- The Biden administration released a fact sheet detailing the steps it and various executive agencies plan to take to address the six key objectives outlined in the President’s Executive Order dated March 9, 2022 to ensure responsible development of digital assets (EO).
- The fact sheet looks at digital assets from the perspective of consumer protection, promoting access to new financial technologies, promoting financial stability, promoting responsible innovation, strengthening US financial leadership and fighting illicit financing.
- The fact sheet also provides an update and action points on ongoing research and development efforts related to a Federal Reserve digital currency.
- Statements from lawmakers suggest that the next session of Congress will see increased focus on both digital asset legislation and the development of a digital asset regulatory regime.
On September 16, 2022, the White House released a fact sheet detailing the key findings and action items resulting from the nine digital asset reports submitted to the President to date in accordance with the EO. The Fact Sheet provides a list of various policies and initiatives that the Administration intends to take to achieve the EO’s six previously identified goals.
- Protecting consumers, investors and businesses
According to the fact sheet “[d]Digital assets pose significant risks to consumers, investors and businesses.” The fact sheet notes that administration and regulators “have worked to protect consumers and ensure fair gaming in digital asset markets,” and stresses that the Administration plans to take “additional steps” including: (i) aggressive investigation and enforcement action against illegal practices in the digital assets space; (ii) redoubling efforts to monitor consumer complaints and address unfair, deceptive or abusive practices; (iii) Encourage agencies to issue guidance and rules to address current and emerging risks in the digital asset ecosystem, including through collaboration with other agencies; (iv) encourage agencies to share data on consumer complaints with other authorities; and (v) lead public awareness efforts to help consumers understand the risks associated with digital assets.
- Promoting access to safe and affordable financial services
According to the fact sheet “[t]o To promote secure and affordable financial services for all, the government plans to take the following steps: (i) encourage the rollout of instant payment systems, including the interbank clearing system FedNow, which is scheduled to be launched by the Federal Reserve in 2023; (ii) consider creating a federal framework to regulate non-bank payment providers; (iii) prioritize improving the efficiency of cross-border payments; and (iv) direct the National Science Foundation (NSF) to support research into creating ecosystems for digital assets that are “usable, inclusive, and accessible to all.”
- Promote financial stability
The government “plans to take the following additional steps” to address financial stability risks related to digital assets: (i) direct the US Treasury Department to work with financial institutions “to strengthen their capacity to identify and mitigate strengthen cyber vulnerabilities”; and (ii) direct the Treasury Department to work with other agencies and US allies, including the Organization for Economic Co-operation and Development (OECD) and the Financial Stability Board (FSB), “to identify, track and manage emerging strategic risks analyze related to digital asset markets.”
- Driving responsible innovation
To encourage digital asset innovation, the Administration plans to take the following steps: (i) direct the NSF to develop a digital asset research and development agenda and support research to educate stakeholders about the responsible use of digital assets; (ii) encourage the Treasury Department to provide regulatory guidance and share best practices with US firms developing fintech; (iii) advise the Environmental Protection Agency to further monitor the environmental impact of digital assets and to develop industry standards; and (iv) direct the Department of Commerce to consider establishing a permanent forum for public and private sector stakeholders to inform federal activities related to digital assets.
- Strengthening US global financial leadership and competitiveness
To “preserve US values in global digital asset markets, the government will take the following steps”: (i) Use US positions in international organizations to convey US values related to digital assets, including privacy, free markets, financial stability, consumer protection, robust law enforcement and environmental sustainability; (ii) increase cooperation with partner agencies abroad; (iii) consider providing further technical assistance to developing countries in building infrastructure and services for digital assets; and (iv) to help US fintech and digital asset companies “reach global markets for their products.”
- Fight against illegal financing
In order to combat illegal use of digital assets more effectively, the government plans to take the following steps: (i) to consider asking Congress to amend the Bank Secrecy Act and relevant laws to make them explicit for digital asset service providers Assets “including digital assets” apply to non-fungible token (NFT) exchanges and platforms and impose penalties for unlicensed fund transfers; (ii) to direct the Treasury Department to “complete an illicit finance risk assessment related to decentralized finance by the end of February 2023 and an assessment related to non-fungible tokens by July 2023”; (iii) instruct authorities to continue enforcement actions against illegal actors and address misuse of digital assets; and (iv) instruct the Treasury Department to intensify dialogue with the private sector to clarify commitments related to the risks of illicit financing.
Exploring a US Federal Reserve (CBDC) digital currency
Recognizing the potential significant benefits of a US CBDC, the government has developed Policy Objectives for a US CBDC System, a document that further elaborates on the objectives for a CBDC set out in the EO. According to policy objectives, the CBDC should: (i) provide benefits and mitigate risks for consumers, investors and businesses; (ii) promote economic growth and financial stability and reduce systemic risks; (iii) improve payment systems to make them more functional, efficient, secure and flexible; (iv) ensuring a transparent and interconnected global financial system; (v) promoting financial inclusion and equity; (vi) protection of national security; (vii) provide the opportunity to exercise human rights; and (viii) align with democratic and environmental values, including the protection of privacy.
The government noted that before a CBDC can be implemented, “further research and development of the technology that would support a US CBDC is required” and that “the Treasury Department will lead an interagency working group to assess the potential impact of a US -CBDC to examine, leverage cross-governmental technical expertise and share information with partners.”
Democratic and Republican congressmen issued statements in response to the fact sheet. A statement by Sen. Sherrod Brown (D-Oh.), chairman of the US Senate Committee on Banking, Housing and Urban Affairs, stressed the need for regulations to address cryptocurrency risk and stressed the importance of “Protect[ing] Investors, Consumers and Market Stability.” A statement from Sen. Pat Toomey (R-Pa.), senior member of the same committee, said the reports were insufficient to provide regulatory clarity and that “a comprehensive, tailored framework that it allows … new technologies to thrive with proper consumer guardrails” is required for enactment by the Legislature. A statement by Rep. Patrick McHenry (RN.C.), senior member of the House Financial Services Committee, further emphasized a desire to encourage American innovation while protecting consumers.
The fact sheet is a clear signal that the government, US regulators and Congress intend to continue their increased focus on digital asset markets. Over the course of the next legislative year, as more recommendations and regulatory regulations are introduced and implemented, it will be imperative for companies operating in the digital asset space to be aware of the changing regulatory ecosystem and the legal implications for it keep their business up to date. Companies that take a proactive stance towards the changing regulatory and legal environment are best positioned to thrive in the rapidly evolving digital asset space.