti-malware software; anti-tracking software; mobile operating systems and related software; anti-censorship tools and related software; Virtual Private Network (VPN) client software; and related software. These tools protect the ability of Iranians to engage in free expression and bravely resist regime oppression.

  • Removes the requirement to verify communications are “personal” in nature, in line with similar licenses in other OFAC programs.

  • For activity not covered by GL D-2, expands existing case-by-case licensing policy, particularly to allow Iranian developers to create homegrown anti-surveillance and anti-censorship apps, which many Iranian people rely upon to circumvent domestic internet controls.

Access Iran General License D-2.

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READOUT: Assistant Secretary Elizabeth Rosenberg’s Visit to the Republic of Korea

On September 22, 2022, the U. S. Department of the Treasury Assistant Secretary for Terrorist Financing and Financial Crimes Elizabeth Rosenberg met with her counterparts from the Republic of Korea’s (ROK) Ministry of Economy and Finance, Ministry of Foreign Affairs, Special Representative for Korean Peninsula Peace and Security Affairs, Financial Services Commission, and Korean Financial Intelligence Unit in Seoul. In these meetings, Assistant Secretary Rosenberg discussed economic and national security issues of mutual importance, including aggression by the Democratic People’s Republic of Korea (DPRK), economic stability in the Indo-Pacific, Russia’s war against of Ukraine, and virtual assets. These discussions reflected the strength of the U.S.-ROK alliance, and both sides agreed to deepen cooperation on the challenges the two countries face both in the region and beyond.

 

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Treasury Sanctions Iran’s Morality Police and Senior Security Officials for Violence Against Protesters and the Death of Mahsa Amini

WASHINGTON — Today, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) is designating Iran’s Morality Police for abuse and violence against Iranian women and the violation of the rights of peaceful Iranian protestors. The Morality Police are responsible for the recent death of 22-year-old Mahsa Amini, who was arrested and detained for allegedly wearing a hijab improperly.

OFAC is also targeting seven senior leaders of Iran’s security organizations: the Morality Police, Ministry of Intelligence and Security (MOIS), the Army’s Ground Forces, Basij Resistance Forces, and Law Enforcement Forces. These officials oversee organizations that routinely employ violence to suppress peaceful protesters and members of Iranian civil society, political dissidents, women’s rights activists, and members of the Iranian Baha’i community.

“Mahsa Amini was a courageous woman whose death in Morality Police custody was yet another act of brutality by the Iranian regime’s security forces against its own people,” said Secretary of the Treasury Janet L. Yellen. “We condemn this unconscionable act in the strongest terms and call on the Iranian government to end its violence against women and its ongoing violent crackdown on free expression and assembly. Today’s action to sanction Iran’s Morality Police and senior Iranian security officials responsible for this oppression demonstrates the Biden – Harris Administration’s clear commitment to stand up for human rights, and the rights of women, in Iran and globally.”

Today’s actions are taken pursuant to Executive Order (E.O.) 13553, which imposes sanctions on certain persons with respect to serious human rights abuses by the Government of Iran.

Iran’s Morality Police

Iran’s Morality Police is the component of Iran’s Law Enforcement Forces (LEF) tasked with enforcing the country’s laws against immodesty and societal vices. The LEF, the Iranian government’s main security apparatus dedicated to crowd control and protest suppression, played a key role in the crackdown on protesters in the aftermath of the disputed Iranian presidential election in 2009 and has been called upon to respond to multiple nationwide protests since then, including the November 2019 protests over gasoline price increases during which Iranian security forces killed at least hundreds of Iranian protestors. Treasury designated the LEF pursuant to E.O. 13553 on June 9, 2011, for its role in the 2009 post-election crackdown.

