On September 16, 2022, the White House released its “First-Ever Comprehensive Framework for Responsible Development of Digital Assets” outlining the policy recommendations of various federal agencies after six months of studying the digital asset industry. This follows President Biden’s March 2022 Executive Order (EO), which called upon federal agencies to produce reports exploring the benefits and risks of digital assets. The EO identified six key priorities: 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.
The new framework does not establish or propose any new legislation but instead aims to articulate a clear framework for responsible digital asset development both in the United States and abroad. In accordance with the key priorities identified in the EO, the new framework outlines guidance on the following areas:
- Protecting Consumers, Investors, and Businesses
- Promoting Access to Safe, Affordable Financial Services
- Fostering Financial Stability
- Advancing Responsible Innovation
- Reinforcing Our Global Financial Leadership and Competitiveness
- Fighting Illicit Finance
- Exploring a U.S. Central Bank Digital Currency (CBDC)
Note: the following outline is a condensed version of the full fact sheet, which can be found here.
Outline of Framework
Protecting Consumers, Investors, and Businesses
Digital assets pose meaningful risks for consumers, investors, and businesses. Sellers commonly mislead consumers about digital assets’ features and expected returns, and non-compliance with applicable laws and regulations remains widespread. The Biden-Harris Administration and independent regulators have worked to protect consumers and ensure fair play in digital assets markets by issuing guidance, increasing enforcement resources, and aggressively pursuing fraudulent actors. The Administration plans to take the following additional steps:
- Encourage regulators like the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) to aggressively pursue investigations and enforcement actions against unlawful practices in the digital assets space.
- Encourage the Consumer Financial Protection Bureau (CFPB) and Federal Trade Commission (FTC) to redouble their efforts to monitor consumer complaints and to enforce against unfair, deceptive, or abusive practices.
- Encourage agencies to issue guidance and rules to address current and emergent risks in the digital asset ecosystem. Regulatory and law enforcement agencies are also urged to collaborate to address acute digital assets risks facing consumers, investors, and businesses. In addition, agencies are encouraged to share data on consumer complaints regarding digital assets.
- The Financial Literacy Education Commission (FLEC) will lead public-awareness efforts to help consumers understand the risks involved with digital assets, identify common fraudulent practices, and learn how to report misconduct.
Promoting Access to Safe, Affordable Financial Services
Some digital assets could help facilitate faster payments and make financial services more accessible, but more work is needed to ensure they truly benefit underserved consumers and do not lead to predatory financial practices. To promote safe and affordable financial services for all, the Administration plans to take the following steps:
- Agencies will encourage the adoption of instant payment systems, like FedNow, by supporting the development and use of innovative technologies by payment providers to increase access to instant payments, and using instant payment systems for their own transactions where appropriate.
- The President will also consider agency recommendations to create a federal framework to regulate non bank payment providers.
- Agencies will prioritize efforts to improve the efficiency of cross-border payments by working to align global payments practices, regulations, and supervision protocols, while exploring new multilateral platforms that integrate instant payment systems.
- The National Science Foundation (NSF) will back research in technical and socio-technical disciplines and behavioral economics to ensure that digital asset ecosystems are designed to be usable, inclusive, equitable, and accessible by all.
Fostering Financial Stability
Digital assets and the mainstream financial system are becoming increasingly intertwined, creating channels for spillover effects. Stablecoins, in particular, could create disruptive runs if not paired with appropriate regulation. In October, the Financial Stability Oversight Council (FSOC) will publish a report discussing digital assets’ financial-stability risks, identifying related regulatory gaps, and making additional recommendations to foster financial stability. In 2021, the President’s Working Group on Financial Markets recommended steps for Congress and regulators to make stablecoins safer. Building on this work, the Administration plans to take the additional following steps:
- The Treasury will work with financial institutions to bolster their capacity to identify and mitigate cyber vulnerabilities by sharing information and promoting a wide range of data sets and analytical tools.
- The Treasury will work with other agencies to identify, track, and analyze emerging strategic risks that relate to digital asset markets. It will also collaborate on identifying such risks with U.S. allies, including through international organizations like the Organization for Economic Co-operation and Development (OECD) and the Financial Stability Board (FSB).
