U.S. Treasury Framework for Inter-Agency Approach to Digital Asset Risks and Benefits

On July, 7, 2022, in response to the Digital Assets Executive Order (the “Order”),[1] the U.S. Secretary of Treasury delivered to President Biden a Framework (the “Framework”) for “inter-agency engagement with foreign counterparts and in international fora.” Consistent with the Order, the U.S. Secretary of Treasury aligned the Framework to promote the development of digital assets and central bank digital currencies and the effective integration of digital assets compliant with U.S. values and standards onto the international stage.

To ensure the United States’ preserved financial integrity, the Framework’s objectives focused on the (i) protection and safety of U.S. internal entities and individual consumers and (ii) reinforcement of U.S. leadership in global financial systems.

Protection and Safety of U.S. Internal Entities and Individual Consumers

Because the development and innovation of digital asset technology and central bank digital currencies (CBDC) increased U.S. entities and consumers susceptibility to varied associated foreign transaction risks, such as ransomware payments and cybercrime-related money laundering, the U.S. Secretary of Treasury proposed to integrate U.S. values and legal requirements relating to such technology and CBDC. Ultimately, the Framework seeks to mitigate systematic and illicit risks, while providing U.S. entities and consumers access to safe, stable, and affordable financial services.

Reinforcing U.S. Leadership in Global Financial Systems

The U.S. Secretary of Treasury intended the Framework for development of payment innovators and digital assets to reinforce U.S. leadership in the global financial system and foster technological competitiveness.

Additionally, the U.S. Secretary of Treasury indicated that reinforcing U.S. leadership was a critical component in maintaining safety and soundness of both U.S. financial systems and international monetary and financial systems driven by cross-border technology-driven innovation. Thus, the Framework required mandatory international cooperation to “adapt, update and enhance adoption of global principles and standards”[2] because “[u]neven regulation, supervision, and compliance across jurisdictions creates opportunities for arbitrage and raises risks to financial stability and the protection of consumers, investors, businesses and markets.”[3]

To direct international collaboration, the Secretary of Treasury relied heavily on the United States’ strong foundational history in key international engagements. For example, the 2018-19 presidential role in the Financial Action Task Force (FATF) situated the US as a prominent leader in the development and adoption of the first international standards on digital assets. The Secretary of Treasury also acknowledged the International Monetary Fund’s (IMF) imperative role in surveillance to manage issues and maintain the stability and functioning of the international monetary system. The Secretary of Treasury recognized the ongoing requirement to collaborate with other international agencies and partners, such as the G7, G20 and the Financial Stability Board (FSB), to “pursue and push for work to monitor, identify and foster a shared understanding of global and financial stability risks from digital assets”[4] that align with U.S. objectives.[5]

As additional guidance and reports are issued pursuant to the Order, Leech Tishman’s interdisciplinary Emerging Cyber Technologies Industry Group will endeavor to continually issue updates.

For more information or assistance with the Secretary of Treasury’s Framework, or other cybersecurity risk management, please contact Irfan M. Dinani 

Irfan 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.

Elissa Steiner, JD Candidate 2024, Pepperdine University Rick J. Caruso School of Law, contributed to the research and drafting of this article.

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[1] See https://www.leechtishman.com/insights/blog/president-bidens-march-9-2022-digital-assets-executive-order/

[2] Ibid.

[3] Id.

[4] Id.

[5] Id.