On September 14, 2022, the LEF’s Morality Police arrested 22-year-old Mahsa Amini for purportedly wearing a hijab improperly and sent her to an “educational and orientation” class at police headquarters. She was transferred to a hospital that same day in a coma and died two days later from internal injuries. Eyewitnesses claim that Amini died due to injuries sustained while in Morality Police custody. Mahsa’s father told the press that authorities covered bruises on her body in the hospital and refused to let the family see them. LEF authorities have blamed her death on a heart ailment, but her family said she had no such condition. Iran’s Morality Police are being designated pursuant to E.O. 13553 for having acted or purported to act for or on behalf of, directly or indirectly, Iran’s LEF.

Mohammad Rostami Cheshmeh Gachi serves as the head of Iran’s Morality Police, which has demonstrated a culture of violence and excessive force under his command. In early 2022, Rostami declared that the Morality Police would punish Iranian women who refuse to wear a hijab. Haj Ahmad Mirzaei served as the head of the Tehran division of Iran’s Morality Police during Amini’s unjust detention and untimely death. Rostami and Mirzaei are being designated pursuant to E.O. 13553 for having acted or purported to act for or on behalf of, directly or indirectly, Iran’s LEF.

Senior Security Services Officials

Esmail Khatib is Iran’s Minister of Intelligence and head of the MOIS, one of the Iranian government’s main security services which is responsible for serious human rights abuses. Under his leadership, the MOIS has cracked down on a large number of human rights defenders, women-rights activists, journalists, filmmakers, and members of religious minority groups. MOIS has also aggressively persecuted individuals reporting on human rights abuses and violations in Iran, as well as their families, and subjected detainees to torture in secret detention centers during his tenure.

Khatib is being designated pursuant to E.O. 13553 for having acted or purported to act for or on behalf of, directly or indirectly, the MOIS and for being a person acting on behalf of the Government of Iran who is responsible for or complicit in, or responsible for ordering, controlling, or otherwise directing, the commission of serious human rights abuses against persons in Iran or Iranian citizens or residents, or the family members of the foregoing, on or after June 12, 2009. Treasury previously designated Khatib on September 9, 2022, pursuant to cybersecurity authorities for having acted or purported to act for or on behalf of, directly or indirectly, the MOIS.

Salar Abnoush is the deputy commander of the Basij and has publicly described his command-and-control role over Basij forces during the November 2019 protests. The Basij have been linked to the killing of unarmed protestors on numerous occasions.

Qasem Rezaei was appointed the LEF deputy commander in May 2020. As a senior LEF official, Rezaei is responsible for serious human rights violations committed by the LEF under his command. Rezaei has also directly overseen violence against detainees, including torture and beatings. He has justified the LEF’s actions following the deadly use of force against Iranian protestors and called for continued violence against protestors in May 2022. As a former border commander of the LEF, Rezaei oversaw the harsh treatment of persons on Iran’s border, including the use of direct fire against persons on Iran’s borders.

Manouchehr Amanollahi is the LEF commander of Iran’s Chaharmahal and Bakhtiari province. During his tenure, the LEF suppressed 2021 protests in the province in response to a lack of water, and 2022 protests in response to food rationing. LEF units under Amanollahi’s command used live rounds against protestors when suppressing the protests, resulting in multiple deaths. As an advisor to LEF leadership, Amanollahi was also involved in the LEF’s response to nationwide protests in November 2019, which resulted in the deaths of hundreds of protestors.

Kiyumars Heidari is the commander of the Iranian Army’s Ground Forces. He has publicly admitted to his and his force’s involvement in the violent response to the November 2019 protests that led to the death of at least hundreds of protesters.

Abnoush, Rezaei, Amanollahi, and Heidari are all being designated pursuant to E.O. 13553 for being persons acting on behalf of the Government of Iran (including members of paramilitary organizations) who are responsible for or complicit in, or responsible for ordering, controlling, or otherwise directing, the commission of serious human rights abuses against persons in Iran or Iranian citizens or residents, or the family members of the foregoing, on or after June 12, 2009, regardless of whether such abuses occurred in Iran.