Advancing Responsible Innovation
The U.S. government has long played a critical role in priming responsible private-sector innovation. It sponsors cutting-edge research, helps firms compete globally, assists them with compliance, and works with them to mitigate harmful side-effects of technological advancement. In keeping with this tradition, the Administration plans to take the following steps to foster responsible digital asset innovation:
- The Office of Science and Technology Policy (OSTP) and NSF will develop a Digital Assets Research and Development Agenda to kickstart fundamental research on topics such as next-generation cryptography, transaction programmability, cybersecurity and privacy protections, and ways to mitigate the environmental impacts of digital assets.
- The Treasury and financial regulators are encouraged to provide innovative U.S. firms developing new financial technologies with regulatory guidance, best-practices sharing, and technical assistance through things like tech sprints and Innovation Hours.
- The Department of Energy, the Environmental Protection Agency, and other agencies will consider further tracking digital assets’ environmental impacts; developing performance standards as appropriate; and providing local authorities with the tools, resources, and expertise to mitigate environmental harms.
- The Department of Commerce will examine establishing a standing forum to convene federal agencies, industry, academics, and civil society to exchange knowledge and ideas that could inform federal regulation, standards, coordinating activities, technical assistance, and research support.
Reinforcing Our Global Financial Leadership and Competitiveness
To reinforce U.S. financial leadership and uphold U.S. values in global digital asset markets, the Administration will take the following steps outlined in the framework for international engagement released by the Treasury Department earlier this summer:
- U.S. agencies will leverage U.S. positions in international organizations to message U.S. values related to digital assets. U.S. agencies will also continue and expand their leadership roles on digital assets work at international organizations and standard-setting bodies—such as the G7, G20, OECD, FSB, Financial Action Task Force (FATF), and the International Organization for Standardization.
- The State Department, the Department of Justice (DOJ), and other U.S. enforcement agencies will increase collaboration with—and assistance to—partner agencies in foreign countries through global enforcement bodies like the Egmont Group, bilateral information sharing, and capacity building.
- The State Department, Treasury, USAID, and other agencies will explore further technical assistance to developing countries building out digital asset infrastructure and services.
- The Department of Commerce will help cutting-edge U.S. financial technology and digital asset firms find a foothold in global markets for their products.
Fighting Illicit Finance
The illicit finance risks that agencies highlight include, but are not limited to: money laundering; terrorist financing; hacks that result in losses of funds; and fragilities, common practices, and fast-changing technology that may present vulnerabilities for misuse. To fight the illicit use of digital assets more effectively, the Administration plans to take the following steps:
- The President will evaluate whether to call upon Congress to amend the Bank Secrecy Act (BSA), anti-tip-off statutes, and laws against unlicensed money transmitting to apply explicitly to digital asset service providers—including digital asset exchanges and nonfungible token (NFT) platforms. He will also consider urging Congress to raise the penalties for unlicensed money transmitting to match the penalties for similar crimes under other money-laundering statutes and to amend relevant federal statutes to let the Department of Justice prosecute digital asset crimes in any jurisdiction where a victim of those crimes is found.
- The United States will continue to monitor the development of the digital assets sector and its associated illicit financing risks, to identify any gaps in our legal, regulatory, and supervisory regimes. As part of this effort, Treasury will complete an illicit finance risk assessment on decentralized finance by the end of February 2023 and an assessment on non-fungible tokens by July 2023.
- Relevant departments and agencies will continue to expose and disrupt illicit actors and address the abuse of digital assets. Such actions will hold cybercriminals and other malign actors responsible for their illicit activity and identify nodes in the ecosystem that pose national security risks.
- Treasury will enhance dialogue with the private sector to ensure that firms understand existing obligations and illicit financing risks associated with digital assets, share information, and encourage the use of emerging technologies to comply with obligations. This will be supported by a Request for Comment published to the Federal Register for input on several items related to AML/CFT.
Exploring a U.S. Central Bank Digital Currency (CBDC)
A U.S. CBDC – a digital form of the U.S. dollar – has the potential to offer significant benefits. Recognizing the possibility of a U.S. CBDC, the Administration has developed Policy Objectives for a U.S. CBDC System, which reflects the federal government’s priorities for a potential U.S. CBDC. The Administration encourages the Federal Reserve to continue its ongoing CBDC research, experimentation, and evaluation.
The new framework sets guidelines and outlines initiatives the Administration plans on taking to address the responsible development of digital assets. It does not explicitly outline any new legislation or regulation.