On March 9, 2022, President Biden signed an executive order (the "Order") outlining the first "whole-of-government" strategy on regulating digital assets in the US. The Order provides for a national policy for digital assets across the following six key areas: 

  1. Consumer and investor protection: The Order directs the Department of Treasury and other agencies to develop policy recommendations which address the implications of the growing digital asset sector and changes in financial markets. The Order also encourages regulators to ensure there is sufficient oversight and safeguards against systemic financial risks posed by digital assets. 
  1. Financial stability: The Order encourages the Financial Stability Oversight Council ("FSOC") to identify and mitigate systemic financial risks posed by digital assets and develop appropriate policy recommendations. 
  1. Illicit finance: The Order calls for an "unprecedented" coordinated action across all relevant US government agencies, as well as with international partners, to mitigate illicit finance and national security risks posed by digital assets.
  1. Promote US leadership in the global financial system and economic competitiveness: The Order directs the Department of Commerce to establish a framework to drive US competitiveness and leadership in digital asset technologies.
  1. Promote Financial inclusion: The Order calls for the Secretary of Treasury to develop a report on the future of money and payment systems to determine how technological innovation may influence economic and financial growth, as well as financial inclusion.
  1. Responsible innovation: The Order directs the US government to study and support the "responsible development and implementation" of digital asset systems, while prioritizing privacy, security, reducing climate impacts and combating illicit exploitation. 

Lastly, the Order calls for an "urgency on research and development of a potential United States CBDC [central bank digital currency], should issuance be deemed in the national interest". In particular, the Order directs the US government to assess the technological infrastructure and capacity needs for a US CBDC, and encourages the Federal Reserve to continue its research in CBDCs (see our prior blog post on the Federal Reserve discussion paper on a potential US CBDC). According to the Order, over 100 countries around the world are exploring potential CBDCs. Accordingly, the US is focused on ensuring it plays a leading role in CBDC development and maintain its global competitiveness. 

The Order signals a coordinated and unified approach, which indicates the US government acknowledges the growing adoption and importance of digital assets and the importance of thoughtful regulation in this space. According to the Order, studies indicate that around 16% of adult Americans have invested, traded or used cryptocurrencies.

What's Next?

US government agencies will be producing various reports, studies and policy recommendations per the Order: 

  • CBDCs:

a) within 180 days of the date of the Order, the Secretary of the Treasury, in consultation with other agencies, must submit to the President a report on "the future of money and payment systems, including the conditions that drive broad adoption of digital assets; the extent to which technological innovation may influence these outcomes; and the implications for the United States financial system, the modernization of and changes to payment systems, economic growth, financial inclusion, and national security". This report shall include an analysis on the potential implications of a United States CBDC; 

b) within 180 days of the date of the Order, the Attorney General, in consultation with the Secretary of the Treasury and the Chairman of the Federal Reserve, shall provide to the President an assessment of "whether legislative changes would be necessary to issue a United States CBDC, should it be deemed appropriate and in the national interest";

c) within 210 days of the date of the Order, the Attorney General, in consultation with the Secretary of the Treasury and the Chairman of the Federal Reserve, shall provide to the President a corresponding legislative proposal on CBDCs, based on consideration of the report submitted under (a) and any materials developed by the Chairman of the Federal Reserve regarding the research and strategic plan on CBDCs; 

d) within 180 days of the date of the Order, the Director of the Office of Science and Technology Policy and the Chief Technology Officer of the United States, in consultation with other agencies, shall submit to the President "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.";

