Powering The Future: The UK’s Nuclear Revolution
Introduction
Nuclear power has long been one of the cornerstones of the UK’s energy mix, providing a reliable source of low-carbon electricity. As the UK embarks on its Clean Energy Superpower mission, aiming for a clean electricity system by 2030 under the Clean Power 2030 Action Plan (CPAP) and achieving Net Zero by 2050, nuclear power, alongside renewable sources, will spearhead the transition to a sustainable energy future. Recent policy changes, regulatory adjustments, and legislative initiatives have fostered a favourable environment for both traditional and advanced nuclear technologies as the UK pursues decarbonisation. This article will explore these developments, beginning with the UK’s ambition and vision, and examining governmental support for nuclear projects. Additionally, we will offer insights into fusion and other innovative technologies, illustrating how the UK’s energy landscape is prepared to embrace the nuclear revolution.
This evolution reflects the government’s commitment to sustaining a diverse, home-grown, and resilient energy portfolio, capable of withstanding geopolitical shocks while fostering technological innovation and economic growth.
What is the UK’s ambition and vision for nuclear?
Currently, the UK has 5.9 GW of nuclear installed capacity; however, 4.7 GW are expected to come offline by 2030. In both the British Energy Security Strategy (2022) and the Powering Up Britain strategy (2023), the UK government committed to delivering up to 24 GW of nuclear by 2050 to cover a quarter of the country’s projected demand, placing the technology on equal footing with renewable energy sources. This long-term target was reconfirmed in the Civil Nuclear Roadmap to 2050 (‘Roadmap’) published in 2024, which elucidates the pathway to delivering a mix of large-scale nuclear power plants, innovative technologies such as small modular reactors (SMRs) and advanced modular reactors (ADRs), and fusion. The Roadmap details plans for the biggest expansion of nuclear energy in 70 years, including the construction of a major new nuclear power plant. This evolution reflects the government’s commitment to sustaining a diverse, home-grown, and resilient energy portfolio, capable of withstanding geopolitical shocks while fostering technological innovation and economic growth. The Roadmap’s ambition is reiterated in the latest report on the pathways to achieve Net Zero by 2050, the Future Energy Scenarios (‘FES’) 2024 produced by the new independent energy system operator and planner, the National Energy System Operator (NESO). Finally, CPAP, which is based on FES, concludes that in a renewables-based system, nuclear is essential to deliver a ‘backbone’ of vital firm low-carbon power.
How does the UK support nuclear technologies?
From traditional large-scale nuclear power plants to ground-breaking technologies, the UK has taken important policy, regulatory, financial, and legislative measures to support nuclear. These include a strategic approach to designing the energy system, improved permitting procedures, and funding mechanisms.
Strategic planning
The UK has adopted an integrated and whole-system approach in planning, managing, and operating the energy system, led by NESO. In a geographically constrained area with competing interests such as farming, biodiversity, and aerospace, project developers require more certainty regarding the optimal locations, quantities, and types of energy projects needed to achieve Net Zero. This information will be provided by the Strategic Spatial Energy Plan (SSEP), expected in 2026. The SSEP aims to accelerate and optimise Great Britain’s energy transition, outlining a pathway from 2030 to 2050. The first SSEP focuses on electricity generation and storage, including technologies like large-scale nuclear and SMRs, but excluding ADRs. These will be considered in future iterations of the SSEP.
Along with the nuclear-specific NPS, the infrastructure permitting system in the UK is undergoing a major reform through the Planning and Infrastructure Bill 2025.
Faster, streamlined, effective, and cost-efficient permitting
The UK government has recently announced important changes in consenting nuclear technologies, easing the permitting procedure. First, they plan to replace the National Policy Statement (NPS) for Nuclear Energy Generation (EN-6), the statutory document that sets out the government’s policy to permit applications for nuclear nationally significant infrastructure projects (NSIPs – projects that exceed a specific power capacity threshold), with a new NPS called EN-7. The new regime will apply to all nuclear – heat and electricity – developments that exceed 50 MW. The NPS removes two restrictions:
A geographical restriction of building nuclear plants in a set list of eight sites. Nuclear sites will be built anywhere in England and Wales on a criteria-based approach, including high standards of safety, security, and environmental protection.
A time-limit restriction to deploy new projects in the eight sites by 2025, providing developers with more certainty and flexibility to build new plants.
EN-7 also extends the scope of technologies covered and supports cutting-edge technologies, such as SMRs and AMRs, alongside gigawatt-scale plants. Additionally, a Nuclear Regulatory Taskforce will accelerate regulatory reforms and project delivery, including investment incentives. The consultation on EN-7 proposals has recently concluded, with the final version expected to be laid before Parliament in autumn 2025.
Along with the nuclear-specific NPS, the infrastructure permitting system in the UK is undergoing a major reform through the Planning and Infrastructure Bill 2025. The purpose of the Bill is to accelerate consenting for NSIPs, including through alternative routes of permitting on a case-by-case basis, streamlined and shorter consultation requirements, and a stricter judicial review system to limit meritless challenges against decisions that approve major infrastructure. These changes, when finalised, possibly in late 2025, are expected to apply to nuclear projects.
Furthermore, in March 2024, the Office for Nuclear Regulation (ONR), the Environment Agency (EA), and Natural Resources Wales (NRW) developed voluntary guidance for early regulatory engagement for those deploying nuclear projects in Great Britain. This guidance is intended for project developers, technology vendors, and permit holders.
Funding and derisking investment in nuclear
Nuclear projects are expensive to build. The recent examples of billions of budget overruns for the two new large-scale power plants, Sizewell C and Hinkley Point C (each having a capacity of approximately 3.2 GW), underscore the critical need for diverse and robust funding options to ensure the viability of these projects. We examine below some of the options including a new finance model and support from public bodies.
…, the main issue with CfD is that project developers bear the entire construction risk, whereas under the RAB model, this risk is shared with consumers.
