President Biden’s March 9, 2022 Digital Assets Executive Order
By: Irfan M. Dinani, Esq.
On March 9, 2022, President Biden signed an Executive Order on Ensuring the Responsible Development of Digital Assets[1] (the “Order”) “outlining the first ever, whole-of-government approach to addressing the risks and harnessing the potential benefits of digital assets and their underlying technology.”[2] This is an important first step in regulating an increasingly important, and often misunderstood, space where the global financial system intersects with technology, and impacts “consumer protection, financial stability, national security, and climate risk.”[3]
The stated six key priority areas affected by this national policy include “consumer and investor protection; financial stability; illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation.”[4] The Order contains eight operative sections and a section defining certain terms, and recognizes the U.S Government’s need to evolve and better align its approach to digital assets. The Order establishes a national framework for various regulatory agencies to impose much needed guidance, coordination and oversight over the exponential growth in the last five years of non-state issued digital assets – which has risen from $14 billion to $3 trillion but has also resulted in billion dollar losses due to cybersecurity breaches and market failures on digital asset exchanges.[5] The Order seeks to reign in, “through regulation, oversight, law enforcement action, or use of other United States Government authorities”, the illicit financing via unregulated digital assets, such as cryptocurrency and NFTs, commonly used by illicit actors to launder proceeds associated with cybercrimes, narcotics and human trafficking, and ransomware incidents.[6]
In addition, realizing that other sovereign states are already developing central bank digital currencies, the Order addresses the Biden administration’s focus on R&D efforts to design and deploy if deemed in the national interest U.S. Central Bank Digital Currencies (“CBDC”) as a means “to support efficient and low-cost transactions, particularly for cross‑border funds transfers and payments, and to foster greater access to the financial system, with fewer of the risks posed by private sector-administered digital assets.”[7] Within 180 days, the Order requires the issuance of, among others:
(i) an interagency report analyzing the potential of a U.S. CBDC, its role domestically and internationally, the potential impact on U.S. financial centrality as a consequence of foreign CBDCs’ supremacy, and various other monetary policy, law enforcement, national security, human rights and financial crime-related implications;
(ii) an assessment, issued by the Attorney General, in consultation with the Secretary of the Treasury and the Chairman of the Federal Reserve, of any legislative changes necessary to issue a U.S. CBDC;
(iii) a report issued by the Secretary of the Treasury, in consultation with the heads of various independent regulatory agencies, including the FTC, the SEC, CFTC, and the Secretary of Labor, “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.”[8]
Other reports required pursuant to the Order include: technical evaluations relating to the technology infrastructure, capacity, and expertise required for the CBDC system; in respect of law enforcement’s role on digital asset related criminal activity; relating to the impact of digital assets on competition policy, consumer and privacy protections, investor and financial market protection measures, environmental and climate change impacts and their connections to distributed ledger technology.
Section 6 of the Order addresses the role of financial regulators, including the SEC, the CFTC, the CFPB, and Federal banking agencies, vis-à-vis the safeguarding of financial system integrity and stability, and requires the issuance of a report within 210 days outlining specific financial stability risks and regulatory gaps posed by digital assets and providing recommendations to address the same.
Regarding the growth of sophisticated cybercrime-related financial networks and activity, the Order requires certain federal department heads, including Treasury, State, Commerce, Homeland Security and the AG, to submit their respective views on “illicit finance risks posed by digital assets, including cryptocurrencies, stablecoins, CBDCs, and trends in the use of digital assets by illicit actors.”[9]
Lastly, the Order addresses the importance of U.S. cooperation internationally as it relates to digital assets and financial innovation to better protect consumers, businesses, investors and markets, with critical international partners and groups such as the G7, G20, the international Financial Stability Board (FSB) and the Financial Action Task Force (FATF).
As the Administration embarks on this unique and critical policy focus on the role of digital assets, Leech Tishman’s interdisciplinary Emerging Cyber Technologies Industry Group is poised to help better guide clients through the intersection of law and technology.
Irfan M. Dinani is Counsel with Leech Tishman and a member of the Corporate and Real Estate Practice Groups. He is also a member of the Data Privacy & Cybersecurity Group, and leads the firm’s Emerging Cyber Technologies Group. Irfan is based in the Pittsburgh office and can be reached at 412.261.1600 or idinani@leechtishman.com.
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[1] See https://www.whitehouse.gov/briefing-room/presidential-actions/2022/03/09/executive-order-on-ensuring-responsible-development-of-digital-assets/
[2] https://www.whitehouse.gov/briefing-room/statements-releases/2022/03/09/fact-sheet-president-biden-to-sign-executive-order-on-ensuring-responsible-innovation-in-digital-assets/
[3] Ibid.
[4] Id.
[5] https://www.whitehouse.gov/briefing-room/presidential-actions/2022/03/09/executive-order-on-ensuring-responsible-development-of-digital-assets/
[6] Id.
[7] See Order at Section 4.
[8] Id. at Section 5.
[9] Id. at Section 7.