1.40 - Executive Actions
The President of the United States can often exert significant influence on regulatory policy through executive action — setting priorities, making appointments, and coordinating among different administrative agencies. Presidential action has directly affected the crypto industry in two ways so far.
First, through an executive order issued in 1988 by President Reagan, the President’s Working Group on Financial Markets (“PWG”) periodically reviews the state of the financial industry and reports on topics of interest. In November 2021, the PWG issued its first report on stablecoins in conjunction with the Federal Deposit Insurance Corporation and the Comptroller of the Currency.
Second, President Biden issued Executive Order 14067 on March 9, 2022 titled Ensuring Responsible Development of Digital Assets. The EO calls for an all-of-government approach to addressing cryptocurrency, digital assets, and blockchain technology. It further lays out policy priorities and calls for coordination among relevant federal administrative agencies to achieve those priorities. On September 16, 2022, the White House released what it called a "Comprehensive Framework for Responsible Development of Digital Assets," which was based on many reports received by the President as required by Executive Order 14067.
In November 2021, the President’s Working Group on Financial Markets coordinated with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation (FDIC) to release a report on the uses, risks, and opportunities for stablecoins. See President’s Working Group on Financial Markets, the FDIC, and the OCC, Report on Stablecoins (2021.11). The report outlines the various current use cases for stablecoins, documents their explosive growth over recent years, details the perceived risks (to users, to the payments system, and to the greater financial system), and issues a call to action to Congress to enact a “consistent and comprehensive regulatory framework” for stablecoins.
The key aspects of that regulatory framework, as requested by the report, are:
- limiting stablecoin issuers (and those offering redemption and maintenance of reserve assets) to entities that are insured depository institutions, and making them subject to supervision at the depository and holding company levels;
- requiring custodial wallet providers for stablecoins to be subject to federal oversight, including restrictions on lending, compliance obligations for risk management, liquidity, and capital requirements;
- limits on custodial wallet providers’ affiliation with commercial entities or on use of users’ transaction data; and
- ensuring the federal supervisor of a stablecoin issuer has examination and enforcement authority to require issuers to meet risk-management standards, and also has the authority to implement standards to promote interoperability among stablecoins.
Id. at 16–17. The report also notes that other federal regulatory agencies may have a role to play in oversight of stablecoins, including the Consumer Financial Protection Bureau, the Securities Exchange Commission, the Commodities Futures Trading Commission, Office of Foreign Assets Control, and the Financial Crimes Enforcement Network. Id. at 15, 18, 20. The reference to FinCEN is of particular note, because FinCEN’s regulations require registering with it as a money services business (MSB), establishing an anti-money laundering program, reporting cash transactions of $10,000 or more, and filing suspicious activity reports (SARs). Id. at 20. Doing so may cause downstream compliance issues because, as the report notes, “[c]urrent [Bank Secrecy Act] regulations require the transfer of certain specific information well beyond what can be inferred from the blockchain resulting in non-compliance.” Id.
After significant anticipation from the industry and its rumored release, on March 9, 2022 President Biden signed an Executive Order titled Ensuring Responsible Development of Digital Assets, 87 Fed. Reg. 14143 (the “EO”). The EO requires the coordination (led by the Assistant to the President for National Security Affairs and the Assistant to the President for Economic Policy) of huge swaths of both executive branch and independent federal administrative agencies. That coordination is to occur through meetings of 25 agency heads, including the Secretaries of State, Treasury, Defense, Commerce, Labor, Energy, Homeland Security, National Intelligence, the Federal Reserve, Consumer Financial Protection Bureau, Federal Trade Commission, Securities Exchange Commission, Commodity Futures Trading Commission, and Office of the Comptroller of the Currency. Id. § 3.
Those agency heads are tasked with creating a unified federal government digital assets framework to advance these six policy objectives for the United States:
- 1.Protecting consumers, investors, and businesses.
- 2.Protecting United States and global financial stability and mitigating systemic risk.
- 3.Mitigating illicit finance and national security risks posed by misuse of digital assets.
- 4.Reinforcing U.S. leadership in the global financial system and in technological and economic competitiveness, including through the responsible development of payment innovations and digital assets.
- 5.Promoting access to safe and affordable financial services.
