President Biden Issues Executive Order Ordering ‘Whole-of-Government’ Assessment of Digital Assets

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On March 9, 2022, President Biden released the long-awaited Executive Order on ensuring responsible development of digital assets (the “EO”) expressing an American strategy for the development and regulation of digital assets[1] and a potential U.S. central bank digital currency[2] (“CBDC”). Perhaps accelerated in part by a desire to combat potential evasion of Russian sanctions,[3] the EO requires numerous reports from several federal agencies to facilitate the development of policy and legislation in this area.

The EO leads a “whole-of-government” approach to innovation in digital assets and directs federal agencies to address the risks and benefits of digital assets, focusing on the following six thematic priorities: (1) protection consumers and investors; (2) financial stability; (3) illicit financing; (4) US leadership in the global financial system and economic competitiveness; (5) financial inclusion; and (6) responsible innovation. EO focuses on balancing national security and public policy interests with a commitment to innovation in digital assets and payment systems in the United States.

While the OE is not creating any new rules, it is a welcome development for the digital asset space, as it signals a desire for national coordination and clearer guidance regarding the regulation of digital assets. We summarize OE below and provide some key points to remember.

Inter-agency coordination

The EO establishes an inter-agency coordination process[4] facilitate executive agency inputs to the various reports and frameworks required under the OE. This interagency coordination process will be managed by the Assistant to the President for National Security Affairs and the Assistant to the President for Economic Policy.[5]

The six policy priorities of EO

The OE has identified six priority areas and commissioned various agencies to prepare reports to support policy, legislation and rulemaking related to digital assets in line with these priorities.

  • Consumer and Investor Protection: OE expresses concern about the risks created by digital assets for consumers, investors, or businesses, and supports protections, including maintaining privacy and preventing unlawful surveillance , to expand access to safe and affordable financial services through digital assets.[6] The EO orders the Treasury to submit a report within six months outlining the implications for consumers, investors and businesses, and equitable growth in the adoption of digital assets. Although the SEC is required to provide disclosures, the EO does not directly address the issue of whether digital assets, such as cryptocurrencies, are securities under federal law.
  • Financial Stability: The EA reviews risks to financial stability and market integrity and requests a report identifying specific financial stability risks and associated regulatory gaps resulting from the adoption of digital assets. Within 210 days, the Financial Stability Supervisory Board must outline these specific risks and deficiencies, incorporating previous analyzes and assessments from the reports of the President’s Task Force on Financial Markets (such as the November 2021 Stablecoin Report) and other agencies.[7]
  • Illicit finance and national security: EO identifies digital assets as a medium for cybercrime-related activities, including ransomware incidents, money laundering, terrorist and proliferation financing, fraud and theft, and corruption. OE requires agencies, including the Department of State, Treasury, DOJ, Commerce, DHS, OMB, and DNI, and others, to prepare funding risk reports illicit finance presented by each of the digital asset types and an illicit finance mitigation plan. risks (including through regulation, supervision and enforcement, among other methods).[8]
  • U.S. Leadership in the Global Financial System and Economic Competitiveness: The OE expresses a desire to foster international cooperation and U.S. competitiveness in digital assets and financial innovation. To support this, the OE directs the development of a framework for inter-agency international engagements with foreign and international counterparts to address the adoption of global principles and standards for transactions and use of digital assets, and to promote the development of digital asset technologies in line with American values. and legal requirements; a report on the priority actions within the framework of this international commitment framework and the effectiveness of these actions; and a framework for improving US economic competitiveness in and leveraging digital asset technologies.[9]
  • Financial Inclusion: While not requiring an explicit analysis of financial inclusion concerns or opportunities, the EO expresses a desire to expand access to safe and affordable financial services and reduce the cost of remittances and domestic and cross-border payments. The EO also establishes that it is US policy to expand access to financial services to those underserved by the traditional banking system and to ensure that the benefits of financial innovation, including digital assets, accrue equitably to all. Americans.[10]
  • Responsible Innovation: The OE establishes that it is the policy of the United States to ensure that digital asset technologies and digital payment systems are created and implemented in a responsible manner, taking into account privacy, security and consideration of environmental impacts. The EO requires a report addressing the environmental impacts and opportunities presented by cryptocurrencies and distributed ledger technology.[11]

CBDC

The EA is of the view that if a U.S. CBDC is established, any future CBDC dollar payment system should consider privacy protections and ensure transparency, connectivity, and interoperability or portability of the platform. -form and architecture.[12] The EO directs specific agencies to prepare a coordinated comprehensive report within six months on the future of the monetary and payment systems, including the potential implications of the US CBDC. The DOJ is responsible for preparing an assessment to determine whether legislative changes are required for the government to issue a US CBDC and to provide appropriate legislative proposals. The OE also encourages the Federal Reserve to report on the value and options for implementing a US CBDC.

The Office of Science and Technology Policy is required to provide a report within 180 days on the technology infrastructure, capacity and expertise needed to facilitate the introduction of a CBDC system, including the impacts of emerging technologies and potential effects on government services.

Key points to remember

The EO reflects considerable thinking about digital assets at the highest levels of government, including the belief that digital assets and associated blockchain technology may have promising use cases in the United States and around the world, consistent with interests of the US government. While the outcome of the various reports and studies — and the White House’s reaction to those findings — remains to be seen, the EO seems intended to temper concerns that the Biden administration is opposed to digital assets or innovation. technology in financial markets.

The OE also places great importance on inter-agency coordination on the analysis, risks and benefits of digital assets. Over the past few years, the Financial Crimes Enforcement Network and the Treasury’s Office of Foreign Assets Control, Office of the Comptroller of the Currency, SEC, CFTC, DOJ, and Federal Reserve have discussed policy considerations and regulations associated with digital assets, and for some agencies, issued regulatory guidance or pursued enforcement. Although the EO does not indicate a preference for the creation of a new government agency to oversee the regulation of digital assets, the coordination mandates signal greater involvement of the White House in the US government’s approach in digital assets and a desire to work on a more coordinated plan.

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