On March 9, 2022, President Biden signed an Executive Order on Ensuring Responsible Development of Digital Assets. According to an accompanying fact sheet, it is the "first ever, whole-of-government approach" to regulating cryptocurrency activities. Six areas are of focus in the order: (i) consumer and investor protection, (ii) financial stability and systemic risk, (iii) the prevention of illicit finance, (iv) U.S. leadership and competitiveness, (v) financial inclusion, and (vi) responsible innovation.
The order is a significant step toward developing a comprehensive federal approach on digital assets. Although the order does not prescribe a regulatory framework itself or require the issuance of new rules, it directs various parts of the federal government to issue reports and recommendations on potential regulatory or legislative actions concerning digital assets. Rules and regulations that may emanate from such reports and recommendations will still be subject to the Administrative Procedure Act, which provides opportunities for the public to submit comments. In the absence of any proposed rulemakings, the order should spark urgency within diverse parts of the financial services and crypto industries to engage thoughtfully with legislators and regulators on issues that will be at the heart of crypto policy for years to come.
Background
Digital assets, including crypto, have had explosive growth, surpassing $3 trillion in market cap last November. While regulators were already keenly focused on crypto, there have been growing concerns on the use of crypto to facilitate illicit finance and corruption. The swath of recent sanctions against Russia have made crypto regulation an even greater priority. The rise in digital assets also creates an opportunity to reinforce American leadership in the global financial system.
President Biden's order is the United States' first comprehensive approach to digital assets. By directing the creation of interagency reports and frameworks on the benefits and risks of digital assets, the order contemplates a future in which digital assets are a component of payment systems and the financial market and, most importantly, regulated as such. In this respect, the order is "an acknowledgement that crypto is here to stay, and moves the government one step closer to a policy framework that would legitimize—and regulate—its use in the U.S." 1
Key Features
The order lays out tasks across an array of agencies and offices within the U.S. government:
- The Treasury Department and other agencies are tasked with issuing recommendations to address consumer and investor protections.
- Treasury is also directed to produce a report on the future of money and payment systems, including the conditions that drive broad adoption of digital assets.
- The Financial Stability Oversight Council is expected to identify economy-wide, systemic financial risks posed by crypto and propose recommendations to address regulatory gaps.
- The Commerce Department is tasked with establishing a framework that would leverage crypto technologies to reinforce U.S. leadership in the global financial system.
- Finally, the order encourages the Federal Reserve to continue research and report on the possible development of a U.S. central bank digital currency ("CBDC"), including the development of a strategic plan that evaluates the necessary steps and requirements for the potential implementation and launch of a U.S. CBDC.
Notably, the order directs tasks across a wide spectrum of governmental agencies and offices. While the federal financial regulators will undoubtedly have an important role, the involvement of other regulators and officials signifies the breadth that crypto issues are presenting to U.S. policy, from national security to economic competitiveness. The order charges the Assistant to the President for National Security Affairs and the Assistant to the President for Economic Policy to coordinate, through the interagency process, the executive branch actions necessary to implement the order. Representatives of the independent agencies (e.g., the Federal Reserve, CFPB, FTC, SEC, CFTC, FDIC, and OCC) "may be invited" to attend interagency meetings, "with due respect for their regulatory independence."
Summary of Actions and Deadlines
|
Objective |
Action |
Responsibility |
Timing |
|
U.S. Central Bank Digital Currencies Research and development of a U.S. CBDC, including, but not limited to, an assessment of:
Under the order, any potential U.S. CBDC should have an appropriate level of global operability and transparency to foster economic growth and center the United States in the international financial system. |
A report to include, among other topics, the impact of a U.S. CBDC on:
|
Treasury (in consultation with State, Justice, Commerce, Homeland Security, OMB, Director of National Intelligence, and the heads of other relevant agencies) |
180 days of the order |
|
Research and report on:
|
Federal Reserve |
Unspecified |
|
|
An assessment of whether legislative changes would need to be made to implement a U.S. CBDC, and a corresponding legislative proposal |
Justice (in consultation with Treasury and Federal Reserve) |
180 days of the order for the assessment; within 210 days for the legislative proposal |
|
|
Consumer, Investor, and Business Protection
Preventing risks of fraud, theft, and data breach crimes and mitigating disparate financial impacts stemming from the use of digital assets for consumers.
