Executive Order On Digital Assets A Welcome Start To Responsible Regulation

The President issued an Executive Order on Ensuring Responsible Development of Digital Assets on March 9, 2022. The value of the cryptocurrency and digital assets sector exceeds $3 trillion and has the potential to grow much larger with proper regulation. No country has taken a lead role to develop regulation that will foster innovation while simultaneously protecting consumers, investors and businesses from criminal activity related to digital assets. This Executive Order is a bold move by the United States to assess and analyze the digital asset sector. If responsible legislation based on the EO can be drafted and passed, the US stands to authorize a strong, effective regulatory approach that also fosters innovation.

This broad government effort involves all the financial regulating agencies, while also bringing in the views of other economic and international agencies. The most important set of deliverables are a series of reports, assessments, frameworks, and draft legislation. This article provides an overview of those twenty reports grouped by due dates, with brief synopses of the considerations agencies must take into account and the analytical approach called for in the Order.

This comprehensive effort focuses on developing an all-government approach to collect data, analyze, consult with civil society and prepare reports focusing on five major concerns:

Assessing a possible United States central bank digital currency
Protecting consumers, investors, and businesses
Promoting financial stability, mitigating systemic risk, and strengthening market integrity
Limiting illicit finance and associated national security risks
Fostering international cooperation and United States competitiveness

This major interagency effort will succeed, at least in part, if the views of active participants in all sectors of the digital asset community have a voice. The interests of a Decentralized Autonomous Organization (DAO) are not necessarily the same as those of a decentralized exchange (DEX) or an NFT minting operation. Broad engagement between government, companies in the digital assets sector and civil society may be accomplished through the normal notice and comment approach to rulemaking. Alternatively, a more inclusive and flexible process that allows participants in the digital assets sector and other interested parties, including those opposed to the current digital assets markets, to assist the government to both understand the sector and to advise on what regulatory approaches will leverage the strength of the technology while protecting the users.

The digital asset sector is so innovative and apparently different from the current centralized regulatory model, that it could pose problems for government officials who are not on the forefront of innovation to make sound recommendations that allow decentralized mechanisms and distributed ledger technologies to flourish. It is predictable that the various agencies will make proposals specific to their regulatory mission(s). Without a coherent mission or goal for the effort, it will be difficult to propose strong and effective law to guide the regulation of digital assets. Ideally, this whole government effort will lead to responsible, effective, and coherent regulatory solutions for the digital asset sector and the American people. Bringing a solid level of certainty to the digital assets sector will promote efforts to normalize it into a useful, accepted, safe environment for financial and other activity.

The following tables provide a comprehensive list of all the deliverables required by the Executive Order. At the end of the process, if solutions can be negotiated among the agencies and the sector being regulated, then real legislation can be crafted and passed in the reasonably near future. If so, the U.S. will be positioned to lead the global development of this promising technology sector.

Report Due in 90 Days (Tuesday, June 7, 2022):
International Cooperation on Criminal Activity and Digital Assets

Agencies

Considerations

Analytical Approach

Attorney General
State
Treasury

Homeland Security

How to strengthen international law enforcement cooperation for detecting, investigating, and prosecuting criminal activity related to digital assets

None specified

Report Due in 120 Days (Tuesday, July 7, 2022):
Framework for International Engagement

Agencies

Considerations

Analytical Approach

Treasury
State
Commerce

USAID

Develop framework for international engagement with foreign counterparts and international bodies
Adapt, update, and enhance adoption of global principles and standards for digital assets
Promote development of digital assets and CBDC technologies consistent with USA values and law

Specific and prioritized lines of effort
Coordinated messaging
Interagency engagement
Foreign assistance
Capacity-building efforts
Coordination of global compliance
Government efforts to promote international principles, standards, and best practices
Promote development of digital asset and CBDC technologies consistent with core values
Elevated engagement on digital assets issues in technical standards bodies

Reports Due in 180 Days (Tuesday, September 6, 2022):
1. Report on CBDC and the Future of Money and Payment Systems

Agencies

Considerations

Analytical Approach

Treasury Lead
State
Commerce
Attorney General
Homeland Security
OMB

Conditions that drive broad adoption of digital assets
Technological innovation
Impact on financial system
Modernization of and changes to payment systems
Economic growth
Financial inclusion
National security

Implications of US CBDC
Implications for financial inclusion
Potential relationship between a CBDC and private sector-administered digital assets
Future of sovereign and privately produced money globally
Analysis for US financial system & democracy
Could foreign CBDCs displace fiat currencies, alter payment systems, or undermine US financial centrality and impact on US interests
Potential implications for national security and financial crime

3. Assessment of Legislative Changes Necessary to Issue U.S. CBDC

Agencies	Considerations	Analytical Approach
Federal Reserve	Assess whether CBDCs: Improve efficiency Reduce costs of existing & future payments systems Assess the optimal form of U.S. CBDC Develop a strategic plan for Federal and USG actions	To evaluate the extent to which a US CBDC, Based on potential design options CBDC Impact on ability of monetary policy to function effectively as a critical macroeconomic stabilization tool. Strategic plan evaluates necessary steps and requirements for implementation and launch of US CBDC.

