Overview
On March 9, the White House released an Executive Order on Ensuring Responsible Development of Digital Assets, the first “whole-of-government” approach to examining the risks and benefits associated with digital assets.
Summary
The Executive Order requires certain federal agencies to broadly review their policies related to digital assets and focuses on six key areas:
- Consumer and investor protection
- Financial stability
- Illicit finance and national security
- US competitiveness within the global financial system
- Financial inclusion
- Responsible innovation
The Executive Order does not lay out any specific policy positions or require executive branch or independent agencies to adopt rules aligning with any particular policy proscription. Rather, the Executive Order will begin the process of agency coordination and collaboration to assess digital asset risks and benefits and associated policy proposals.
The Executive Order requires the production of 14 reports, assessments, frameworks, and other written work products, with deadlines spanning from 60 to 210 days from the order’s issuance. See below for a chart laying out each of the reports, responsible agencies, and deadlines, as set forth in the Executive Order. The materials, as described below, are to be produced by a wide range of government agencies, including the Departments of Commerce, Energy, Homeland Security Justice, Labor, State, and Treasury, the Office of Management and Budget, and the Environmental Protection Agency, along with the Commodity Futures Trading Commission (CFTC), Consumer Financial Protection Bureau (CFPB), Federal Deposit Insurance Corporation, Federal Reserve Board of Governors, Federal Trade Commission (FTC), Financial Stability Oversight Council, Office of the Comptroller of the Currency, Office of Science and Technology Policy, Securities and Exchange Commission (SEC), and White House offices. The National Security Council and National Economic Council will coordinate these government-wide activities.
The Executive Order is notable for its balance, emphasizing US competitiveness, financial inclusion, and responsible innovation, along with consumer and investor protection, financial stability, and prevention of illicit finance. Also notable is the inclusion of consumer protection alongside investor protection and financial stability, recognizing that digital assets are more than simply investments. The volume and scope of reports required, and their associated deadlines, suggests that the Biden administration will not make meaningful progress with respect to a government-wide, coordinated regulatory policy agenda until well after the 2022 Congressional mid-term elections. While individual agencies may move forward with bespoke rules related to digital assets more quickly, the timeline contemplated by the Executive Order indicates that White House-led digital asset policy, particularly if through an Administrative Procedure Act-compliant regulatory process, will not come to fruition until 2023 at the earliest. Politically, should Republicans take control of either the House and or Senate in January 2023, we would expect Congressional committees to conduct hearings and use their oversight role to evaluate any future White House-led digital asset policymaking.
Overview
The Executive Order addresses several prominent digital asset market areas, including:
- CBDCs
- Customer protection
- Financial stability, systemic risk, and market integrity
- Illicit activity
- International cooperation and US competitiveness
Each is briefly described below.
US Central Bank Digital Currencies
The Executive Order aims to explore the establishment of the digital dollar. In particular, the Executive Order places urgency on the need for the US government to research the development of a potential CBDC. The Executive Order builds on the Federal Reserve’s January 2022 discussion paper Money and Payments: The US Dollar in the Age of Digital Transformation, which remains open for public comment until May 20. The Executive Order’s efforts may culminate in the development of a potential legislative proposal within 210 days that would enable the issuance of a US CBDC.
Measures to Protect Consumers, Investors, and Businesses
The Executive Order calls on regulators to “ensure sufficient oversight and safeguard against any systemic financial risks posed by digital assets.” The order directs consultation among the Treasury, Labor, and other cabinet departments and independent regulatory agencies such as the FTC, SEC, CFTC, federal banking agencies, and the CFPB in an effort to harmonize regulatory approaches. As noted above, the order explicitly directs the attorney general to work with the FTC and CFPB to consider competition policy, and encourages the FTC and CFPB to consider how privacy and consumer protection measures can protect users of digital assets. The Executive Order also directs the consideration of energy and climate change impacts of digital assets, including the consideration of specific digital asset consensus mechanisms.
Financial Stability, Mitigating Systemic Risk, and Strengthening Market Integrity
The Executive Order details how financial regulators play a critical role in promoting a stable financial system. In order to oversee protections and safeguard the integrity of US financial systems, the directive calls on the US Department of the Treasury to develop policy recommendations on cryptocurrencies and other digital assets. As expected, the Executive Order vests the Financial Stability Oversight Council, chaired by the secretary of the treasury, with responsibility for consideration of these issues.
Limiting Illicit Activity
In an effort to deter criminal activity involving digital assets, the Executive Order expresses the need for an “unprecedented focus of coordinated action” amongst federal agencies. To further this goal, federal agencies are urged to work with US allies to ensure international frameworks are responsive to the risks associated with digital assets. The order invites a variety of federal departments and agencies to submit annexes to the National Strategy for Combating Terrorist and Other Illicit Financing (the Strategy) covering illicit finance risks posed by digital assets, and directs the development of a coordinated action plan based on the Strategy’s conclusions.
Fostering International Cooperation and United States Competitiveness
The Executive Order emphasizes the need to promote the US as a leader in the global financial system and be competitive in the development of digital assets. In order to achieve this goal, the Department of Commerce is tasked with establishing a framework to “drive US competitiveness and leadership in, and leveraging of digital asset technologies.”