|
A report to include:
|
Treasury (in consultation with Labor and the heads of other relevant agencies, including the FTC, SEC, CFTC, Federal Reserve, and CFPB) |
180 days of the order |
|
Technical evaluation of the infrastructure, capacity, and expertise needed at government agencies to implement a CBDC, including cybersecurity risks |
Office of Science and Technology Policy and U.S. Chief Technology Officer (in consultation with Treasury, Federal Reserve, and the heads of other relevant agencies) |
180 days of the order |
|
|
Report on the role of law enforcement as it pertains to criminal activity using digital assets |
Justice (in consultation with Treasury and Homeland Security) |
180 days of the order |
|
|
Consider the effects of digital asset growth on competition (encouraged, not required) |
Justice (in consultation with FTC and CFPB) |
Unspecified |
|
|
Consider privacy and consumer protection measures around digital assets (each encouraged, not required) |
FTC and CFPB |
Unspecified |
|
|
Consider investor and market protection for mitigating digital asset risks (each encouraged, not required) |
SEC, CFTC, Federal Reserve, FDIC, and OCC |
Unspecified |
|
|
Report on:
|
Office of Science and Technology Policy (in consultation with Treasury, Energy, EPA, Council of Economic Advisers, Assistant to President and National Climate Advisor, and the heads of other relevant agencies) |
180 days of the order and then updated within one year of submission |
|
|
Financial Stability, Market Integrity Mitigating systemic risks and assessing financial stability and regulatory gaps caused by adopting digital assets. |
Report outlining, and recommending solutions for, risks and regulatory gaps posed by different types of digital assets |
FSOC
|
210 days of the order |
|
Limit Illicit Finance and Associated Risks Limit and provide potential oversight and law enforcement to combat money laundering, terrorist and proliferation financing, fraud and theft schemes, and corruption involving digital assets.
|
Submit annexes to the National Strategy for Combating Terrorist and Other Illicit Financing (the "Strategy") on the illicit finance risks of digital assets (optional, not required) |
Treasury, State, Justice, Commerce, Homeland Security, OMB, Director of National Intelligence, and the heads of other relevant agencies |
90 days of submission of the Strategy to Congress |
|
Develop a coordinated action plan, based on the Strategy, for mitigating illicit finance and any national security risks linked to digital assets |
Treasury (in consultation with State, Justice, Commerce, Homeland Security, OMB, Director of National Intelligence, and the heads of other relevant agencies) |
120 days of submission of the Strategy to Congress |
|
|
Notify relevant agencies of any pending, proposed, or prospective rulemakings concerning illicit finance risks of digital assets |
Treasury |
120 days of the completion of the Strategy and the National Money Laundering Risk Assessment, the National Terrorist Financing Risk Assessment, and the National Proliferation Financing Risk Assessment |
|
|
International Cooperation and U.S. Competitiveness The order aims to address international cooperation to allow interoperability while reducing the effects of inadequate AML/CFT regulation by other countries and allow U.S. investigation of digital asset crimes. It also directs the agencies to adhere to G7's principles, including transparency. |
Framework for interagency international cooperation for adoption and continued enhancement of global standards for digital assets, including CBDCs |
Treasury (in consultation with State, Commerce, U.S. AID, and the heads of other relevant agencies) |
120 days of the order |
|
Report on actions taken under the framework, including their effectiveness |
Treasury (in consultation with State, Commerce, OMB, U.S. AID, and the heads of other relevant agencies) |
One year from the establishment of the international framework above |
|
|
Framework for enhancing U.S. competitiveness in digital assets |
Commerce (in consultation with Treasury and State) |
180 days of the order |
|
|
Report on ways to strengthen international law enforcement cooperation around digital assets |
Justice (in consultation with State, Treasury, and Homeland Security) |
90 days of the order |
Special thanks to associate Jordan Briggs (New York-Financial
Institutions Advisory & Financial Regulatory), who contributed
to this publication.
Footnote
1. Pete Gannon, "Executive order on crypto collides with new Wall Street asset class," Axios (Mar. 9, 2022).
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