CFPB to Reduce Crypto Regulation as SEC, State Agencies Take Lead

The Consumer Financial Protection Bureau (CFPB) is anticipated to scale back its regulatory involvement in the cryptocurrency sector. This potential shift is attributed to the increasing role of other federal agencies, such as the Securities and Exchange Commission (SEC), and state-level regulators in shaping crypto policy. Ethan Ostroff, a partner at a prominent law firm, highlighted that under the current administration, the CFPB is likely to see a significant reduction in its crypto regulatory activities as other regulators take the lead.

Ostroff noted that state regulators, empowered by the Consumer Financial Protection Act (CFPA), have the authority to assume some of the CFPB's regulatory roles. However, he clarified that certain regulatory functions will remain within the CFPB's jurisdiction due to established legal requirements. Ostroff identified the New York Department of Financial Services (NYDFS) and the California Department of Financial Protection and Innovation (DFPI) as key state-level regulators to watch in the evolving landscape of crypto regulation.

Despite the potential reduction in the CFPB's role, Ostroff emphasized that the agency will not be dismantled entirely. Statutorily mandated obligations and requirements necessitate acts of Congress to make significant changes to the CFPB's structure or operations. This means that while the CFPB may see a diminished role in crypto regulation, it will continue to exist and fulfill its core responsibilities.

The Trump administration has targeted the CFPB as part of a broader effort to reduce government spending and federal debt. Russell Vought, the newly appointed head of the CFPB, announced major funding cuts and scaled back operations shortly after assuming his role in February 2025. This move has sparked criticism from figures such as Massachusetts Senator Elizabeth Warren, who co-founded the CFPB in 2007. Warren characterized the administration's actions as an attempt to undermine consumer protection rules and gain greater control over the financial system. She stressed that the Executive Branch lacks the statutory authority to fully dismantle the CFPB, which can only be achieved through Congressional approval.

This potential shift in the CFPB's regulatory stance comes at a time when the crypto industry is seeking clarity and stability in its regulatory environment. The reduced involvement of the CFPB could allow for more innovation and growth within the sector, as other regulators take on a more prominent role. However, it also raises concerns about consumer protection, as the CFPB's diminished oversight could leave consumers more exposed to the risks associated with cryptocurrencies. The evolving regulatory landscape for cryptocurrencies will continue to shape the industry's future, with different agencies and jurisdictions taking varying approaches to oversight.