A new finance model: the Nuclear Energy (Financing) Act 2022 (NEFA 2022)NEFA 2022 introduces the use of the regulated asset base (RAB) model to finance new nuclear projects. This model is commonly used for major infrastructure projects such as airports, water, and energy networks because it helps to de-risk private investment. Under the nuclear RAB model, an eligible nuclear company will receive a guaranteed return on investment throughout the lifetime of the nuclear asset, which is reflected in the licence conditions. The RAB model is now preferred for large scale projects and possibly for SMRs, over other financing options, such as the bespoke Contract for Difference (CfD) deal used for financing Hinkley Point C in 2016. The CfD is a subsidy scheme that covers the entire construction costs of the project through a fixed price for electricity output once the plant becomes operational. However, the main issue with CfD is that project developers bear the entire construction risk, whereas under the RAB model, this risk is shared with consumers. Sizewell C has sought support through the RAB model, with the final version of the RAB licence conditions expected to be issued by Ofgem soon.
The role of Great British Nuclear, Great British Energy, and National Wealth FundWith the Energy Act 2023, the UK government has established a new publicly owned company, Great British Nuclear (GBN). GBN is the expert vehicle responsible for driving the delivery of new nuclear projects through each stage of project development, co-funding selected technologies, and ensuring the right financing and site arrangements to meet the 24 GW nuclear target by 2050. GBN’s first priority is to run a competitive process to select the best SMR technologies. This selection process has reached its final stage, with the decision expected this Spring.
The new UK government has created two more new bodies to support investment and provide funding for clean energy projects: Great British Energy (GBE) and National Wealth Fund (NWF). With a capital of £7.3 billion, GBE’s purpose is to develop, invest in, build, and operate clean, home-grown energy projects. GBE aims to accelerate Great Britain’s pathway to energy independence and security by working closely with industry, local authorities, communities, and other public sector organisations. According to GBE’s founding statement, the UK government will explore how GBE and GBN can best work together on delivering the nuclear programme. GBE will be officially established once the Great British Energy Bill becomes an Act.
The National Wealth Fund (NWF), previously known as the UK Infrastructure Bank, has been allocated £27.8 billion to stimulate investment in clean energy projects, including nuclear, and to support the implementation of the new industrial strategy. GBN, GBE, and NWF play crucial roles in nuclear investment, financing, and de-risking. However, the future of nuclear development will also be influenced by the upcoming Industrial Strategy and the Spending Review.
Invest in 2025 and Spending ReviewIn October, the UK government launched a consultation on the green paper ‘Invest 2035: the UK’s modern industrial strategy’. This strategy aims to remove barriers to growth and foster a pro-business environment in eight key sectors, including clean energy industries. Although nuclear projects are typically included under the ‘clean energy’ category, some stakeholders have requested through their responses a specific mention of nuclear technology to avoid any ambiguity. The final industrial strategy will be announced in June, alongside the second phase of the Spending Review.The Spending Review is the government’s process for setting departmental budgets for future years. The first phase of the review, announced in the Autumn Budget 2024, confirmed departmental budgets for 2024-25 and set budgets for 2025-26. The crucial second phase, also known as ‘the envelope,’ will establish spending plans for the next three years over a five-year period to achieve the government’s objectives, including the growth and Clean Energy Superpower missions. As emphasised by various stakeholders, the Spending Review will play a pivotal role in supporting nuclear projects.
The UK is leading the way in fusion energy development and innovation.
Fusion, the ‘holy grail’ of nuclear
The UK is leading the way in fusion energy development and innovation. Starting with the UK’s fusion strategy in 2021, updated in 2023, the UK became one of the first countries to enact specific fusion legislation through the Energy Act 2023. This new legislation separates the regulations governing fusion energy from those that apply to traditional nuclear technologies by amending the Nuclear Installations Act 1965 to exclude fusion energy projects. As a result, fusion projects will not require licences from or be regulated by ONR, streamlining the path to commercial fusion energy deployment.
In May 2024, the UK government published a proposal for a new fusion-specific National Policy Statement (NPS), EN-8, to support an open-sited and technology-inclusive approach to siting new fusion energy facilities. Similar to EN-7, the fusion-specific NPS will use strategic criteria when identifying and assessing new sites for fusion facilities. The proposal also recommends designating all fusion plants as Nationally Significant Infrastructure Projects (NSIPs). The government has not yet published its final decision on EN-8.
In parallel, the UK government continues to advance fusion-specific projects and funding arrangements. Some of these initiatives include:
The pioneering Spherical Tokamak for Energy Production (STEP) programme, supported by £410 million funding from the UK government, aims to commercialise the technology and develop the first viable fusion power plant by 2040.
The landmark UK and US joint project, LEAPS, in partnership with Tokamak Energy.
A new joint private and UK government fusion investment fund, ‘Starmaker One,’ to assist fusion businesses and start-ups in commercialising the technology. The government has invested £20 million in the fund, which has the potential to raise between £100 million and £150 million overall investment.
…, the UK wants to lead innovation and commercialise the use of alternative nuclear technologies, particularly as these technologies can be cheaper than traditional nuclear…
AMRs, SMRs and the AI twist
AMRs, also known as Generation IV reactors, have the potential to support a variety of applications beyond electricity generation. These include hydrogen production, industrial and domestic heating, and nuclear waste management solutions. To support these technologies, the UK government awarded £196 million last year to build a commercial facility for the production of high-assay low enriched uranium (HALEU), a fuel necessary for powering AMRs.
SMRs also show promising applications. The technology is expected to contribute significantly to the UK’s ambition to become a global leader in the Artificial Intelligence (AI) sector. The AI Opportunities Action Plan (‘AI Plan’) aims to establish ‘AI Growth Zones’ (AIGZs) to facilitate and expedite the deployment of advanced AI data centres. The first AIGZ could be located in Culham, adjacent to the UK Atomic Energy Authority. An AI Energy Council has been launched to identify clean and sustainable energy solutions to meet the considerable power requirements of these AI data centres. SMRs are among the technologies anticipated to fulfil the energy needs of these centres.
