White House Issues First-Ever Digital Asset Development Framework

On September 16, 2022, the White House published a fact sheet outlining a new framework and policy recommendations for the responsible development of digital assets. Pursuant to Executive Order (EO) 14067 from March this year, the first of its kind fact sheet is the product of nine reports from federal agencies that highlight “a clear framework for responsible digital asset development and pave the way for further action at home and abroad.”

The reports urge agencies to promote innovation by kickstarting private-sector research and helping cutting-edge US firms establish themselves in global markets. They also call for measures to mitigate risks, including fraud, theft, and crypto-asset mismanagement. 

The fact sheet is structured around seven recommendations for federal agencies:

• Protecting consumers, investors, and businesses 
• Fostering financial stability
• Countering illicit finance
• Reinforcing US financial leadership and economic competitiveness
• Promoting financial inclusion
• Advancing responsible innovation
• Exploring a US central bank digital currency (CBDC)

New framework and policy recommendations

The reports encourage federal agencies to issue guidance to address current and emergent risks in the digital asset ecosystem to protect consumers, investors, and businesses. Similarly, the US Treasury will work with other agencies to foster financial stability to identify, track, and analyze emerging strategic risks related to digital asset markets. 

Identifying and understanding these risks is also key to effectively fighting the illicit use of digital assets. As part of this effort, the Treasury will complete an illicit finance risk assessment on decentralized finance by February 2023 and an evaluation of non-fungible tokens (NFTs) by July 2023.

To reinforce the US’ global financial leadership and competitiveness, federal agencies recommend the expansion of leadership roles in digital assets work at international organizations and standard-setting bodies, including the G7, G20, and the Financial Action Task Force (FATF).

To promote financial inclusion, federal agencies recommend building a federal framework for nonbank payment providers and encouraging the adoption of instant, 24/7 payment systems such as FedNow. The Federal Reserve plans to launch this system in 2023. The development of new financial technologies such as this is a priority of the new framework, with the agency reports recommending the instigation of a Digital Assets Research and Development Agenda. The Treasury has also been encouraged to provide innovative US firms with regulatory guidance, best practice sharing, and technical assistance.

The final section of the fact sheet notes that the Biden Administration has already developed policy objectives for a US CBDC System. To support the Federal Reserve’s efforts and to advance other work on a potential US CBDC, the Treasury will lead an interagency working group to leverage cross-government technical expertise.

Key takeaways

The framework and reports outlined in this fact sheet are likely to play a significant role in shaping the future development of digital assets in the US. However, the development of regulations for digital assets will be an ongoing and iterative process shaped by input from federal agencies and the public. 

Compliance staff should pay particular attention to plans of action highlighted in the fact sheet and, more specifically, ensure they are familiar with the US Treasury report on addressing the illicit financing risks of digital assets. The priority actions recommended by the Treasury include:

• Improving global anti-money laundering and combatting the financing of terrorism (AML/CFT) regulation and enforcement
• Updating Bank Secrecy Act regulations
• Strengthening US AML/CFT supervision of virtual asset activities
• Engaging with the private sector
• Supporting US leadership in financial and payments technology

Further reading

The reports submitted to President Biden to date, according to each federal agency, are as follows:

• US Department of Justice
  • How To Strengthen International Law Enforcement Cooperation For Detecting, Investigating, And Prosecuting Criminal Activity Related To Digital Assets
  • The Role of Law Enforcement in Detecting, Investigating, And Prosecuting Criminal Activity Related to Digital Assets
• US Treasury
  • The Future of Money and Payments
  • Crypto-Assets: Implications for Consumers, Investors, and Businesses
  • Action Plan to Address Illicit Financing Risks of Digital Assets
• The White House, Office of Science and Technology Policy (OSTP)
  • Climate and Energy Implications of Crypto-Assets in the United States
  • Technical Evaluation for a US Central Bank Digital Currency System
  • Technical Design Choices for a US Central Bank Digital Currency System
• US Department of Commerce
  • Responsible Advancement of US Competitiveness in Digital Assets