- 6.Support technological advances that promote responsible development and use of digital assets.
Id. § 2. The EO then sets forth specific measures, mostly in the form of intensive research reports to the President largely due within six months, to advance each of those objectives. The EO further sets out in lengthy detail U.S. policy and actions to take on researching, developing, and possibly implementing a U.S. Central Bank Digital Currency (CBDC).
Because “[s]overeign money is at the core of a well-functioning financial system, macroeconomic stabilization policies, and economic growth,” the EO states that the Biden administration “places the highest urgency on research and development efforts into the potential design and deployment options of a United States CBDC.” Id. § 4. It states that a CBDC must be consistent with “democratic values, including privacy protections,” while also ensuring “the global financial system has appropriate transparency, connectivity, and platform and architecture interoperability or transferability.” Id. § 4(a)(ii).
Hinting that the work effort here is focused on maintaining the dollar as the world’s reserve currency of choice, the EO also suggests that an effective CBDC could “support the continued centrality of the United States within the international financial system, and help to protect the unique role that the dollar plays in global finance.” Id. § 4(a)(iii).
To further explore the strengths and potential pitfalls of a CBDC, the EO requires reports to be submitted to the President on the following timelines:
- Within 180 days (by September 5, 2022)
- A report on “the future of money and payment systems” covering, among other topics, the implications of a CBDC on economic growth and stability, on financial inclusion, private-sector digital assets, the future of sovereign money and democracy, and national security and financial crime;
- A report on “whether legislative changes would be necessary to issue a United States CBDC”
- Within 210 days (by October 5, 2022)
- a legislative proposal based on considerations explored in the above reports, along with any additional work done by the Chairman of the Federal Reserve (likely a reference to continued work on Project Hamilton)
EO § 4(b), (d).
To assess risks associated with digital asset use such as fraud, theft, and data breaches, the EO calls for a number of reports from federal agencies within 180 days (by September 5, 2022):
- A report on “the implications of developments and adoption of digital assets and changes in financial market and payment system infrastructures for United States consumers, investors, businesses, and for equitable economic growth.” The report is required to address “the conditions that would drive mass adoption of different types of digital assets” and concomitant risks of adoption, including policy and legislative recommendations.
- A report providing “a technical evaluation of the technological infrastructure, capacity, and expertise that would be necessary at relevant agencies to facilitate and support the introduction of a CBDC system should one be proposed.” The report is required to evaluate technical risks including future developments such as quantum computing, as well as how it could affect the work of the US government and the provision of social-safety-net programs.
- A report “on the role of law enforcement agencies in detecting, investigating, and prosecuting criminal activity related to digital assets.” The report is required to include recommended regulatory or legislative action.
- A report “on the connections between distributed ledger technology and short-, medium, and long-term economic and energy transitions; the potential for these technologies to impede or advance efforts to tackle climate change at home and abroad; and the impacts these technologies have on the environment.” The report is specifically required to address the effect of different consensus mechanisms on energy usage and the potential impact to climate change. This report is required to be updated within one year of issuance.
EO § 5(b)(i)–(iii), (vii)–(viii).
The EO next requires a report from Secretary of the Treasury and the Financial Stability Oversight Council (FSOC), by October 5, 2022, “outlining the specific financial stability risks and regulatory gaps posed by various types of digital assets and providing recommendations to address such risks.” EO § 6(b). The report is required to take account of the prior work of the FSOC, federal agencies, the PWG, and the ongoing work of federal banking agencies. Id.
The EO states that increased usage of digital assets “heightens risks of crimes such as money laundering, terrorist and proliferation financing, fraud and theft schemes, and corruption.” To mitigate those risks, the EO calls for several reports:
- “Supplemental annexes” to the National Strategy for Combating Terrorist and Other Illicit Financing, to be submitted to the President, within 90 days of the National Strategy’s submission to Congress by the Treasury Department. (The updated National Strategy was due to Congress on January 31, 2022, but so far has not been submitted. See Countering America’s Adversaries Through Sanctions Act, § 262, 131 Stat. 934 (2017.08.02).)