Sanctions Implications

As a result of today’s action, all property and interests in property of the individuals and entities that are in the United States or in the possession or control of U.S. persons must be blocked and reported to OFAC. OFAC’s sanctions generally prohibit all dealings by U.S. persons or within the United States (including transactions transiting the United States) that involve any property or interests in property of blocked or designated persons.

In addition, persons that engage in certain transactions with the individuals or entities designated today may themselves be exposed to designation. Furthermore, any foreign financial institution that knowingly facilitates a significant transaction or provides significant financial services for any of the individuals or entities designated today could be subject to U.S. correspondent or payable-through account sanctions.

The power and integrity of OFAC sanctions derive not only from its ability to designate and add persons to the Specially Designated Nationals and Blocked Persons List (SDN List), but also from its willingness to remove persons from the SDN List consistent with the law. The ultimate goal of sanctions is not to punish, but to bring about a positive change in behavior. For information concerning the process for seeking removal from an OFAC list, including the SDN List, please refer to OFAC’s Frequently Asked Question 897.

Identifying information on the individuals and entities designated today.

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Remarks by Under Secretary for Domestic Finance Nellie Liang at the Securities Industry and Financial Markets Association’s Prudential and Capital Board Subcommittee

As Prepared for Delivery

Let me begin by thanking SIFMA for inviting me to speak at today’s meeting.  In my remarks, I will focus on the progress made by the official sector towards enhancing the resilience of the Treasury market.[i]

The Treasury market plays a critical role in financing the federal government, supporting the broader financial system, and implementing monetary policy.  To ensure the Treasury market continues to fulfill these vital purposes, the official sector needs to seek continual improvements that strengthen the Treasury market in order to keep pace with changing technology and trading patterns.

In addition, amid the increase in economic and market volatility since the beginning of the year, reduced market liquidity has served as a daily reminder that we need to be vigilant in monitoring market risks.  While the Treasury market continues to operate through today’s macro uncertainties, episodes of market stress, for example in March 2020, September 2019, and October 2014, underline the importance of understanding market vulnerabilities and exploring ways to enhance Treasury market resilience.

Last November, Treasury, in conjunction with the Inter-Agency Working Group on Treasury Market Surveillance (or the IAWG), released a staff progress report to update the public on its work.[ii]  Although each agency has distinct roles and authorities with regard to the Treasury market, the agencies are collaborating to better understand the issues and work together toward shared goals. 

In the ten months since the publication of the staff progress report, we have already made significant progress.  Before highlighting the key elements of progress, I want to be clear about our objectives.  These actions, or any official sector actions for that matter, are not meant to eliminate volatility or completely insulate the market from periods of stress.  Instead, the aim is to increase the ability of the Treasury market to absorb, rather than amplify, potential adverse shocks and disruptions.  At the same time, we recognize that some shocks can be extreme and unpredictable, such as the COVID pandemic, and official interventions may still be necessary even with substantive reforms.

The report highlighted five workstreams the IAWG has prioritized.[iii]  Today, I plan to focus on progress made on the workstreams related to data transparency and changes in Treasury market liquidity demand, areas where Treasury can and has played a more active role.  I will conclude by mentioning some other important accomplishments from across the IAWG.

Improving Data Quality and Availability

Access to accurate and timely data is vital.  For the official sector, data enable analysis of the effects of current and potential policies, as well as prompt and effective responses if stresses emerge.  For market participants, data provide confidence in the market’s fairness and efficiency and inform trading decisions.

The official sector already collects substantial data on the Treasury market, including data on most cash market transactions through TRACE as well as most centrally cleared or triparty repo transactions.  These data have proven invaluable in policymaking and have been incrementally improved over the years.  Just this month, TRACE began to include data on transactions by certain depository institutions, closing an important data gap.

One of the largest remaining data gaps is in the market for non-centrally-cleared bilateral repo transactions.  The Treasury Department’s Office of Financial Research recently met with various industry participants to better understand current practices in this market and conducted a pilot data collection.  The pilot collection was designed to prepare for rulemaking to establish a permanent data collection covering the broader market.

