The White House has issued the United States’ first ever regulatory framework surrounding cryptocurrencies and digital assets.
The framework released by the Biden Administration seeks to address the financial services industry on ways it can change the borderless transaction process and fraud solutions in the crypto sector.
This comes following an initial executive order issued by President Biden in March, calling on regulators to examine the risks and benefits of cryptocurrencies enlisting services to compile reports on their findings.
During this timeframe, the Securities and Exchange Commission (SEC) has been tasked with overseeing activity within the crypto space and has conducted investigations into crypto platforms Coinbase and Ripple Labs.
Along with investigations into what crypto tokens are deemed as securities and which are not, regulators have deliberated over a defined regulatory framework to answer to the executive order. Some of the priorital guidelines raised were:
- Consumer and investor protection
- Promote financial stability
- Countering illicit finance
- US to become global leader in financial sector
- Financial inclusion
- Responsible innovation
“The President will evaluate whether to call upon Congress to amend the Bank Screcy Act, anti-tip-off statutes, and laws against unlicenced money transmitting to apply explicitly to digital asset service providers – including digital asset exchanges and NFT platforms,” read a White House fact sheet.
It continues: “(The) Treasury will complete an illicit finance risk assessment on decentralised finance by the end of February 2023 and an assessment on NFT tokens by July 2023.”
Mitigating financial crime within the crypto space is one of particular concern for US regulators. The SEC recently charged 11 people involved in a crypto ponzi scheme which raised more than $300m.
US officials are aiming to introduce penalties for unlicensed crypto transactions and evaluate certain federal laws for redevelopment when pertaining to other crypto crimes.
The regulatory framework also outlines benefits for a potential US central bank digital currency (CBDC), a digital alternative to the US dollar.
Whilst different types of a digital US dollar exist, more common with stabelcoins tethered with the US currency such as the USD Coin, US regulators are exploring possibilities of a CBDC as a digital twin to the US dollar.
Federal Reserve Chair, Jerome Powell, commented on the potential CBDC: “You wouldn’t need stablecoins; you wouldn’t need cryptocurrencies, if you had a digital US currency. I think that’s one of the stronger arguments in its favour.
The regulatory framework explains that the CBDC can contribute to a payment structure that is “more efficient, provides a foundation for further technological innovation, facilitates faster cross-border transactions, and is environmentally sustainable.
“It could promote financial inclusion and equity by enabling access for a broad set of consumers.”
Pertaining to financial stability, US banks and lawmakers have become increasingly wary of the rise of stablecoins and their relation to fiat currencies, cautious of a possible decline due to no regulatory supervision existing within the stablecoin space.
Despite also surging in interest, the framework cautions “spillover effects” of stablecoins and other cryptocurrencies, in particular due to the plummeting of the market that has occurred over the past several months.
“Digital assets and the mainstream financial system are becoming increasingly intertwined, creating channels for turmoil to have spillover effects,” reads the White House document.
“(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.”