On March 9, 2022, President Joe Biden issued an Executive Order on Ensuring Responsible Development of Digital Assets (Executive Order) calling for an evolution and alignment of the U.S. authorities’s method to digital belongings. Given the substantial progress of non‑governmental-issued digital belongings, which reached a mixed market capitalization of $3 trillion in November 2021 (up from $14 billion in November 2016) in accordance to the U.S. authorities, the Executive Order acknowledges the alternatives that digital belongings and their underlying know-how current, and promotes a coverage of “responsible financial innovation” and the necessity for a whole-of-government method to guarantee continued U.S. management within the digital asset area. The Executive Order makes no particular proposals for regulation, as a substitute articulating the coverage views of the Administration.
Following a paper the Board of Governors of the Federal Reserve System issued Jan. 20, 2022 (Paper) discussing how a possible U.S. central financial institution digital forex (CBDC) may enhance the U.S. home funds system, as coated on this GT Alert, the Executive Order additionally units forth U.S. authorities coverage associated to a possible U.S.-issued CBDC.
The Executive Order directs the assistant to the president for nationwide safety affairs (APNSA) and the assistant to the president for financial coverage (APEP) to coordinate with 17 different businesses, by means of the interagency course of described in National Security Memorandum 2 of Feb. 4, 2021 (Renewing the Nationwide Safety Council System), the manager department actions vital to implement the Executive Order.
This GT Alert covers the next seven key priorities specified by the Executive Order: (1) U.S.-issued CBDC (U.S. CBDC); (2) shopper and investor safety; (3) monetary stability; (4) illicit finance; (5) U.S. management within the world monetary system and financial competitiveness; (6) monetary inclusion; and (7) accountable innovation.
1. U.S. CBDC
The Executive Order locations an urgency on analysis and improvement of a possible U.S. CBDC by directing the U.S. authorities to assess the technological infrastructure and capability wants for a possible U.S. CBDC. The Executive Order additionally encourages the Federal Reserve to proceed its analysis, improvement, and evaluation efforts for a U.S. CBDC, together with improvement of a plan for broader U.S. authorities motion in assist of their work. This U.S. authorities effort prioritizes U.S. participation within the multi-country improvement of CBDCs by requesting that its businesses take into account the potential advantages and dangers underneath varied designs of a U.S. CBDC.
To attain such purpose, amongst different necessities, by Sept. 5, 2022, the director of the workplace of science and know-how coverage and the chief know-how officer of the USA, in session with the secretary of the treasury, the chair of the Federal Reserve, and the heads of different related businesses, should submit to the president a technical analysis of the technological infrastructure, capability, and experience vital at related businesses to facilitate and assist the introduction of a U.S. CBDC.
2. Shield U.S. Shopper, Traders, and Companies
The Executive Order directs the Treasury Division and different businesses to assess and develop coverage suggestions to tackle the implications of the rising digital asset sector and modifications in monetary markets for shoppers, buyers, companies, and equitable financial progress. The Executive Order additionally encourages regulators to guarantee ample oversight and safeguard towards any systemic monetary dangers posed by digital belongings, and the dangers of crimes akin to fraud and theft, different statutory and regulatory violations, privateness and information breaches, unfair and abusive acts or practices, and different cyber incidents that customers, buyers, and companies could doubtlessly face.
To adjust to the Executive Order, by Sept. 5, 2022, the secretary of the treasury, in session with the secretary of labor and the heads of different related businesses, together with the Federal Commerce Fee (FTC), the Securities and Change Fee, the Commodity Futures Buying and selling Fee (CFTC), federal banking businesses, and the Shopper Monetary Safety Bureau (CFPB), should produce a report to the president on the implications of developments and adoption of digital belongings and modifications in monetary market and cost system infrastructures for U.S. shoppers, buyers, companies, and for equitable financial progress. Extra particularly, the report should:
tackle the circumstances that will drive mass adoption of several types of digital belongings;
tackle the dangers and alternatives such progress may current to U.S. shoppers, buyers, and companies, together with the dangers to these “most vulnerable to disparate impacts”; and
embody potential regulatory and legislative actions, acceptable to shield U.S. shoppers, buyers, and companies, and assist increasing entry to secure and reasonably priced monetary companies.
Pursuant to the buyer safety part of the Executive Order, the next further studies should be delivered to the president:
Regulation Enforcement (by Sept. 5, 2022): A report by the legal professional common, in session with different legislation enforcement businesses, discussing the function of legislation enforcement businesses in detecting, investigating, and prosecuting prison exercise associated to digital belongings, together with any suggestions on regulatory or legislative actions, as acceptable.
Vitality Policy (by Sept. 5, 2022): A report by the director of the workplace of science and know-how coverage, in session with different businesses, addressing: (i) the impact of cryptocurrencies’ consensus mechanisms on vitality utilization; (ii) potential makes use of of blockchain that might assist monitoring or mitigating applied sciences to local weather impacts; and (iii) the implications of the 2 foregoing points for vitality coverage. This report should be up to date inside a yr of submission.
The Executive Order additional encourages varied businesses to take into account further issues. For instance, the FTC and CFPB are inspired to take into account the extent to which privateness or shopper safety measures inside their respective jurisdictions could also be used to shield customers of digital belongings and whether or not further measures could also be wanted. It additionally encourages the DOJ, CFPB, and FTC to take into account how the expansion of digital belongings could affect competitors coverage. As well as, the Executive Order additionally encourages the SEC chair, the CFTC chair, the Federal Reserve chair, the chair of the board of administrators of the Federal Deposit Insurance coverage Company (FDIC), and the Workplace of the Comptroller of the Forex (OCC) to take into account the extent to which investor and market safety measures inside their respective jurisdictions could also be used to tackle the dangers of digital belongings and whether or not further measures could also be wanted.