Treasury is also considering providing additional data to the public on secondary market transactions of Treasury securities.  Previous incremental increases in transparency appear to have benefited markets, and there may be room to do more, though it is important to avoid creating disincentives for intermediaries to provide liquidity.  

In June, Treasury published a request for information to solicit public feedback on additional transparency for secondary market transactions of Treasury securities.  The comment period recently closed, and we received 28 comments from a broad range of market participants.  The comments include diverse opinions on the potential benefits and costs of additional transparency, but were overall supportive of the official sector’s objective to enhance Treasury market resilience.  Differences focused on the pace and ultimate extent of transparency that should be provided.  We plan to provide an update on our initial findings at the upcoming Treasury market conference on November 16.

Also, the SEC recently approved two proposed amendments from the Financial Industry Regulatory Authority regarding TRACE for Treasuries.  First, an amendment to shorten the reporting timeframe to 60 minutes and increase the granularity of transaction details reported.  And, second, an amendment to publish the aggregated Treasury security transaction statistics on a more frequent basis, such as moving from weekly to daily publication.

Examining Effects of Leverage and Fund Liquidity Risk Management Practices

Let me turn next to the growing size and influence of certain investor positions and trading flows on Treasury market liquidity.  Since the global financial crisis, open-end corporate bond funds have grown substantially as a share of corporate bonds and as a share of Treasury securities.  However, the daily liquidity offered to shareholders does not reflect that the funds’ underlying assets can be significantly less liquid, creating a first-mover advantage.  This first-mover advantage can create a surge in demand for bond market liquidity in stress periods when investors want to flee to cash-like assets.  While Treasury securities are an important liquidity risk management tool, they can be the first securities sold in a stress period – given their higher liquidity relative to other bonds – possibly amplifying stresses in markets.  In such periods, highly-leveraged hedge funds may also need to liquidate assets, including Treasury securities.  These scenarios played out in the “dash for cash” in March 2020, when hedge funds and open-ended bond mutual funds were two of the largest participants in the broad selling of Treasury securities.

In 2021, the Financial Stability Oversight Council made it a priority to evaluate and address the risks to U.S. financial stability posed by these funds and established working groups to bring together the agencies to share information and expertise.  SEC Chair Gensler has asked the SEC staff to consider changes to rules for open-end funds, including related to fund liquidity, pricing, and resilience in stress periods.  On the international front, the Financial Stability Board will make a set of recommendations to mitigate issues of structural liquidity mismatch in some open-end funds.  For hedge funds, the SEC and CFTC jointly proposed additional amendments to enhance reporting by large hedge funds, including refining the reporting of investment exposures and leverage as well as better differentiating between positions in the cash versus derivatives markets for Treasury securities, which should improve the ability to monitor systemic risk.

Other Workstreams

As you know, the IAWG highlighted three other workstreams – improving resilience of market intermediation; evaluating expanded central clearing; and enhancing trading venue transparency and oversight – and there has also been progress made by the agencies. 

  • The Federal Open Market Committee announced the establishment of a domestic standing repo facility and a repo facility for foreign and international monetary authorities. 
  • The SEC re-proposed regulations for oversight of and public disclosures by Treasury trading platforms, including removing the prior government securities exemption and expanding the definition of exchange to include a broader set of trading venues, such as request-for-quote platforms.
  • In March, the SEC proposed rules outlining specific qualitative and quantitative criteria for determining whether a market participant must register as a dealer or government securities dealer and comply with the associated rules.
  • And, just last week, the SEC proposed rule changes that would enhance risk management practices for central counterparties in the Treasury market and facilitate additional clearing of Treasury securities transactions.

We have compiled a list of all the progress the IAWG has made, which we will be posting, and plan to discuss more at the November conference. 

