Senate Banking Committee Democrats warn SoFi about meeting its compliance deadline

The committee members, seemingly spurred to vigilance by the FTX debacle, do not see evidence of SoFi Digital Assets shaping up the way the Fed ordered.

Chairman of the United States Senate Banking Committee Sherrod Brown and three other Democratic committee members sent letters Nov. 21 to federal officials and to Anthony Noto, president of SoFi Technology. They expressed concern about the online bank’s efforts to conform to Federal Reserve Board requirements and nonbank digital asset trading activities conducted through SoFi Digital Assets.

In the letter to Noto, Sherrod, along with Sens. Jack Reed, Chris Van Hollen and Tina Smith, notes that the Federal Reserve had said that SoFi “is currently engaged in crypto-asset related activities that the Board has not found to be permissible” for a bank holding company (BHC) or financial holding company (FHC). The Federal Reserve granted SoFi the status of financial holding company after its purchase of bank holding company Gold Pacific Bancorp at the beginning of the year.

Although the Fed gave SoFi two years to legalize or divest SoFi Digital Assets, the senators wrote:

“We are concerned that SoFi’s continued impermissible digital asset activities demonstrate a failure to take seriously its regulatory commitments and to adhere to its obligations.”

SoFi was prohibited from expanding its impermissible activities or conducting crypto transactions in its national bank subsidiary, but it “announced a new service allowing customers of its national bank to invest part of every direct deposit into digital assets with no fees.” In addition, “SoFi’s facilitation of customer digital asset trading and holding digital assets on-balance sheet raises questions about the appropriate calculation of capital requirements. They warn:

“Taxpayers could be on the hook if crypto-related exposures at SoFi Digital Assets ultimately require its parent BHC or affiliated national bank to seek emergency liquidity or other financial assistance from the Federal Reserve or FDIC [Federal Deposit Insurance Corporation].”

Finally, the senators question SoFi’s choice of digital assets on offer. SoFi identified one of the coins it offers as “a crypto pump-and-dump” in investor protection materials, but did not stop offering it. The authors demand a response to this issues they raised by Dec. 8.

Related: Fed adds a new layer of bureaucracy for US banks engaging in crypto asset activities

The senators also sent a letter to Fed vice chair Michael Barr, Federal Deposit Insurance Corporation acting chair Martin Gruenberg and acting comptroller of the currency Michael Hsu repeating their concerns. “It is imperative the Fed, FDIC, and OCC [Office of the Comptroller of the Currency] ensure that SoFi complies with all consumer financial protection and banking regulations,” they wrote.