- The Biden Administration published a Fact Sheet providing steps it and various executive agencies plan to take in addressing the six key objectives outlined in the president’s March 9, 2022 Executive Order on Ensuring Responsible Development of Digital Assets (EO).
- The Fact Sheet addresses digital assets from the perspective of protecting consumers, promoting access to new financial technologies, fostering financial stability, advancing responsible innovation, reinforcing U.S. financial leadership and fighting illicit finance.
- The Fact Sheet also provides an update and action items on the ongoing research and development efforts related to a United States Central Bank Digital Currency.
- Statements by legislators suggest that in the next session of Congress, there will be a heightened focus on both digital assets legislation and the development of a digital asset regulatory regime.
On Sept. 16, 2022, the White House released a Fact Sheet providing key findings and action items arising from the nine reports addressing digital assets that have been submitted to the president to date consistent with the EO. The Fact Sheet provides a list of various directives and initiatives that the Administration plans to take in addressing the EO’s six previously identified objectives.
- Protecting Consumers, Investors and Businesses
According to the Fact Sheet, “[d]igital assets pose meaningful risks for consumers, investors and businesses.” The Fact Sheet states that the Administration and regulators “have worked to protect consumers and ensure fair play in digital assets markets” and emphasizes that the Administration plans to take “additional steps” including: (i) to aggressively pursue investigations and enforcement actions against unlawful practices in the digital asset space; (ii) to redouble efforts to monitor consumer complaints and enforce against unfair, deceptive or abusive practices; (iii) to encourage agencies to issue guidance and rules to address current and emergent risks in the digital asset ecosystem, including by collaborating with other agencies; (iv) to encourage agencies to share data with other agencies on consumer complaints; and (v) to lead public-awareness efforts to help consumers understand the risks associated with digital assets.
- Promoting Access to Safe, Affordable Financial Services
According to the Fact Sheet, “[t]o promote safe and affordable financial services for all, the Administration plans to take the following steps”: (i) encourage the adoption of instant payment systems, including the FedNow interbank clearing system planned for launch by the Federal Reserve in 2023; (ii) consider the creation of a federal framework to regulate nonbank payment providers; (iii) prioritize improving the efficiency of cross-border payments; and (iv) direct the National Science Foundation (NSF) to back research on the creation of digital asset ecosystems that are “usable, inclusive, and accessible by all.”
- Fostering Financial Stability
The Administration “plans to take the additional following steps” to address financial stability risks associated with digital assets: (i) direct the U.S. Department of the Treasury (Treasury) to work with financial institutions “to bolster their capacity to identify and mitigate cyber vulnerabilities”; and (ii) direct the Treasury to work with other agencies, and U.S. allies including the Organisation for Economic Co-operation and Development (OECD) and the Financial Stability Board (FSB), “to identify, track and analyze emerging strategic risks that relate to digital asset markets.”
- Advancing Responsible Innovation
In order to foster digital asset innovation, the Administration plans to take the following steps: (i) direct the NSF to develop a Digital Assets Research and Development Agenda and to back research to educate stakeholders on responsible digital asset use; (ii) encourage the Treasury to provide regulatory guidance and share best practices with U.S. firms that are developing financial technologies; (iii) advise the Environmental Protection Agency to further track the environmental impact of digital assets and to develop industry standards; and (iv) instruct the Department of Commerce to examine establishing a standing forum for public and private sector stakeholders to inform federal activities related to digital assets.
- Reinforcing U.S. Global Financial Leadership and Competitiveness
To “uphold U.S. values in global digital asset markets, the Administration will take the following steps”: (i) leverage U.S. positions in international organizations to message U.S. values related to digital assets including data privacy, free markets, financial stability, consumer protection, robust law enforcement and environmental sustainability; (ii) increase collaboration with partner agencies in foreign countries; (iii) consider providing further technical assistance to developing countries building digital asset infrastructure and services; and (iv) help U.S. financial technology and digital asset firms “find a foothold in global markets for their products.”
- Fighting Illicit Finance
To fight the illicit use of digital assets more effectively, the Administration plans to take the following steps: (i) evaluate whether to call on Congress to amend the Bank Secrecy Act and relevant laws to apply explicitly to digital asset service providers “including digital asset exchanges and nonfungible token (NFT) platforms” and raise penalties for unlicensed money transmission; (ii) direct the Treasury to “complete an illicit finance risk assessment on decentralized finance by the end of February 2023 and an assessment on non-fungible tokens by July 2023”; (iii) direct agencies to continue enforcement actions against illicit actors and address the abuse of digital assets; and (iv) direct the Treasury to enhance dialogue with the private sector to clarify obligations regarding illicit financing risks.
Exploring a U.S. Central Bank Digital Currency (CBDC)
Recognizing the potential significant benefits of a U.S. CBDC, the Administration has developed Policy Objectives for a U.S. CBDC System, a document that further elaborates on the goals outlined for a CBDC in the EO. According to the policy objectives, the CBDC should: (i) provide benefits and mitigate risk for consumers, investors and businesses; (ii) promote economic growth and financial stability and mitigate systemic risk; (iii) improve payment systems to make them more functional, efficient, secure and flexible; (iv) ensure a transparent and interconnected global financial system; (v) advance financial inclusion and equity; (vi) protect national security; (vii) provide the ability to exercise human rights; and (viii) align with democratic and environmental values, including privacy protections.
The Administration noted that before a CBDC can be implemented, “further research and development on the technology that would support a U.S. CBDC is needed” and that “the Treasury will lead an interagency working group to consider the potential implications of a U.S. CBDC, leverage cross-government technical expertise, and share information with partners.”
Democratic and Republican members of Congress issued statements in response to the Fact Sheet. A statement by Senator Sherrod Brown (D-Oh.), chairman of the U.S. Senate Committee on Banking, Housing, and Urban Affairs, emphasized the necessity of regulations to address cryptocurrency risks and highlighted the importance of “protect[ing] investors, consumers, and market stability.” A statement by Senator Pat Toomey (R-Pa.), Ranking Member of the same committee, stated that the reports were insufficient to provide regulatory clarity and that “a comprehensive, tailored framework that allows … new technologies to thrive with appropriate guardrails for consumers,” is necessary for the legislative branch to enact. A statement from Representative Patrick McHenry (R-N.C.), Ranking Member of the House Financial Services Committee, further emphasized a desire to foster American innovation while protecting consumers.
The Fact Sheet is a clear signal that the Administration, U.S. regulatory agencies and Congress intend to continue their increased focus on the digital asset markets. Over the next legislative year, as further recommendations and agency regulations are introduced and implemented, it will be imperative for businesses operating in the digital asset space to be aware of the changing regulatory ecosystem and stay apprised of the legal implications for their business activities. Businesses that take a proactive stance to the changing regulatory and legislative environment will be best positioned to succeed in the rapidly evolving digital asset space.