To conclude, we have taken important steps forward on enhancing the Treasury market’s resilience and have a strong roadmap for continued improvements.  In addition, we will remain flexible.  I expect the market will continue to evolve, and public policy will need to evolve alongside it.


[i] See the accompanied fact sheet released today on the official sector’s progress in enhancing the resilience of Treasury markets.

[ii] The Inter-Agency Working Group on Treasury Market Surveillance (IAWG) is comprised of staff from the U.S. Department of Treasury, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the U.S. Securities and Exchange Commission, and the U.S. Commodity Futures Trading Commission.

[iii] The five workstreams are: improving resilience of market intermediation; improving data quality and availability; evaluating expanded central clearing; enhancing trading venue transparency and oversight; and examining effects of leverage and fund liquidity risk management practices.

OCC Hosts Risk Governance and Compliance Risk Workshops in Nashville

News Release 2022-117 | September 21, 2022

WASHINGTON—The Office of the Comptroller of the Currency (OCC) will host two workshops November 1-2 in Nashville, Tenn., for directors, senior management, and other key executives of national community banks and federal savings associations.

The Risk Governance: Improving Director Effectiveness workshop on November 1 combines lectures, discussion, and exercises to provide practical information for directors to effectively identify, measure, monitor, and control risks. The workshop also focuses on the OCC’s approach to risk-based supervision and major risks in the financial industry.

The Compliance Risk: What Directors Need to Know workshop on November 2 is focused on the critical elements of an effective compliance risk management program. The workshop also emphasizes major compliance risks and critical regulations. Topics of discussion include the Bank Secrecy Act, Equal Credit Opportunity Act, and other compliance hot topics.

The workshop fee is $99 and limited to the first 25 registrants. Participants receive course materials, supervisory materials, and lunch.

To register online and view the schedule and locations of other workshops, visit the OCC’s website. For additional questions about the workshops, please contact the OCC Bank Director Workshop Team at (202) 649-6490 or [email protected].

Media Contact

Anne Edgecomb
(202) 649-6870

California to Receive up to $1.1 Billion from U.S. Treasury Department to Promote Small Business Growth and Entrepreneurship through the American Rescue Plan

California Approved to Receive Federal Funding Through the State Small Business Credit Initiative

 WASHINGTON — Today, the U.S. Department of the Treasury announced the approval of California’s application for funding under the State Small Business Credit Initiative (SSBCI) for up to $1.1 billion, the largest funding amount that has been approved in the SSBCI program.

The American Rescue Plan reauthorized and expanded SSBCI, which was originally established in 2010 and was highly successful in increasing access to capital for small businesses and entrepreneurs. The new SSBCI builds on this successful model by providing nearly $10 billion to states, the District of Columbia, territories, and Tribal governments to increase access to capital and promote entrepreneurship, especially in traditionally underserved communities as they emerge from the pandemic. SSBCI funding is expected to catalyze up to $10 of private investment for every $1 of SSBCI capital funding, amplifying the effects of this funding and providing small business owners with the resources they need to sustainably grow and thrive. State governments submitted plans to Treasury for how they will use their SSBCI allocation to provide funding to small businesses, including through venture capital programs, loan participation programs, loan guarantee programs, collateral support programs, and capital access programs.

“This is an historic investment in entrepreneurship, small business growth, and innovation through the American Rescue Plan that will help reduce barriers to capital access for traditionally underserved communities,” said Secretary of the Treasury Janet L. Yellen. “I’m excited to see how SSBCI funds will promote equitable economic growth in California and across the country.”

“This historic investment demonstrates why the American Rescue Plan is one of the most transformative pieces of legislation in the 21st Century,” Senator Alex Padilla said. “The $1.1 billion invested in California’s small businesses will help unlock the potential of entrepreneurs in underserved communities across the state who may have never had the support needed to build their businesses and achieve the American Dream. When small businesses succeed, they create good-paying jobs that revitalize our neighborhoods and strengthen our economy.”