Thirty days after those supplemental annexes are provided to the President, the EO requires the Secretary of the Treasury to “develop a coordinated action plan based on the Strategy’s conclusions for mitigating the digital-asset-related illicit finance and national security risks addressed in the updated strategy.” EO § 7(b), (c).
The EO next stresses the importance of international cooperation and highlights some actions the U.S. has already taken on the world stage to promote an even regulatory playing field, such as leading the Financial Action Task Force (FATF) to develop and adopt “the first international standards on digital assets,” establishing the G7 Digital Payments Experts Group, working with the international Financial Stability Board and the G20 roadmap. EO § 8(a)(ii)–(v); G7, G7 Public Policy Principles for Retail Central Bank Digital Currencies (2021.10.14); FATF, Updated Guidance for a Risk-Based Approach to Virtual Assets and Virtual Asset Service Providers (2021.10.28).
The EO stresses that the U.S. must continue these international partnerships to create “standards for the development and appropriate interoperability of digital payment architectures and CBDCs to reduce payment inefficiencies.” EO § 8(a)(ii), (v). In doing so, the Biden Administration “will seek to ensure that our core democratic values are respected; consumers, investors, and businesses are protected; appropriate global financial system connectivity and platform and architecture interoperability are preserved; and the safety and soundness of the global financial system and international monetary system are maintained.” EO § 8(a)(v).
To effect the foregoing policy, the EO requires the following actions:
- By July 7, 2022, the Secretary of the Treasury must “establish a framework for interagency international engagement with foreign counterparts and in international fora to, as appropriate, adapt, update, and enhance adoption of global principles and standards for how digital assets are used and transacted, and to promote development of digital asset and CBDC technologies consistent with our values and legal requirements.” (Framework is now available here.)
- By July 7, 2023, the Secretary of the Treasury must submit a report to the President “on priority actions taken under the framework and its effectiveness.”
- By September 5, 2022, the Secretary of Commerce must “shall establish a framework for enhancing United States economic competitiveness in, and leveraging of, digital asset technologies.”
- By June 7, 2022, the Attorney General must submit a report to the President “on how to strengthen international law enforcement cooperation for detecting, investigating, and prosecuting criminal activity related to digital assets.”
EO § 8(b)(i)–(iv).
On September 16, 2022, the White House released a fact sheet describing a framework it created regarding the federal government's approach to digital assets. White House, FACT SHEET: White House Releases First-Ever Comprehensive Framework for Responsible Development of Digital Assets (2022.09.16). That framework is the result of six months' of work from many federal agencies. In broad strokes, the framework continues the key objectives identified by Executive Order 14067: "consumer and investor protection; promoting financial stability; countering illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation." Id. Based on those objectives, it calls for, inter alia:
- More aggressive enforcement against bad actors by the SEC, CFTC, and DOJ;
- Enhanced consumer protection by the CFPB and the FTC, and consumer education by the Financial Literacy and Education Commission (FLEC);
- Issuance of rules and guidance by various agencies, which they are encouraged to issue in coordination with each other;
- Continued work on "instant payment systems," including FedNow while the President considers "agency recommendations to create a federal framework to regulate nonbank payment providers";
- Continued analysis and tracking of digital assets' environmental impacts;
- Coordination among agencies, industry, academics, and civilians, led by the Department of Commerce, "to exchange knowledge and ideas that could inform federal regulation, standards, coordinating activities, technical assistance, and research support";
- Continued U.S. involvement and leadership on digital assets in international bodies such as the G7, G20, Organization for Economic Co-operation and Development (OECD), Financial Stability Board (FSB), and Financial Action Task Force (FATF);
- The President will consider whether to recommend to Congress amending the BSA, anti-tip-off statutes, and money transmitter laws to apply expicitly to digital asset service providers, "including digital asset exchanges and nonfungible token (NFT) platforms"; and
- Extensive additional research and development of a United States central bank digital currency (CBDC) that would "protect consumers, promote economic growth, improve payment systems, provide interoperability with other platforms, advance financial inclusion, protect national security, respect human rights, and align with democratic values."
The framework is based on the following reports that were submitted to the President as a result of Executive Order 14067. (Although the framework mentions the receipt of nine reports by the President, it appears only seven have been made public to date.)
Summaries of these reports will be available here at a later date.
Sources are listed in reverse chronological order.