Similar to fusion, the UK wants to lead innovation and commercialise the use of alternative nuclear technologies, particularly as these technologies can be cheaper than traditional nuclear due to their size, modularity, and replicability. In a consultation launched in 2024, the UK government explores alternative routes to market for these technologies beyond GBN, HALEU, and the Advanced Nuclear Fund (ANF) that offer support to both SMRs and AMRs. For example, the RAB model might be more suitable for financing cutting-edge nuclear technologies than CfDs. The alternative routes to market proposals, when finalized and taken forward, will be a game changer for the deployment of SMRs and AMRs.
Conclusion
The UK’s nuclear policy is a dynamic and evolving framework that continuously reflects its commitment to a secure, low-carbon, and innovative energy future. This policy also leverages nuclear technology to support other critical sectors such as AI. By promoting a diverse range of nuclear technologies—from large-scale power plants to cutting-edge fusion research—the UK aims to meet its ambitious climate goals, drive innovation, and stimulate substantial economic growth. The opportunities presented by the UK’s nuclear revolution are vast, with new supportive planning frameworks making it easier to capitalise on them.
Ninth Circuit Upholds DFPI’s Commercial Financing Disclosure Rules
On September 30, 2018, California enacted SB 1235, codified at California Financial Codes sections 22800–22805. See California Will Soon Require Novel Disclosure Requirements Providers Of Commercial Financings. SB 1235 requires that an offer of commercial financing for $500,000 or less be accompanied by disclosures of: (1) the amount of funds provided, (2) the total dollar cost of financing, (3) the term or estimated term, (4) the method, frequency, and amount of payments, (5) a description of prepayment policies, and (6) the total cost of financing expressed as an annualized rate. Cal. Fin. Code §§ 22802(b) & 22803(a). Four years after SB 1235 was enacted, the Office of Administrative Law approved regulations implementing the disclosure requirements, 10 CCR § 900 et seq. See OAL Approves DFPI Commercial Financing Disclosure Rules – But Who Got Stuck With The Check? A few months later, , the Small Business Finance Association filed a Complaint a challenging the validity of those regulations as unconstitutional compelled commercial speech. Small Bus. Finance Ass’n v. Hewlett, 2023 WL 8711078 (C.D. Cal. Dec. 4, 2024).
Last December, U.S. District Court Judge R. Gary Klausner granted the Department of Financial Protection & Innovation’s motion for summary judgment, finding that the regulations do not violate the First Amendment under the Supreme Court’s test for compelled commercial speech established in Zauderer v. Office of Disciplinary Counsel of Supreme Court of Ohio, 417 U.S. 626 (1985). In an unpublished decision last week, the Ninth Circuit Court of Appeals affirmed Judge Klausner’s ruling. Small Bus. Finance Ass’n. v. Mohseni, 2025 WL 1111493 (9th Cir. Apr. 15, 2025).
A New Playbook: What the CFTC’s Operating Divisions Will Consider When Making Enforcement Referrals
The three operating divisions of the CFTC (Division of Market Oversight, Market Participants Division, and the Division of Clearing and Risk, together the Operating Divisions) issued an advisory on April 17, explaining the materiality criteria they will use when determining whether to make a formal referral to the agency’s Division of Enforcement (DOE) for self-reported violations, supervision violations, or other non-compliance issues (the Referral Advisory).
The Referral Advisory comes off the heels of DOE’s February 25 advisory (the DOE advisory) regarding self-reporting, cooperation and remediation by a CFTC registered entity or registrant when recommending an investigation or enforcement action to the Commission, including the factors DOE will consider when evaluating whether to reduce the proposed civil monetary penalties in enforcement actions. Under the DOE Advisory, a registered entity or registrant may receive CMP credit for self-reporting a potential violation to the appropriate CFTC Operating Division. Under older DOE staff guidance (which has since been vacated), DOE would not provide such credit when a registered entity or registrant self-reported a potential violation to the appropriate Operating Division.
Read Katten’s summary of the DOE Advisory.
The Referral Advisory notes that the Operating Divisions may refer potential violations that are material to DOE, such as those that involve:
Harm to clients, counterparties or customers, or members or participants;
Harm to market integrity; or
Significant financial losses.
In circumstances where a material violation involves fraud, manipulation or abuse, the Referral Advisory recommends making a referral directly to DOE rather than to the Operating Divisions.
The Operating Divisions will address supervision or noncompliance issues that are not material. In other words, the Operating Divisions will no longer make referrals of these nonmaterial noncompliance issues. This guidance is consistent with the Acting Chairman Caroline Pham’s push to have the Commission treat technical, noncompliance violations in the same way that exam deficiencies are addressed. While a commissioner, she commented that “enforcement actions for one-off, non-material operational or technical issues is shooting fish in a barrel.” Acting Chairman Pham also suggested that, instead, the agency should “take an approach to operational and technical issues that is consistent with the requirements and intent of CFTC rules 3.3 and 23.602.”
In determining the materiality of a supervision or noncompliance issue, the Referral Advisory provides that the appropriate Operating Division will apply a reasonableness standard to the following criteria:
Especially egregious or prolonged systematic deficiencies or material weakness of the supervisory system or controls, or program;
Knowing and willful misconduct by management, such as conduct evidencing an intent to conceal a potential violation, or supervision or noncompliance issue; or
Lack of substantial progress towards completion of a remediation plan for an unreasonably lengthy period of time, such as several years, particularly after a sustained and continuous process with the appropriate Operating Division regarding the lack of substantial progress.
The Referral Advisory makes clear, however, that the failure to meet a deadline for corrective action or remediation plan on its own will not be sufficient for a referral to DOE.
San Francisco Holds Hearing on Proposed New Sourcing Regulations Under Proposition M
On the heels of Proposition M—which mandates that the San Francisco Tax Collector adopt sourcing rules for determining the location of gross receipts—the San Francisco Office of the Treasurer & Tax Collector released proposed sourcing regulations, holding a hearing to discuss the matter on April 8, 2025.