“By investing in small businesses, we boost our economy, create jobs, and strengthen the building blocks of communities,” said Representative Katie Porter. As a champion for oversight, I am proud to work in partnership with the Biden Administration to legislate support for our nation’s small businesses and then to verify that entrepreneurs are getting the help they need.”

“Small businesses are the backbone of our economy and I am proud the American Rescue Plan is delivering historic investments to help entrepreneurs thrive, particularly in underserved areas,” said Representative Mike Levin. “My office has heard from local business owners who need more resources and extra help to get off the ground, which is why these SSBCI funds are so important. I look forward to seeing this investment pay off for local small businesses soon.”

With its SSBCI funds, California will operate six programs expected to create jobs, drive key investments in underserved entrepreneurs, and increase small business lending over the long term.

  • California has allocated over $118 million to a capital access program that will help cover potential losses on small business loans to enhance small business lending.
  • California has allocated over $390 million to a small business loan guarantee program that is expected to expand access to capital for underserved communities, including by building on existing relationships with lenders that have strong established presences in those communities.
  • California has allocated over $472 million to a program that will help to provide collateral for small business loans, which is expected to generate over $5 billion in private financing over the next decade.
  • California has allocated $200 million to implement several venture capital strategies intended to provide key investments to small businesses, including through first-time and under-represented fund managers and those with track records of investing in underserved businesses. These venture capital programs are projected to create or retain over 28,000 jobs and generate several billion dollars of private financing over the next decade.

The California Infrastructure and Economic Development Bank (IBank), an agency of the Governor’s Office of Business and Economic Development, will administer the state’s SSBCI loan guarantee program and venture capital programs, and the California Pollution Control Financing Authority, an authority of the State Treasurer’s Office, will administer the capital access program and the collateral support program.

A White House report released in June found that more Americans are starting new businesses than ever before. In 2021, Americans applied to start 5.4 million new businesses – 20% more than any other year on record. It also found that small businesses are creating more jobs than ever before, with businesses with fewer than 50 workers creating 1.9 million jobs in the first three quarters of 2021 – the highest rate of small business job creation ever recorded in a single year. The investments being made through SSBCI are a key part of the Biden Administration’s strategy to keep this small business boom going by expanding access to capital and by providing entrepreneurs the resources they need to succeed. The work Treasury has done through the implementation process to ensure SSBCI funds reach traditionally underserved small businesses and entrepreneurs will also be critical to ensuring the small business boom continues to lift up communities disproportionately impacted by the pandemic. Treasury intends to continue approving state plans on a rolling basis.

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READOUT: Under Secretary of the Treasury Brian Nelson’s Stakeholder Meeting at the Center for a New American Security

WASHINGTON —U.S. Under Secretary of the Treasury for Terrorism and Financial Intelligence Brian E. Nelson met today with a group of stakeholders convened by the Center for a New American Security to discuss Treasury’s recent Action Plan to Address Illicit Financing Risks of Digital Assets. Under Secretary Nelson and the participants, which included government stakeholders, private industry, and academics, discussed the report’s findings, including the need for government and external stakeholders to work collaboratively to address the illicit finance risks that virtual assets pose. Under Secretary Nelson recognized the work of many in industry to engage in constructive dialogue and support government efforts to mitigate the misuse of virtual assets for money laundering, terrorist financing and proliferation financing.

Under Secretary Nelson also underscored Treasury’s commitment to the plan’s priority and supporting actions, including promoting implementation of international AML/CFT standards and deepening engagement with the private sector. He noted that the use of virtual assets for illicit activities remains below the scale of traditional finance and represents a small portion of overall digital asset use, but that the increases in illicit finance in digital assets in absolute terms continues to present national security risks. He emphasized the need for adequate compliance with and enforcement of illicit financing laws in the virtual asset space. 

Fact Sheet: Action Plan to Address Illicit Financing Risks of Digital Assets