The White House released a fact sheet on September 16, 2022, issuing the “First-Ever Comprehensive Framework for Responsible Development of Digital Assets” (Fact Sheet), which provides insight into the federal government’s current assessment of the digital asset space.¹ The release of the Fact Sheet follows earlier regulatory initiatives from the White House for digital asset and cryptocurrency oversight, including President Biden’s Executive Order on Ensuring Responsible Development of Digital Assets.²

The Fact Sheet

The Fact Sheet summarizes nine reports submitted to the President by federal agencies, and is meant to provide both a framework for entities to manage digital assets and to “pave the way” for further domestic and foreign action in these areas. The Fact Sheet discusses the following seven areas of focus for the Biden-Harris Administration (Administration) in connection with the use of digital assets:

Protecting Consumers, Investors and Businesses

The Fact Sheet notes that digital assets pose risks to consumers, investors and businesses, given the widespread occurrences of fraud, regulatory noncompliance and transparency issues. Accordingly, federal agencies will continue to release public guidance and enforcement resources and take an aggressive posture in targeting fraudulent actors.³

Promoting Access to Safe, Affordable Financial Services

The Fact Sheet emphasizes policy goals, including an intent to ensure access to “secure, reliable, affordable, and accessible” financial services for all Americans. Accordingly, the Administration intends to:

• Encourage adoption of instant payment systems, including the Federal Reserve’s planned 2023 launch of an instantaneous clearing system, and consider the creation of a federal framework to regulate nonbank payment providers;

• Prioritize efforts to improve the efficiency of cross-border payments, by aligning global payment practices and oversight, while exploring new multilateral platforms that integrate instant payment systems; and

• Back research to ensure digital asset ecosystems are designed to be equitable and accessible by all.

Fostering Financial Stability

The Fact Sheet expresses the Administration’s concerns of heightened risks related to the interaction between digital assets and the mainstream financial system, specifically highlighting risks posed by stablecoins. In addition to mentioning the Financial Stability Oversight Council’s upcoming report on the financial stability risks of digital assets, the Fact Sheet notes that the Treasury intends to:

• Work with financial institutions to increase their ability to identify and mitigate cyber vulnerabilities through information-sharing and promoting a variety of data sets and analytical tools; and

• Work with other agencies to identify, track and analyze emerging strategic risks related to digital asset markets, and collaborate as needed with U.S. allies to identify such risks.

Advancing Responsible Innovation

The Administration intends to continue encouraging “responsible private-sector innovation,” by:

• Supporting research in technological and environmental areas and informing stakeholders regarding responsible digital asset use;

• Providing U.S. firms developing new financial technologies with regulatory guidance and other assistance;

• Aligning the development of digital assets with environmental considerations and goals (e.g., transitioning to a net-zero emissions economy, improving environmental justice); and

• Establishing a forum to convene federal agencies, industry, academics and civil society to exchange knowledge and ideas that could inform future actions related to digital assets.

Reinforcing Our Global Financial Leadership and Competitiveness

The Fact Sheet recognizes that global standard-setting bodies currently are establishing policies, guidance and regulatory recommendations for digital assets. In order to “reinforce U.S. financial leadership and uphold U.S. values in global digital asset markets,” the Administration will:

• Leverage U.S. positions in international organizations to message U.S. values related to digital assets and expand leadership roles on international digital assets work;

• Collaborate and provide assistance to partner agencies in foreign countries;

• Explore providing technical assistance to developing countries building out digital asset infrastructure and services; and

• Help cutting-edge U.S. financial technology and digital asset firms find a foothold in global markets for their products.

Fighting Illicit Finance

The Fact Sheet notes that the United States has been a leader in utilizing its framework for preventing and countering money laundering and terrorism financing in the digital asset ecosystem, and that the Administration intends to combat illicit use of digital assets more effectively, by:

• Evaluating whether to call upon Congress to amend existing laws to apply to digital asset service providers, expand jurisdiction and raise penalties;

• Monitoring the development of the digital assets sector and illicit financing risks;

• Continuing to expose and disrupt illicit actors and address the abuse of digital assets; and

• Enhancing dialogue with the private sector to ensure that firms understand existing obligations and risks associated with digital assets.

Exploring a U.S. Central Bank Digital Currency (CBDC)

The Fact Sheet discusses the perceived benefits of a CBDC to areas such as efficiency, technological innovation, environmental sustainability, financial inclusion, economic growth, risk minimization, data privacy and U.S. global financial policy. The U.S. Treasury will lead a working group consisting of several federal agencies to continue to research the potential implications of a U.S. CBDC.⁴

Discussion and Takeaways

While the Fact Sheet does not promulgate any new rules or regulations, it provides a variety of information for individuals and entities engaging in digital-asset-related activities by: summarizing prior regulatory actions; highlighting the benefits of and risks posed by digital assets; and mapping out intended future actions to be taken by the Administration. Market participants should be aware that these developments rely on many different entities to take action (including Congress and international bodies) and, as such, might not occur in the manner anticipated by the Fact Sheet. However, the information provided serves as a guide for interested actors to consider the posture of the Administration and sheds light on the overarching vision for the continued expansion of digital assets into American and global financial circles.

The Fact Sheet denotes the Administration’s interest in certain aspects of digital asset development. Entities that would like to develop or provide platforms for digital assets should consider the repeated mention of the environmental and technological aspects associated with such activities, as well as additional regulatory requirements that may result from the research and discussion promoted by the Administration.

Further, the Administration’s desire to “aggressively” pursue fraudulent actors is likely an indicator of the approach that federal regulatory agencies will take in engaging in enforcement actions and other measures. Accordingly, market participants should be especially vigilant to consult existing guidance and reach out to federal regulators when preparing to enter or take further actions in the digital assets space.

Footnotes

1) Fact Sheet: White House Releases First-Ever Comprehensive Framework for Responsible Development of Digital Assets.

2) Executive Order on Ensuring Responsible Development of Digital Assets. For further information, please refer to Dechert OnPoint, Biden Executive Order on Ensuring Responsible Development of Digital Assets: A Critical Opportunity to Shape Blockchain & Cryptocurrency Policy.

3) For information on the response to the Executive Order from the Department of Justice, please refer to Dechert OnPoint, DOJ Expands Cryptocurrency Enforcement with Formation of Prosecutors Network.

4) For further information on federal research into CBDCs, please refer to Dechert OnPoint, A U.S. Central Bank Digital Currency? The Federal Reserve Opens the Discussion.