Overview of the Proposed Regulations
The proposed regulations generally align with the California Franchise Tax Board (FTB)’s market-based sourcing rules, but diverge in certain areas:
1. Waterfall Approach to Sourcing: The regulations implement a waterfall (tiered) approach to sourcing gross receipts from:
Services and intangible property, including the use of customer-related data, books and records, or reasonable approximation; and
Financial instruments, which also follow a waterfall structure due to limitations on mirroring FTB’s treatment via regulation.
2. Industry-Specific Rules Excluded: The proposed regulations do not adopt some of the FTB’s special industry sourcing rules (e.g., rules applicable to partnerships, banks, and construction contractors).
3.Clarification on Apportionment: The Tax Collector’s Office explicitly notes that the proposed sourcing rules do not modify the apportionment rules and are solely intended to guide the sourcing of gross receipts within the apportionment formula.
Procedural Background and Public Hearing
On April 8, 2025, the Tax Collector’s Office held a public hearing to discuss the proposed regulations and solicit feedback. Highlights from the hearing include:
1.Comparative Reviews: Tax Collector Office Staff conducted comparative reviews of sourcing frameworks from the FTB and other jurisdictions.
2.Written Comments: Hearing officials confirmed that written comments were due by close of business on April 18, 2025. They specified that comments identifying specific clients will be treated as confidential, whereas general submissions will be public.
3.Oral Comments: There were also oral comments provided by industry representatives.
One private practice tax representative raised concerns over ambiguity in the treatment of asset management service providers.
A San Francisco Chamber of Commerce representative expressed support for consistency with FTB rules but requested clarity regarding the applicability of certain industry-specific rules. The Chamber representative also suggested the addition of a presumption of correctness in favor of taxpayers who follow the regulations.
Takeaways
The Tax Collector’s Office collected public comments on the proposed sourcing regulations on April 18, 2025. Based on these comments, additional hearings may be held to discuss the concerns raised by the public in response to the proposed sourcing regulations.
Spring Fever for Private Company Investors: Avoid Investing When Red Flags Are Discovered in the Company’s Garden
We have been enjoying a nice spring in Dallas – moderate temperatures, not too much rain and mostly sunny skies. In the investing world, these conditions signal that the time is ripe for a private company investment. But just as gardeners inspect the soil, check on the sunlight, and consider the available water sources before planting, investors need to be careful that their spring enthusiasm does not blind them to warning signs regarding a private company investment. This post considers key aspects of a target company’s ownership and management to determine if red flags are present, which suggest that the investment is high risk and may be better to avoid.
Red Flag No. 1: Decision-Making Paralysis
Decision-making can be a red flag if the company’s leadership makes decisions in a haphazard way. Lack of decision-making creates conflicts or indecisiveness that can lead to missed opportunities and the failure to deploy the company’s capital and resources effectively. This is a problem for any business striving for robust growth, but a flawed decision-making structure is not always easy to discern by a potential investor during due diligence.
Sussing out the effectiveness of the company’s decision-making (or problems in this area) takes effort and the willingness to ask good questions. To get to the heart of this issue, investors should (1) request a list of the top strategic decisions that the company’s management has made over the past three to five years, (2) meet with current investors, and (3) also meet with current managers or board members. These meetings will be critical to discuss how the decisions were made, how long it took for decisions to be made, and how the company’s management dealt with challenges when some of their decisions did not work out as planned.
A well-managed company should be able to demonstrate how its management makes effective decisions, and indeed, a company that cannot explain how its decision-making process works productively is showing evidence of a red flag.
Red Flag No. 2: Investors Treated as Mushrooms
Minority investors appreciate they will not be running the show and that they will take a back seat to the company’s majority owners, who control the business. But substantial investors expect to be able to express their views to management about the company’s major decisions, to be kept informed about developments that impact the business, and to avoid surprises in the form of negative results regarding the company’s performance. Stated more simply, it is a red flag if a sizable number of the company’s current investors feel they are marginalized and unappreciated by the company’s management.
To evaluate the transparency of company management and the opportunities for minority investors to participate to some extent in decision-making, investors need to consider engaging in at least two different approaches. First, investors need to review the company’s governance documents to determine the extent to which (i) the company is required to conduct meetings on a consistent basis with investors, (ii) the company regularly issues management reports to investors regarding the company’s financial performance and operations, and (iii) the company holds votes on important measures. Potential investors will want to confirm that the required meetings are held, that the management reports are issued, and votes are held. If the company fails to conduct regular meetings with investors, lacks a consistent reporting system, and operates without any formal structure, the absence of good “corporate hygiene” poses a serious concern.
The second track for investors is to consider the experience of the company’s current investors. If they are disgruntled at how they are being treated, it will be hard for them to mask their frustration with how management conducts business. It is also a red flag if the company refuses to permit a potential investor from meeting/speaking with current investors or designates just one owner as the sole person for investors to speak with during the due diligence process. If the company tries to “hide the ball” regarding the views held by current investors, this lack of transparency is a notable red flag.
Red Flag No 3: Distracted/Conflicted Management
Majority owners who manage the business and have their fingers in many pies can also pose a significant concern. The ideal private company investment is one where the ownership (and managers) maintains a laser focus on guiding the business to success. By contrast, when the members of management split their time between different companies and/or engage in deals with other companies in which they also own an interest, this may create a serious problem for the business. When managers have dual responsibilities or their loyalties are divided among a number of different companies, this situation can result in distraction for the target company’s operations, as well as conflicts of interest that make investment less desirable.
The potential dual or divided loyalty question can be challenging for investors to evaluate because current management typically does not volunteer this information, and managers may be blind to the problem. The investor needs to seek disclosure of financial information from the company that details outside business activities by the company owners and managers, including related party transactions. Specifically, the investor will want to understand what role the target company’s managers have in other businesses and what level of ownership they have in other affiliated companies. More generally, the investor should assess how focused the management team is on the business in which the investor is considering an investment.
