CFPB's crypto role may shrink under new administration

The Consumer Financial Protection Bureau (CFPB) is expected to reduce its involvement in cryptocurrency regulation as other federal and state agencies assume more prominent roles.

According to Ethan Ostroff, a partner at Troutman Pepper Locke law firm, the Securities and Exchange Commission (SEC) and state regulators like the New York Department of Financial Services (NYDFS) are likely to take the lead in shaping crypto policies.

Ostroff noted that the CFPB's diminished role aligns with the current administration's approach, but he emphasized that the agency will not be completely dismantled due to statutory obligations requiring Congressional action.

"We are highly likely to see a significant pullback by the CFPB in the context of activity by other regulators," Ostroff said.

The CFPB has historically played an active role in financial oversight but faces challenges as its leadership transitions.

Republican lawmakers have long sought to limit its powers, and the Trump administration is expected to appoint a new director who may scale back its regulatory activities.

Despite this, some functions will remain under the CFPB's jurisdiction due to established legal mandates.

The agency recently proposed a rule to extend its authority over digital wallets and stablecoins under the Electronic Fund Transfer Act.

However, this initiative's future remains uncertain as it awaits public comments and potential revision under new leadership. State-level regulators are also poised to fill any gaps left by the CFPB.

Agencies like NYDFS and California's Department of Financial Protection and Innovation could become key players in crypto regulation.

Ostroff highlighted their capacity to enforce consumer protection laws within their jurisdictions.