  • Protection of Consumers, Investors, and Businesses:

a) within 180 days of the date of the Order, the Secretary of the Treasury, in consultation with other agencies, shall submit to the President 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.";

b) within 180 days of the date of the Order, the Attorney General, in consultation with the Secretary of the Treasury and the Secretary of Homeland Security, shall submit to the President a report on "the role of law enforcement agencies in detecting, investigating, and prosecuting criminal activity related to digital assets", and any corresponding regulatory or legislative recommendations; and 

c) within 180 days of the date of the Order, the Director of the Office of Science and Technology Policy, in consultation with other agencies, shall submit a report to the President on the impact distributed ledger technologies have on climate change and the environment.  The report should also address the effect of consensus mechanisms on energy usage, including research into "potential mitigating measures and alternative mechanisms of consensus" and corresponding design trade-offs; 

  • Promoting Financial Stability, Mitigate Systemic Risk, and Strengthen Market Integrity:

a) within 210 days of the date of the Order, the Secretary of the Treasury should convene the FSOC and produce a report "outlining the specific financial stability risks and regulatory gaps posed by various types of digital assets and providing recommendations to address such risks."; 

  • Limiting Illicit Finance and Associated National Security Risks:

a) within 90 days of submission to the Congress of the National Strategy for Combating Terrorist and Other Illicit Financing, heads of various agencies may each submit to the President supplemental annexes "offering additional views on illicit finance risks posed by digital assets, including cryptocurrencies, stablecoins, CBDCs, and trends in the use of digital assets by illicit actors."; and 

b) within 120 days of submission to the Congress of the National Strategy for Combating Terrorist and Other Illicit Financing, the Secretary of the Treasury, in consultation with the heads of other relevant agencies shall develop an "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.Theaction plan shall address the role of law enforcement and measures to increase financial services providers' compliance with AML/CFT obligations related to digital asset activities.";

  • Policy and Actions Related to Fostering International Cooperation and United States Competitiveness

a) within 120 days of the date of the Order, the Secretary of the Treasury, in consultation with other agencies, shall establish a framework for interagency international engagement with foreign counterparts to "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";

b) within 180 days of the date of the Order, the Secretary of Commerce, in consultation with other agencies, shall establish a framework for "enhancing United States economic competitiveness in, and leveraging of, digital asset technologies."; and

c) within 90 days of the date of the Order, the Attorney General, in consultation with other agencies, shall 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.".

Canadian Context

Similar to the US prior to the Order, Canada does not currently have a national approach to cryptocurrencies, with a variety of different federal and provincial regulators regulating the industry. The coordinated national approach set out in the Order could influence and inspire Canada to launch a more national effort and become more proactive in fostering the industry.

That said, as early as 2015, the Standing Senate Committee on Banking, Trade and Commerce issued a report advocating some similar points, including advocating for an approach of "not necessarily regulation, but regulation as necessary" and recommending that "[t]he federal government, in considering any legislation, regulation and policies, create an environment that fosters innovation for digital currencies and their associated technologies. As such, the government should exercise a regulatory "light touch" that minimizes actions that might stifle the development of these new technologies." 

More recently, a private members bill, Bill C-249 An Act respecting the encouragement of the growth of the cryptoasset sector, proposes requiring the Minister of Finance to develop a national framework to encourage the growth of the cryptoasset sector, focusing on lowering barriers to entry into the cryptoasset sector while protecting those working in the sector and minimizing the administrative burden.

Meanwhile, on the CBDC front, the Bank of Canada has been publishing a number of research papers relating to CBDC as "part of its contingency planning to be ready to issue a CBDC in the future if the need were to arise."1

As noted above, the Order also specifically calls for international collaboration, stating that the Biden administration "will elevate the importance of these topics and expand engagement with our critical international partners, including through fora such as the G7, G20, FATF [Financial Action Task Force], and FSB [Financial Stability Board]. My Administration will support the ongoing international work and, where appropriate, push for additional work to drive development and implementation of holistic standards, cooperation and coordination, and information sharing." With Canada being a member of these various bodies, we can expect such drive for collaboration and development to also result in a push for further developments in our domestic approach and efforts.

Footnote

1. https://www.bankofcanada.ca/research/digital-currencies-and-fintech/research/

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