Evaluating this issue will require pointed discussions with current management about their bandwidth, the existence of divided loyalties, and potential conflicts with other companies. The bottom line is that managers who have their fingers in multiple pies can create unwelcome distractions for the business and also become subject to direct conflicts of interest that will be a drag on the company’s performance.
Red Flag No. 4: Uncertain Partner Exit Rights
We have covered in other posts the importance for investors to secure an exit right in the form of a buy-sell agreement at the time of their investment. This is a “put right” that authorizes minority partners to trigger a buyout of their interest requiring a purchase by the company or the majority owner. The specific process for valuing the minority interest will be set forth in the agreement as well, after the minority partner triggers the buyout.
Before investing, the potential investor therefore needs to carefully scrutinize the terms of the buy-sell agreement, whether it is contained in the company’s governance documents or set forth in a separate owners agreement. Some buy-sell agreements are so poorly drafted they cause the buyout process to become protracted or, worse, they are so complicated the buyout right almost becomes illusory. The investor should seek the following in the buy-sell agreement: (1) a clear statement as to when and how the investor can trigger the buyout, (2) the elimination of all discounts that reduce the value of the minority interest based on lack of marketability or lack of control, (3) a requirement for valuation disputes to be subject to a prompt arbitration hearing that avoids a lengthy, expensive court battle, and (4) the obligation for the company to reimburse the investor’s legal fees if the investor prevails in the valuation dispute.
The buyout right protects the minority investor when conflicts arise with management, and it ensures that the investor will not be required to continue indefinitely holding an illiquid interest in the company. This exit right is therefore critical for the minority investor to obtain at the time the investment is made. A company that refuses to provide this exit right is presenting a red flag right from the outset. There is a caveat here, however, that involves timing. It is not uncommon for a company to provide a buyout right to the minority investor, but to preclude the investor from exercising that right for some period of time after investing. A buyout right that the investor cannot trigger for two to three years is much less of a red flag as the company is seeking to avoid the duty to return funds to the investor in a short time after receiving the invested capital.
Conclusion
Spring sunshine will not make plants grow from infertile soil and in the absence of water, and similarly, a business needs more than a promising product or service to achieve success. The most successful businesses avoid becoming mired in dysfunctional management conflicts that cause companies to languish or fail regardless of the benefits of their products or services. These successful businesses also promote a good, transparent relationship with their investors.
For the potential investor, it is crucial to inspect the garden closely before planting any seeds of capital. Investors should be cautious about investing in companies that lack a clear decision-making process, that do not provide transparency to their investors, and that do not stay focused on the goals of the business. And securing an exit “put right” on the way into the investment is the wisest course regardless of the attractiveness of the garden.
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Navigating New Compliance Challenges for Financial Institutions and Payment Processors: The U.S. Treasury’s Enhanced Terrorist Finance Tracking Program
In a significant move to combat illicit financial activities focused on cartels, the U.S. government has intensified its scrutiny of cross-border payments, particularly those linked to Mexico. This development follows the designation of several Mexican cartels as Foreign Terrorist Organizations (“FTOs”) and Specially Designated Global Terrorists (“SDGTs”). These actions, coupled with the expanded use of the U.S. Treasury’s Terrorist Finance Tracking Program (“TFTP”), signal a new era of regulatory oversight for financial institutions and payment processors.
Key Developments
Cartel Designations and Legal Implications: On February 20, 2025, the U.S. Department of State designated eight cartels, including six based in Mexico, as FTOs and SDGTs. These designations expand criminal liability for knowingly providing material support to these organizations and authorize the U.S. Treasury to block financial transactions involving designated entities and their affiliates.
Southwest Border Geographic Targeting Order (“GTO”): The Financial Crimes Enforcement Network (“FinCEN”) has issued a Southwest Border GTO, requiring money services businesses (“MSBs”) in 30 ZIP codes across California and Texas to report cash transactions exceeding $200 but not more than $10,000 within 15 days effective from April 14 through September 9, 2025. This measure increases recordkeeping or reporting requirements and aims to enhance monitoring of financial flows near the United States-Mexico border. FinCEN also encourages the filing of SARs to report transactions conducted to evade the $200 threshold despite the SAR regulation dollar threshold (i.e., transactions that involve or aggregate to at least $2,000).
Enhanced Role of TFTP: The TFTP will play a pivotal role in monitoring and enforcing these new sanctions. By leveraging financial intelligence tools, U.S. regulators aim to identify potential sanctions violations, even in routine business transactions.
Penalties for Failing to Report: If a business or its representatives willfully violate a GTO as of March 14, 2025, they may face: (1) Civil Penalties: The higher of $71,545 or the transaction amount, up to $286,184, with separate penalties for each violation; or (2) Criminal Penalties: Fines up to $250,000 and/or up to five years of imprisonment.
FinCEN released FAQ’s on the GTO on April 16, 2025.
Implications for Financial Services and Payment Processors
Increased Recordkeeping or Reporting Requirements: Financial institutions are now required to block funds in which a designated cartel or its agents have an interest. This will test already existing compliance frameworks, including enhanced due diligence and transaction monitoring systems. The Southwest Border GTO further intensifies these requirements by mandating Currency Transaction Reports for cash transactions exceeding $200 in designated regions. Institutions also face strict liability for sanctions breaches under the SDGT designations.
Regulatory Risks: Companies engaged in cross-border transactions, particularly with Mexico, may face greater regulatory scrutiny. This includes industries or entities directly or indirectly linked to designated organizations. The TFTP enables regulators to flag routine transactions for additional review, increasing the risk of enforcement actions.
Technology: Payment processors and MSBs must adapt to new reporting requirements and should consider implementing advanced analytics to detect potential sanctions violations. This includes leveraging financial intelligence tools to identify suspicious patterns and mitigate risks.
Data Privacy and Security: The TFTP’s reliance on financial transaction data raises questions about data privacy and security. Institutions should balance compliance with privacy regulations while ensuring the integrity of their systems.