4. Digital Assets Measures to Protect Consumers, Investors and Businesses

Agencies	Considerations	Analytical Approach
Treasury Labor FTC SEC CFTC FDIC COC CFPB	Fraud, theft, and statutory and regulatory violations Privacy and data breaches Unfair and abusive practices Cyber issues Risk to less uninformed Measure to reduce risks Protections to create safe and affordable financial services	Implications of development and adoption of digital assets Changes needed in financial market and payment system infrastructures Equitable economic growth Conditions that would drive mass adoption of diverse types of digital assets Risks and opportunities Impact of technological innovation Consider most vulnerable to disparate impacts Policy recommendations Potential regulatory and legislative responses Support expanding access to safe and affordable financial services

5. Technical Evaluation of Capacity to Support CBDC System

Agencies	Considerations	Analytical Approach
Office of Science and Technology Policy, Chief Technology Officer of the U.S, Treasury Federal Reserve	Technological infrastructure, capacity, and expertise Facilitate and support introduction of a CBDC system	Technical risks of the assorted designs Emerging and future technological developments, such as quantum computing. Recommendations on how inclusion of digital assets in federal processes may affect provision of services, including: Cybersecurity Customer experience Social‑safety‑net programs

6. Report on the Role of Law Enforcement Agencies

Agencies	Considerations	Analytical Approach
Attorney General Treasury Homeland Security	Role of law enforcement agencies in detecting, investigating, and prosecuting criminal activity in digital assets	Recommendations on regulatory or legislative actions

7. Report on Digital Assets and Energy Issues

Agencies	Considerations	Analytical Approach
Office of Science and Technology Policy, Treasury Energy, EPA Council of Economic Advisors, National Climate Advisor	Impact of DLT on economic and energy transitions; Technology and climate change Impacts on the environment. Effect of cryptocurrencies' consensus mechanisms on energy usage Mitigating measures & alternative mechanisms of consensus Design tradeoffs	Potential uses of distributed ledger technologies and blockchain: To support monitoring or mitigating technologies' climate impacts For exchanging of liabilities for greenhouse gas emissions, water, and other natural or environmental assets Implications for energy policy Grid management and reliability Energy efficiency incentives and standards Sources of energy supply

8. Economic Competitiveness Framework for Digital Assets Technology

Agencies	Considerations
Commerce State Treasury	Framework for enhancing United States economic competitiveness in, and leveraging of, digital asset technologies

Reports Due in 210 Days (Wednesday, October 5, 2022):
9. CBDC Legislative Proposal

Agencies	Considerations	Analytical Approach
Attorney General through APNSA and APEP	Develop a GBDC legislative proposal	Based on Treasury CBDC report and Federal Reserve Strategic Plan

10. Assessment of Financial Stability and Market Integrity

Agencies	Considerations	Analytical Approach
Treasury FSOC	Assess financial and market risks of digital assets Analyze prior analyses and assessments by Federal agencies	Recommendations on financial stability risks Recommendations addressing risks. Note differences among digital assets Proposals for additional or adjusted regulation and supervision and new legislation

Other Reports Required by the Executive Order

Agencies	Considerations	Title
Attorney General FTC CFPB	Consider effects the growth of digital assets could have on competition policy	Competition Policy
FTC CFPB	Extent to which existing or new privacy or consumer protection measures can protect digital assets users	Privacy or Consumer Protection
SEC CFTC Federal Reserve FDIC COC	Extent existing or new investor and market protection measures can address digital assets risks	Investor and Market Protection
OSTP Treasury Energy EPA CEA	Update the Energy issues report above to address any knowledge gaps identified in such report.	Due one year after energy report = 9/6/2023
Treasury State Attorney General Commerce Homeland Security OMB DNI	Submit views on regulation, supervision, public‑private engagement, oversight, and law enforcement for risks: Illicit finance risks posed by digital assets Cryptocurrencies Stablecoins CBDCs Trends in the use of digital assets by illicit actors	Illicit Finance Risks Posed by Digital Assets Due 90 days after submission to Congress of National Strategy for Combating Terrorist and Other Illicit Financing
Treasury State Attorney General Commerce Homeland Security OMB DNI	Action plan coordinated through the interagency process Address role of law enforcement Address measures to increase financial services providers' compliance with AML/CFT obligations	Action Plan for Mitigating Digital Assets Risks of Illicit Activities Due 120 days after submission to Congress of National Strategy for Combating Terrorist and Other Illicit Financing
Treasury	Perspectives of relevant agencies in evaluating opportunities to mitigate risks through regulation Notify agencies of pending, proposed, or prospective rulemakings to address digital asset illicit finance risks	Notification of Rulemakings to Address Illicit Digital Assets Finance Risks Due 120 days after all these National Risk Assessments: Money Laundering Terrorist Financing Proliferation Financing updated National Strategy for Combating Terrorist and Other Illicit Financing
Treasury State Commerce OMB USAID	Priority actions taken under the framework and its effectiveness	Framework Actions Taken in International Cooperation Due One year from establishment of framework on 7/7/2023

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