3. Shield U.S. and International Monetary Stability and Mitigate Systemtic Danger
The Executive Order encourages the Monetary Stability Oversight Council (FSOC) to establish and mitigate economy-wide (i.e., systemic) monetary dangers posed by digital belongings and to develop acceptable coverage suggestions to tackle any regulatory gaps. To attain such targets, the Executive Order requires the next report to be delivered to the president:
Market Regulation (by Oct. 5, 2022): A report by the secretary of the treasury, in session with the FSOC, outlining the precise monetary stability dangers and regulatory gaps posed by varied forms of digital belongings and offering suggestions to tackle such dangers, together with any proposals for further or adjusted regulation and supervision in addition to for new laws.
4. Mitigate Illicit Finance and Nationwide Safety Dangers Posed by Illicit Use of Digital Assets
Below the Executive Order, the president is directing all related U.S. authorities businesses to focus their coordinating actions in order to mitigate the dangers of crimes akin to cash laundering, terrorist and proliferation financing, fraud and theft schemes, and corruption, by means of regulation, supervision, public‑non-public engagement, oversight, and legislation enforcement. To adjust to this key precedence, the Executive Order both requires or strongly encourages the next actions:
Regulation Enforcement – inside 90 days of submission to the Congress of the Nationwide Technique for Combating Terrorist and Different Illicit Financing: The legal professional common and the heads of related businesses, together with the secretary of homeland safety, could submit supplemental annexes providing further views on illicit finance dangers posed by digital belongings, together with cryptocurrencies, stablecoins, CBDCs, and tendencies in using digital belongings by illicit actors.
Illicit Financing Danger – inside 120 days of submission to the Congress of the Nationwide Technique for Combating Terrorist and Different Illicit Financing: The secretary of the treasury, in session with the heads of different related businesses, should develop a coordinated motion plan based mostly on the technique’s conclusions for mitigating the digital‑asset-related illicit finance and nationwide safety dangers addressed within the up to date technique.
5. Promote U.S. Management in Expertise and Financial Competitiveness to Reinforce U.S. Management within the International Monetary System
The Executive Order directs the Division of Commerce to work throughout the U.S. authorities in establishing a framework to drive U.S. competitiveness and management in, and leveraging of, digital asset applied sciences. Such framework will function a basis for businesses and combine this as a precedence into their coverage, analysis and improvement, and operational approaches to digital belongings.
To attain such targets, the Executive Order requires, amongst different issues:
Worldwide Cooperation (by July 7, 2022): The secretary of commerce and the heads of different related businesses should set up a framework for interagency worldwide engagement with international counterparts to adapt, replace, and improve the worldwide ideas and requirements of anti-money-laundering and countering financing of terrorism (AML/CFT) regulation, supervision, and enforcement associated to digital belongings use and transactions, to scale back inefficiencies in worldwide funds switch and cost programs.
6. Monetary Inclusion – Promote Equitable Entry to Protected and Reasonably priced Monetary Companies
The Executive Order affirms the essential want for secure, reasonably priced, and accessible monetary companies as a U.S. nationwide curiosity that should inform the U.S. authorities’s method to digital asset innovation, together with disparate affect danger.
To attain such purpose, by July 7, 2022, the secretary of the treasury, working with all related businesses, should produce a report on the way forward for cash and cost programs, to embody implications for financial progress, monetary progress and inclusion, nationwide safety, and the extent to which technological innovation could affect that future.
7. Assist Technological Advances and Guarantee Accountable Improvement and Use of Digital Assets
The Executive Order additionally directs the U.S. authorities to take concrete steps to examine and assist technological advances within the accountable improvement, design, and implementation of digital asset programs whereas prioritizing privateness, safety, combating illicit exploitation, and lowering damaging local weather impacts.
Though varied federal businesses have been taking steps towards the regulation and oversight of digital belongings, this Executive Order identifies and prioritizes the evaluation that these and different businesses want to undertake so as to obtain a extra unified and complete method to regulation and oversight of digital belongings in the USA. The Executive Order doesn’t implement any new rules or require businesses to undertake any particular guidelines or approaches. Likewise, the Executive Order doesn’t alter the jurisdiction of any U.S. company with respect to digital belongings, nor recommend that Congress ought to accomplish that. However its name to motion will hasten the federal authorities’s method to mitigating varied perceived dangers of digital belongings, akin to privateness, information safety, shopper safety, investor safety, systemic danger, nationwide safety, sanctions evasion and local weather. Importantly, present occasions relating to the Russian invasion of Ukraine may change the timeline for lots of the initiatives within the Executive Order. The Joint G7 assertion issued March 11, 2022, acknowledged, “we will ensure that the Russian state and elites, proxies and oligarchs cannot leverage digital assets as a means of evading or offsetting the impact of international sanctions…” This new coverage from the most important western nations could lead to earlier motion on coverage, and Congress (or federal regulators) may act rapidly to implement this new coverage into U.S. legislation.
The Executive Order, though a significant step ahead in U.S. digital asset coverage, leaves quite a few questions for digital asset shoppers as to relevant regulatory frameworks. We count on that, as trade waits for the analysis outputs the Executive Order requires, authorities enforcement will stay a key instrument for reforming market practices.
Benjamin M. Saul and Claudio J. Arruda additionally contributed to this text.