Letter to SoFi CEO from United States Senate Committee on Banking, Housing and Urban Affairs

[Gunnar Larson]

Today I wonder if SoFi will lie about the conflicts with the Bank of London
and Kuwait?

On Wed, Nov 23, 2022, 5:04 PM Gunnar Larson <g at xny.io> wrote:

>
> https://drive.google.com/file/d/1BTRDAHKkx1IO3Ih07O-qY2oU-0GciYeP/view?usp=drivesdk
>
> November 21, 2022
> Mr. Anthony Noto
> Chief Executive Officer
> SoFi Technologies, Inc.
> 234 1st Street
> San Francisco, CA 94105
> Dear Mr. Noto:
> We write to inquire about SoFi Technologies, Inc.’s (SoFi) progress to
> conform its digital asset
> trading activities to U.S. banking law. Over the past year, several
> meltdowns in the crypto
> market have wiped out trillions in value, including another huge crash
> last week. We are
> concerned that SoFi’s continued nonbank digital asset trading activities
> pose risks to consumers
> and safety and soundness risks to your institution.
> In February 2022, SoFi completed its acquisition of Golden Pacific
> Bancorp, a bank holding
> company (BHC) and its subsidiary Golden Pacific Bank, a national bank.1
>  As part of that
> transaction, SoFi received approval from the Federal Reserve to become a
> BHC and elected to be
> treated as a financial holding company (FHC) subject to consolidated
> supervision by the Federal
> Reserve.2 Additionally, SoFi received a conditional approval from the
> Office of the Comptroller
> of the Currency (OCC) to create a full-service national bank subsidiary
> insured by the Federal
> Deposit Insurance Corporation (FDIC).3
> Following its conversion to a BHC, SoFi continues to operate a nonbank
> subsidiary called SoFi
> Digital Assets, an exchange for retail investors to buy and sell digital
> assets. In its letter dated
> January 18, 2022, granting approval, the Federal Reserve noted that “SoFi
> is currently engaged
> in crypto-asset related activities that the Board has not found to be
> permissible” for a BHC or an
> FHC. SoFi’s most recent annual report states that these impermissible
> activities are conducted
> by SoFi Digital Assets.4
>
> Under the January 18, 2022 letter, SoFi has two years to either divest
> SoFi Digital Assets or
> conform its activities to the law, with the potential for up to three
> one-year extensions in the Federal Reserve’s discretion. During this
> conformance period, SoFi has committed not to
> “expand [its] impermissible activities,” except as specifically authorized
> by law. Specifically,
> SoFi has committed not to increase the “types of products and services
> offered” and the
> “established risk limits for total customer digital assets maintained in
> wallets that are accessible
> online . . . or held on balance sheet.” In addition, the OCC’s conditional
> approval restricts SoFi’s
> national bank subsidiary from conducting “any crypto-asset activities or
> services” without prior
> regulatory approval.
> 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.
> First, SoFi’s apparent expansion of its digital asset services raises
> questions about progress
> towards meeting conformance commitments by January 2024. Two months after
> receiving
> approval to become a BHC, SoFi announced a new service allowing customers
> of its national
> bank to invest part of every direct deposit into digital assets with no
> fees. The company publicly
> billed this service as “the latest expansion of SoFi’s offerings to make
> it simpler to get started
> with cryptocurrency investing.”5
>
> Second, SoFi’s facilitation of customer digital asset trading and holding
> digital assets on-balance
> sheet raises questions about the appropriate calculation of capital
> requirements. Under current
> capital rules, the capital treatment of these digital assets follows their
> accounting treatment rather
> than capital standards tailored to the risks of this particular asset
> class. While digital assets can
> pose the same risks as traditional financial assets, the recent market
> crash has highlighted
> concerning credit, market, liquidity, and operational risks associated
> with digital assets.
> Appropriate capital treatment is important because 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.
> Third, SoFi’s standards for choosing which digital assets to offer its
> customers for trading raises
> investor protection concerns. According to criteria listed on SoFi’s
> website, the company’s
> policy is to list assets that “align with SoFi’s values, such as promoting
> financial inclusion and
> economic freedom.”6
>  But SoFi’s own investor protection materials posted on its website warn
> customers that at least one token listed on SoFi Digital Assets is “a
> crypto pump-and-dump”
> hazard with “no special use case or features” and that “[it] might be
> among the most high-risk
> endeavors an investor can take.”7
>  At the time SoFi issued this warning, the company had been
> offering this asset for several months and still offers it today.
> Facilitating retail sales of an
> investment product that SoFi has identified as a fraud and susceptible to
> market manipulation is
> incompatible with fundamental principles of investor protection and safety
> and soundness.
>
> Accordingly, we ask that you reply to the following questions no later
> than December 8, 2022:
> 1. Describe SoFi’s policies and procedures for:
> a. Determining which digital assets to offer and sell through SoFi Digital
> Assets.
> b. Ensuring that digital asset purchases and sales are conducted in
> compliance with
> applicable laws and regulations.
> c. Identifying any potential conflicts of interest and how those conflicts
> should be
> addressed.
> d. Monitoring customer complaints and their resolution.
> 2. How has SoFi determined the appropriate credit, market, and operational
> risk capital
> requirements for digital asset exposures, including customer digital
> assets and digital
> assets held on SoFi’s balance sheet?
> 3. Does SoFi Digital Assets offer any securities for purchase or sale? If
> so, how do SoFi
> Digital Asset’s existing registrations and licenses provide authorization
> to operate a
> platform for buying and selling those securities?
> 4. Describe SoFi’s plan to conform its digital asset trading activities to
> the BHC Act and
> Regulation Y by January 2024. How have the policies and offerings
> described in
> questions 1-3 changed, if at all, since January 18, 2022? How does its
> service allowing
> customers to invest part of their direct deposit in digital assets meet
> SoFi’s conformance
> commitments to the Federal Reserve and the OCC’s restrictions on engaging
> in digital
> asset activities within the national bank?
> Thank you for your attention and prompt response to these questions.
> Sincerely,
> Sherrod Brown Jack Reed
> United States Senator United States Senator
> Chris Van Hollen Tina Smith
> United States Senator United States Senator
>
>
>
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