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On March 9, 2022, President Biden issued an Executive Order to articulate U.S. government principles and interests regarding digital assets, and to implement a process to develop future policy. Digital assets have taken the world by storm in recent years. They include cryptocurrencies, tokenized share offerings, non-fungible tokens (NFTs), blockchain real estate rights, decentralized finance (DeFi) and various evolving metaverse assets, with new market actors ranging from miners, to wallets, to digital asset platforms, and decentralized autonomous organizations (DAO).
These developments have charged on in spite of, or in some cases thanks to, nonexistent or ambiguous regulations, while in other cases ill-fitting rules have impeded innovation. Existing legal regimes for financial institutions, securities, consumer protections, property rights, anti-money laundering and counterterrorism, and international cooperation were not designed for this rapidly evolving sector.
Entitled “Ensuring Responsible Development of Digital Assets,” the Executive Order provides directives for government agencies to conduct studies and prepare several reports (summarized in Appendix 1 below) to inform coordinated policy making across the digital asset space. While the focus is domestic policy, the Executive Order also emphasized the importance of international coordination efforts for what is now a global ecosystem. The coordination of this Executive Order and the efforts it initiates has been undertaken at the highest levels of the White House, National Security Council and Treasury.
The several reports directed by the Executive Order (listed in Appendix 1 below) present an opportunity for regulators to address these issues and for stakeholders to engage with both long-time agency leaders, political appointees and elected officials.
Subject Areas Covered
In the Executive Order, Biden called on agencies including the U.S. Treasury Department, the Federal Trade Commission (FTC), the U.S. Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), federal banking regulators and the Consumer Financial Protection Bureau (CFPB) to submit policy recommendations focused on consumer protection, central bank digital currencies, SEC areas of focus, financial crime, anti-money laundering and international coordination, among other areas. The scope of the mandate is extensive.
The Executive Order requests measures to:
The reports requested from the wide range of government agencies are to be issued over a three-to-twelve-month period and beyond, with the expectation that they will lead to future administrative rulemaking and Congressional legislation.
Implications of the Research and Reports Requested
The long list of participants shown in Appendix 1 below, and the “homework assignments” handed out to each agency, demonstrate a few things:
It is important to note the political context in which these plans will develop: (a) the timing of the reports will bump up against the November elections, with the potential that the implementation phase will face a very different legislative branch; (b) among other legislators, Senator Lummis has reminded the president that Congress has already been and will continue to play a role in shaping the U.S. laws and regulations around cryptocurrency, and (c) certain agencies releasing reports, such as the SEC and CFTC, are independent agencies. Thus, the ultimate impact of the Executive Order remains to be seen.
Certain areas within the digital asset realm were not covered in the Executive Order, though they might fall into the topics addressed within the various reports as listed below. Indeed, the entire focus of the Executive Order seemed to revolve around the financial landscape of digital assets, ignoring the broad adoption of blockchain technology across multiple industries. Despite this narrow focus, plenty of room exists for regulators to address key issues in SEC and CFTC regulation, AML and the Bank Secrecy Act, and blockchain and smart contract issues touching on digital assets.
Important areas not covered include:
Takeaways and Next Steps
The Executive Order demonstrates for the first time an effort at deliberate and cohesive policy at the highest level for cryptocurrencies and digital assets. Regulators and industry stakeholders finally have a signal that the race has started to address a number of longstanding issues.
Given that the Administration is reaching out to get broad-ranging input before adopting formal policy in this industry, this effort could offer an opportunity for interested parties to engage with regulators through public comments, town halls, or lobbying and other advocacy efforts.
Digital currency markets responded favorably to the release of Treasury Secretary Yellen’s statement and the Executive Order itself, but the surge quickly cooled. The next six months and beyond will be formative in U.S. efforts to shape the regulatory environment for digital assets and their role in the U.S. and global economy.
For additional information about the topics raised in this alert, please contact any of the Pillsbury team members below:
Security and Commodity Laws
AML and Money Transmission Regulation
Sanctions and Technology Controls
Litigation and SEC Enforcement
Metaverse and NFT
The directives involve a number of federal governing bodies and cover a broad swath of crypto and digital asset regulatory areas, as further summarized in Appendix 1 above.