The Biden Administration, after ordering a series of reports on the risks and potential benefits of cryptocurrency and digital assets in its March 9, 2022, Executive Order (EO), has now published the “Comprehensive Framework for Responsible Development of Digital Assets,” (Framework) which outlines key elements of a crypto regulatory scheme. In it, the Administration summarizes its efforts to date and offers non-binding recommendations for future regulatory efforts, but stops short of recommending specific legislative and regulatory changes.
The Administration’s EO set forth six priorities for US regulation of the crypto industry: consumer and investor protection; promoting financial stability; countering illicit finance; US leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation. The Framework now summarizes the actions taken over the first 180 days since the EO was released and provided a look ahead to further regulatory and enforcement efforts.
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The Biden Framework Recommendations
Noting that reported monetary losses from digital asset scams were nearly 600 percent higher in 2021 than the year before, the Framework encourages regulatory agencies like the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Consumer Financial Protection Bureau, and the Federal Trade Commission to use existing legal authorities to continue pursuing illicit, fraudulent, and deceptive digital asset practices and to collaborate between them on cross-agency enforcement efforts. It also calls on agencies to pursue initiatives to promote consumer educational literacy about digital assets.
Without suggesting any specific new rules or legislation, the Framework recommends that those executive agencies develop and issue new rules and guidance to resolve any confusion and close gaps related to the application of existing financial regulations to cryptocurrency. It also notes that the Biden Administration is studying whether the key anti-money laundering statutes, such as the Bank Secrecy Act, anti-tip-off statutes, and laws against unlicensed money transmitting, need to be amended to apply explicitly to digital asset services providers, including digital asset exchanges and nonfungible token platforms.
In a nod to the growing influence of blockchain technology, the Framework details some of the Administration’s ongoing efforts to explore the development of a US Central Bank Digital Currency, including the launch of a new interagency working group led by the Treasury Department. The Framework also highlights the Administration’s efforts to improve the speed and efficiency of electronic fund transfers and cross-border payments; two areas where blockchain networks excel.
The Biden Administration released its framework amidst a flurry of regulatory proposals in the US and abroad. Senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) introduced a bill entitled the Lummis-Gillibrand Responsible Financial Innovation Act that seeks to clarify the respective roles and responsibilities of the various federal stakeholders, provide requirements for stablecoins, impose mandatory consumer disclosures, dictate tax treatment, and commission various studies on cryptocurrency. Another proposal introduced by Senators Debbie Stabenow (D-MI) and John Boozman (R-AR) would grant all regulatory jurisdiction to the CFTC, while the EU’s Markets in Crypto Assets Proposal would attempt to regulate cryptocurrency trading platforms and issuers. Additional legislation dealing with algorithmic stablecoins has been proposed by Representative Maxine Waters (D-CA) and Patrick McHenry (R-NC), which would reportedly impose a two year ban on new “endogenously collateralized stablecoins.”
Cryptocurrency investors, companies, and other interested parties should keep a close watch over the assorted regulatory schemas being promoted in order to remain fully apprised of the potential regulatory environments that may develop to govern cryptocurrencies and their use. Notably, the Administration is planning an illicit finance risk assessment on decentralized finance scheduled for completion in February 2023 and an assessment on nonfungible tokens to close by July 2023. ArentFox Schiff’s Metaverse, Blockchain & Digital Assets team will monitor the regulations as they advance and provide updates.