To navigate the evolving regulatory landscape shaped by the U.S. Treasury’s Terrorist Finance Tracking Program (TFTP) and related measures, financial services and payment processing companies should take proactive steps to monitor and react to these changes.
FHFA Has Fraud on Its Mind
In recent days, Federal Housing Finance Agency (FHFA) Director Bill Pulte has made it clear that he believes fraud is a rampant problem at FHFA. In a stream of related activities, Pulte has called on the public to report fraud via email and a new Hotline, terminated over 100 FHFA employees for alleged fraud, and taken aim at a political rival for alleged mortgage fraud.
Fraud Hotline Encourages Reporting of Fraud Concerns
On April 15, 2025, Pulte posted an invitation on X for any person to “Please submit any alleged criminal mortgage tips or mortgage fraud tips to [email protected].” This message coincides with FHFA’s new Hotline for Reporting Alleged Fraud, Waste, Abuse, or Mismanagement at Hotline | FHFA-OIG. The hotline website encourages federal employees and the public to “report information about those, whether inside or outside of the federal government, who waste, steal, or abuse government funds in connection with the Agency, Fannie Mae and Freddie Mac (the Enterprises), any of the Federal Home Loan Banks (FHLBanks), or the FHLBanks’ Office of Finance, or about mismanagement within FHFA.” The Hotline website is now seeking information on any of the following:
Possible waste, fraud, abuse, mismanagement, or other misconduct involving FHFA employees, programs, operations, contracts or subcontracts;
Possible violations of Federal laws, regulations, rules, or policies pertaining to FHFA or to any of the regulated entities; or
Possible unethical activities involving employees of FHFA or of the regulated entities.
This effort marks a significant step in Pulte’s broader campaign to foster transparency, accountability, and a culture of integrity across the federal housing finance system.
FHFA Cleans House
Following an internal investigation launched under Pulte’s anti-fraud campaign, Fannie Mae recently terminated over 100 employees for unethical behavior, including involvement in fraud. This internal investigation reflects Pulte’s zero-tolerance stance on fraud and commitment to restoring integrity at government-sponsored enterprises like Fannie Mae and Freddie Mac.
In a release by the Federal Housing Finance Agency on April 8, 2025, Pulte stressed that “there is no room for fraud, mortgage fraud, or any other deceitful act that can jeopardize the safety and soundness of the housing industry.” Further, Fannie Mae CEO Priscilla Almodovar thanked Pulte for “empowering of Fannie Mae to root out unethical conduct,” emphasizing that “we hold our employees to the highest standards, and we will continue to do so.”
Although the agencies have not released further details about the terminations, Pulte reaffirmed his commitment to combating misconduct in a post on his personal X account, stating, “We are turning around Fannie Mae and Freddie Mac, slowly but surely.”
Referral of New York Attorney General Letitia James for Mortgage Fraud
As a part of Pulte’s crackdown on alleged mortgage fraud, he has referred New York Attorney General Letitia James for federal prosecution for her alleged mortgage fraud. Pulte alleges James “has, in multiple instances, falsified bank documents and property records to acquire government-backed assistance and loans and more favorable loan terms.” Director Pulte alleges that most recently, James committed fraud by claiming a Virginia home would be her primary residence in 2023, while James is the sitting Attorney General of New York. James’s office has maintained that the Virginia residence is the primary residence of her niece, with whom she purchased the property.
Pulte further alleges fraud connected to a home purchase in Brooklyn in 2001, where James used a loan that was only available to purchase four-unit properties to purchase an alleged five-unit property. However, popular real estate sites such as StreetEasy, Trulia, and Redfin have categorized the property as a four-unit building.
Lastly, Pulte has alleged fraud in connection with a 1983 home purchase by James’s father, where the mortgage states James is her father’s wife instead of his daughter. It is unclear whether or not this was a clerical error in drafting the Mortgage or whether it was an intentional act by James and her father. While the criminal referral references the 2001 and 1983 purchases, any alleged fraud in connection with these purchases appears to be well beyond the statute of limitations.
James has initially responded that the allegations are “baseless.” She has said the “allegations are nothing more than a revenge tour” related to his civil fraud case against President Trump, which resulted in a $454 judgment from a New York Court in 2024, which he is currently appealing.
Expect Fraud Related Repurchases
Pulte’s interest in fraud is also likely to trigger new repurchase demands to the industry. One of the critical representations and warranties that lenders make when selling loans to the GSEs is that the loan meets all the requirements of the Lender Contract, including that it has not been obtained via misrepresentation or fraud. “Because the selling warranties are not limited to matters within a seller/servicer’s knowledge… the action or inaction (including misrepresentation or fraud) of the borrower, or a third party, as well as the action or inaction (including misrepresentation or fraud) of the seller/servicer will constitute the seller/servicer’s breach of a selling warranty.” Fannie Mae Guide A1-1-02, Representation and Warranty Requirements (08/16/2017), see also Freddie Mac Guide 1301.8 – Warranties and representations by the Seller (8/2/2023).
The GSEs have always maintained the ability to demand repurchase of any mortgage loans that do not meet the many qualifications of their Seller Guidelines. See Freddie Mac Guide 3602.2 – Repurchases (8/17/2016) and Fannie Mae Guide A1-3-02, Fannie Mae-Initiated Repurchases, Indemnifications, Make Whole Payment Requests and Deferred Payment Obligations (10/11/2023). During the Biden Administration, the industry experienced a sharp uptick in repurchase demands from the GSEs. As a November 2023 white paper from the Urban Institute noted, the “GSEs have become more aggressive, forcing more repurchases earlier in the life of the loan than was the case in earlier vintages. In the first few years of the mortgages’ life, there have been more repurchases for the 2018–22 origination years than there were in the 2005–08 origination years.” GSE Repurchase Activity and its Chilling Effect on the Market. Overall, the GSEs have been proactive about their repurchase rights both in recent years and prior to the Trump Administration.
