President Biden launched an effort to establish a federal digital assets policy strategy and coordinate the related work of federal regulators by signing the Executive Order on Ensuring Responsible Development of Digital Assets (the EO) on March 9, 2022. Citing the increased adoption and growing development of digital assets, the EO sets forth six main objectives: consumer and investor protection; financial stability; mitigation of illicit finance and national security risks; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation. Additionally, the EO calls for continued research into a U.S. Central Bank Digital Currency (CBDC).

While not yet prescribing rules for the private sector, the EO signals that the U.S. government recognizes the burgeoning impact of digital assets, including cryptocurrency, and further signals the U.S. government's intent to regulate in the future, while seeking to ensure that the U.S. remains a leader in the digital asset and financial sectors. Throughout the EO, there is a particular emphasis on transparency, privacy and security, cross-border cooperation, and U.S. leadership in the global financial system.

The EO is somewhat technology-agnostic. While it deals with digital assets and cryptocurrencies generally, it does not call out specific coins or technologies that raise particular policy concerns or that the U.S. government should seek to support. Digital assets are defined broadly to include "all CBDCs, regardless of the technology used, and … other representations of value, financial assets and instruments, or claims that are used to make payments or investments, or to transmit or exchange funds or the equivalent thereof, that are issued or represented in digital form through the use of distributed ledger technology." Interestingly, the EO does not focus on the components of the definition of digital assets or reference whether any digital asset constitutes a security. Additionally, the EO does not request that the U.S. Securities and Exchange Commission (SEC) clarify whether digital assets may be securities or provide any additional guidance on that issue and the EO generally gives the SEC a limited role. This may be interpreted as a significant rebuke to the SEC, and possibly reflects a recognition within the Biden administration that the SEC's years-long failure to develop a coherent regulatory approach governing digital assets means that the SEC may or will effectively be supplanted as the chief federal regulator of digital assets.

Based on the EO, companies in the digital asset industry can expect significant changes in policy—most likely in the form of additional regulation and enforcement—but the efforts and coordination envisioned by the EO could also provide additional clarity to the market and actors in it.

The EO directs federal agencies to conduct a broad review of their policies related to digital assets, and to submit reports proposing the necessary regulatory and legal changes to achieve the specified objectives. A table outlining the various reports and frameworks required by the EO is set forth at the end of this advisory.

• Central Bank Digital Currency: The EO places the highest level of urgency on research and development efforts of the potential design and deployment options of a U.S. CBDC. The EO emphasizes the need to assess both the risks and benefits of a potential CBDC, including systemic risks and risks to financial stability, payment systems, national security, the ability to exercise human rights, and financial inclusion and equity. The EO also specifies that any future CBDC that may be developed must be designed in a way that promotes democratic values, including privacy and consumer protections.
• Consumer Protection and Financial Inclusion: The EO notes the need for safe, affordable, and accessible financial services as well as reduced costs for domestic and cross-border funds transfers and payments. The EO also recognizes the need to ensure that necessary safeguards are in place to protect consumers, investors, and businesses. The EO directs the appropriate agencies to evaluate the extent to which existing investor and market protection measures, and privacy and consumer protection measures, may be used to address the risks of digital assets and whether additional measures are required.
• Financial Stability: The EO notes that digital asset issuers, exchanges, trading platforms, and intermediaries, whose activities may increase risks to financial stability, should be subject to and in compliance with regulatory and supervisory standards that govern traditional market infrastructures and financial firms. However, digital assets have new and unique characteristics that may require additional regulations to adequately address the additional risks that digital assets pose to financial stability and financial market integrity. The EO places responsibility the Financial Stability Oversight Council (FSOC) to assess these risks.
• Illicit Finance and National Security Risks: The EO notes that the growing use of digital assets in financial activity increases the risks of illicit activities and calls for coordinated action from all relevant agencies to address these issues. However, the EO does not focus extensively on sanctions evasion as a concern.
• U.S. Leadership in the Global Financial System and Economic Competitiveness: The EO also focuses on the U.S. maintaining its leadership in the global financial system and in technological and economic competitiveness. The EO highlights the importance of cross-border cooperation in technology-driven financial innovation to reduce the risks to financial stability, consumers, investors, and businesses.
• Responsible Development and Use of Digital Assets: The EO promotes the responsible development of digital asset technology, with particular focus on the environmental and climate impacts. The EO also seeks to promote responsible development, design, and implementation of digital asset systems that include privacy and security in their architecture.

The EO does not immediately change the way digital assets are regulated; however, it is the beginning of a process to create a regulatory framework addressing the various aspects of digital assets. The EO signals the U.S. recognition of the importance of digital assets and blockchain technology in the global financial system and the desire for the U.S. to remain a leader in the global financial system through the responsible development of payment innovations and digital assets.