With that background in mind, Pulte’s April 16, 2025, post on X that “FHFA, Fannie Mae, and Freddie Mac will be evaluating ways to ‘recall loans’ that have been obtained fraudulently” is not groundbreaking news, but it does emphasize the recent focus on fraud. Pulte’s use of “recall” instead of “repurchase” may relate to his homebuilding background, but the intent is the same. Apparently, neither Pulte nor the FHFA have responded to the National Mortgage News’ request for clarification on the post. However, some believe the X post may directly relate to the FHFA referral to the U.S. Attorney General regarding Attorney General James.
This renewed emphasis on enforcing repurchase rights—particularly in cases involving fraud—signals that lenders should prepare for heightened scrutiny and further increase in repurchase demands as the FHFA doubles down on accountability under Pulte’s leadership.
Going Forward
Taken together, these actions paint a clear picture: under Bill Pulte’s leadership, the FHFA is aggressively pivoting toward a hardline stance on fraud, ethics, and accountability. From employee terminations and public tip lines to high-profile referrals and the reinforcement of repurchase remedies, Pulte is sending a strong message that misconduct at any level—whether inside the agency, among its regulated entities, or even among political figures—will be met with swift and serious consequences. As the housing finance system braces for increased oversight, stakeholders should expect this aggressive posture to define the agency’s direction for the foreseeable future.
Digital Financial Assets – Out Of The Frying Pan And Into The Fire?
The application of the securities laws to digital financial assets has been fraught for lawyers and their clients. After taking a hard line that many of these assets were securities under the federal securities laws, the Securities and Exchange Commission with the change of Administration now appears to be taking a less hostile approach. In January, Acting Commissioner Mark Uyeda announced the formation of a Crypto Task Force. Then in February, the Staff of the Division of Corporation Finance issued a statement that certain meme coins are not securities.
A conclusion that a digital financial asset is not a security may simply transfer regulation from one regulator (the SEC) to another (the California Department of Financial Protection & Innovation), or as Bilbo Baggins exclaimed: “Escaping goblins to be caught by wolves!”*
California’s Digital Financial Assets Law will require persons engaged in “digital financial asset business activity” to be licensed by the Department. Cal. Fin. Code § 3201. The DFAL defines “digital financial asset” as “a digital representation of value that is used as a medium of exchange, unit of account, or store of value, and that is not legal tender, whether or not denominated in legal tender.” Cal. Fin. Code § 3102(g)(1). One exclusion from this definition is a “security registered with or exempt from registration with the United States Securities and Exchange Commission or a security qualified with or exempt from qualifications with the department.” Cal. Fin. Code § 3102(g)(2). Accordingly, if the SEC determines that a digital financial asset is a security, someone exchanging, transferring, or storing that asset would be subject to the DFAL, unless exempt. Conversely, a determination that a particular digital financial asset is not a security would bring persons engaged in exchanging, transferring, or storing that asset within the ambit of the DFAL. Oddly, a security that is neither registered with nor exempt from registration would not be excluded from the definition of a “digital financial asset” for purposes of the DFAL.
___________________J.R.R. Tolkien, The Hobbit, or There and Back Again.
New York AG Sues Earned Wage Access Companies for Allegedly Unlawful Payday Lending Practices
On April 14, New York Attorney General Letitia James announced two separate lawsuits against earned wage access providers—one against a company that issues advances directly to consumers, and another targeting a provider that operates through employer partnerships. Both actions allege that the companies engaged in illegal payday lending schemes, charging fees and tips that resulted in annual percentage rates (APRs) far in excess of New York’s civil and criminal usury caps.
The lawsuits assert violations of New York’s civil and criminal usury laws, which cap interest at 16% and 25%, respectively. According to the AG, the companies’ flat fees and “voluntary” tipping features amounted to de facto interest that routinely exceeded those thresholds. Both lawsuits also allege deceptive business practices and false advertising in violation of New York’s General Business Law, as well as abusive and deceptive acts and practices under the federal Consumer Financial Protection Act. In both cases, the AG alleges that the companies trap workers in cycles of dependency through frequent, recurring advances.
The lawsuit against the employer-partnered provider alleges that the company:
Imposed high fees on small-dollar, short-term advances. These fees allegedly resulted in effective APRs that often exceed 500%, despite claims that the advances are fee-free or interest-free.
Diverted wages through employer-facilitated repayment. The company allegedly required workers to assign wages and routed employer-issued paychecks directly to itself, ensuring collection before workers received their remaining pay.
Marketed the product as an employer-sponsored benefit. By leveraging exclusive partnerships, the company allegedly positioned its product as a no-cost financial wellness tool, downplaying costs and repayment risks.
The lawsuit against the direct-to-consumer provider alleges that the company:
Extracted revenue through manipulative tipping practices. Consumers were allegedly nudged to pay pre-set tips through guilt-driven prompts and fear-based messaging, which the company treated as interest income.
Automated repayment from linked bank accounts. The provider allegedly pulled funds as soon as wages were deposited, often before consumers could access them.
Used per-transaction caps to drive repeat usage. Consumers were allegedly forced to take out multiple advances and pay multiple fees to access their full available balance, magnifying the cost of each lending cycle.
Putting It Into Practice: These lawsuits reinforce a growing trend among states to impose consumer protection requirements—particularly around fee disclosures and repayment practices—regarding earned wage access products (previously discussed here). State regulators continue to increase their scrutiny of EWA providers’ business models and marketing tactics. In addition, this is perhaps the first case we have seen with a state attorney general bringing an action under the CFPA (see our related discussion here about this topic). Depending on how this case proceeds, we can expect to see more cases under the federal statute.
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Kansas City Federal Reserve Bank Explores Regulatory Risks in Gaming Ecosystems
On April 9, the Federal Reserve Bank of Kansas City published a research briefing examining how video game platforms are reshaping the digital payments landscape. As in-game purchases and platform-based transactions grow in volume and complexity, these developments are raising new regulatory concerns for both federal and state banking regulators.
The global video game industry generated nearly $190 billion in revenue in 2024, largely fueled by the increase in popularity of free-to-play models, in-game purchases, and subscription offerings. These approaches have fundamentally changed how the video game industry is monetized. Rather than relying on one-time game sales, many platforms are now relying on ongoing microtransactions, charging users small amounts for in-game content, upgrades, or access on a recurring basis. This shift has caught the attention of regulators, evidenced by the CFPB issuing an Issue Spotlight in April 2024, titled “Banking in Video Games and Virtual Worlds”, which analyzed the increased commercial activity within online video games and virtual worlds and the apparent risks to consumers—in this case, to online gamers (previously discussed here).
Overview of the Research Briefing
To support these business models, platforms have expanded the types of payments they accept, layering in credit and debit cards, digital wallets, and prepaid in-game currency. Many platforms also offer installment options at checkout. Most recently, some are exploring instant payments as a way to improve efficiency and reduce costs, especially for small-dollar transactions.
Unlike traditional card payments, instant payments settle in real time and often come with lower processing fees. That pricing difference could give platforms more flexibility in how they price in-game content. Instead of requiring players to buy a $10 bundle of in-game currency to access a $2 item, platforms could offer direct purchases—making prices more transparent and lowering the barrier for occasional or budget-conscious users. Faster payments may also help with subscription billing by reducing failed payments tied to expired cards or insufficient funds.
Adoption of instant payments in the U.S. still lags behind other countries, where some platforms already support local real-time payment systems. As the use of instant payments grows, regulators may also take a closer look at whether existing consumer protection frameworks are keeping up.
Regulatory Concerns
The report notes that the CFPB has identified several risks tied to gaming payments, including lack of transparency around pricing, unauthorized charges, and aggressive use of consumer data. Some platforms personalize offers or pricing based on player behavior, raising concerns about fairness and consent. As the use of virtual currencies and recurring charges becomes more common, regulators are questioning whether existing consumer protections adequately apply to these models.
The report also highlights security as another area of concern. Platforms now use behavioral analytics, tokenization, two-factor authentication, and other tools to prevent fraud and protect payment data. While these measures reduce friction and improve user experience, they also raise questions about how personal data is collected, stored, and used—particularly as the line between gaming and financial services continues to blur.
The report also flags concerns surrounding money laundering. In-game items and currency can often be exchanged for real money, sometimes outside official channels. That has created openings for illicit finance, even though most gaming companies aren’t subject to AML or KYC requirements. As the flow of real funds through these platforms increases, regulators may revisit whether additional oversight is warranted.
Putting It Into Practice: The CFPB and state financial regulators are signaling a growing interest of the gaming industry, particularly where in-game economies begin to resemble consumer financial products. Gaming providers would be wise to proactively assess how their business models could create compliance risk.
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Digital Dollars, Not Investments: SEC Staff Weighs in on Stablecoins
On April 4, the Securities and Exchange Commission’s (SEC) Division of Corporation Finance issued a statement clarifying that reserve-backed U.S. dollar stablecoins are not securities, at least under current law and circumstances. The nonbinding guidance marks the latest effort by SEC staff to articulate the boundaries of the agency’s jurisdiction in an evolving crypto regulatory landscape.
Stablecoins are blockchain-based digital assets that are typically pegged to traditional currencies like the U.S. dollar (we previously discussed the stablecoin market here). The statement addresses “Covered Stablecoins”—those pegged to the U.S. dollar and backed by sufficient low-risk, liquid assets, so as to allow a Covered Stablecoin issuer to fully honor redemptions on demand. Covered Stablecoins are designed to maintain a stable value by being fully backed by reserves equal to or greater than the total amount of that stablecoin in circulation. The issuer allows users to mint or redeem these stablecoins at a fixed rate of $1 per coin (or the corresponding fraction), at any time and in any quantity.
The SEC staff noted that these tokens are marketed for use in payments, money transmission, or storing value, not as speculative investments. SEC staff reasoned that because buyers are not motivated by profit, and the tokens do not confer ownership rights or returns, the transactions involved in minting and redeeming such stablecoins do not require registration under federal securities law.
While the staff’s position offers some comfort to stablecoin issuers, it is not a formal rule and carries no legal force.
Putting It Into Practice: This development comes as Congress considers legislation to establish a regulatory framework for stablecoins. The House Financial Services Committee recently advanced the STABLE Act with bipartisan support (previously discussed here). The SEC’s also announcement comes amid a broader trend of various federal regulators recalibrating their approach to digital assets (previously discussed here, here, and here). As stablecoin regulation begins to take shape, market participants should continue to carefully monitor this space for further developments.
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CFPB Announces It Will Not Prioritize Oversight of Repeat Offender Registry
On April 11, the CFPB announced that it will not prioritize enforcement or supervision against nonbank financial companies that miss registration deadlines under its Repeat Offender Registry. The Bureau also stated that it is considering a notice of proposed rulemaking to rescind or narrow the scope of the rule, finalized in 2024, that established the registry.
Under the rule (previously discussed here) covered nonbanks subject to covered orders will be required to submit certain corporate identity information, administrative information, and information regarding the covered order (e.g., copies of the order, issuing agencies or courts, effective and expiration dates, and laws found to have been violated). In addition, the final rule will require covered nonbanks to file annual reports attesting to their compliance with the registered orders. The rule’s compliance deadlines are as follows:
April 14, 2025 for nonbanks already subject to CFPB supervision; and
July 14, 2025 for all other covered nonbanks.
In its press release, the Bureau stated that the temporary non-enforcement policy applies to these deadlines and that it will instead focus enforcement and supervision efforts on more pressing threats to consumers.
Putting It Into Practice: The CFPB’s decision to deprioritize enforcement and consider rescinding the registry rule reflects a broader shift away from regulatory initiatives finalized under the prior administration (previously discussed here and here). While the move eases near-term compliance pressure, it may invite greater attention from state regulators and consumer advocates concerned about regulatory gaps. Nonbank financial institutions should prepare for a shifting landscape of federal and state supervision going forward.
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