In an Executive Order dated March 9, 2022, President Biden acknowledged the rapid growth of digital assets and their use by the American public. The signed Order directs federal agencies to examine potential regulatory changes and addresses the risks and benefits of digital assets and technology.
The measures are outlined in several objectives:
Policy: Digital assets have a market capitalization of $3 trillion which has prompted global authorities to explore a central bank for digital currencies. Policies are needed to provide guidance on the adoption of digital assets, innovations and provide consistent controls to avoid risks and align the U.S. government with an approach to digital assets. The policy will take steps to avoid risks to consumers, investors, and businesses and hinder crimes associated with digital assets, among other protections.
Objectives: Given the features of digital assets, the U.S. seeks to protect consumers, investors, and businesses as it relates to sensitive financial information, custody of customers’ assets and funds, and cybersecurity. Mitigate risk to the U.S. and global financial stability which may be caused by digital asset platforms, service providers and intermediaries due to the complexity and rapid growth of digital assets. Curtain the risks of money laundering, cybercrimes, narcotics, terrorism, and human trafficking, among other illicit misuses of digital assets. Promote affordable financial services accessibility to underbanked Americans.
Coordination: Agencies from various departments, to include regulatory bodies will coordinate to implement the Executive Order.
U.S. Central Bank Digital Currencies (CBDC): Research and development in the design and deployment options of a digital currency bank which benefits consumers, investors, and businesses.
Events Leading up to the Executive Order
I have been closely following events surrounding digital assets up to the signing of today’s Executive Order detailing oversight of digital assets. After 20-plus years in federal law enforcement as a special agent, I have learned that sometimes events follow a specific pattern and unfold at the right time. My observations have led me to believe that certain things are not left to chance but are well orchestrated.
On October 6, 2021, Deputy Attorney General Lisa O. Monaco announced the creation of the National Cryptocurrency Enforcement Team (NCET). NCET is responsible for investigating complex cryptocurrencies investigations and bringing those individuals responsible for possible prosecution. Crimes committed by virtual currency exchanges, mixing and tumbling services, and money laundering will be under NCET’s jurisdiction. In simple terms, a ‘mixing and tumbling service’ blends various potentially identifiable digital currencies and makes coins harder to trace. The end product provides no association between the digital coin’s original exchange and the final exchange to which it is moved.
On November 23, 2021, the Federal Deposit Insurance Corporation, The Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency issued a joint statement on crypto-assets. On February 8, 2022, the Department of Justice announced the arrest of two individuals alleged to have laundered $4.5 billion in stolen cryptocurrency. The announcement stated, in part, “Today’s arrest, and the department’s largest financial seizure ever, show that cryptocurrency is not a safe haven for criminals.”
These regulatory bodies recognized the need to work together to better understand the continuing evolution of digital assets and coordinate the importance of promoting safety and soundness, consumer protection, and applicable laws and regulations related to crypto-assets.
Why this Executive Order is Significant
Cryptocurrencies are banned in numerous countries, and approximately 42 countries have placed restrictions on banks and other financial institutions’ ability to deal with cryptocurrencies.
The Law Library of Congress report includes an updated list of cryptocurrencies’ legal status and regulatory framework. Some governments claim cryptocurrencies are being used to illegally funnel money, while others argue it could destabilize their financial systems.
For example, the People’s Bank of China argues that banning cryptocurrencies was done to curtail financial crime and prevent economic instability. In Singapore – a major financial center – cryptocurrency has emerged as a global hub due to regulatory measures implemented by the Monetary Authority of Singapore (MAS) and financial regulatory bodies. MAS has enacted consumer protection laws for investors that inform them of the high risk of owning and trading cryptocurrencies. In the same manner, MAS encourages blockchain technology development.
While the United States is not one of the countries looking to ban cryptocurrencies, it has been trying to figure out how to better regulate digital currencies and provide information on digital assets. In a Press Release, dated March 8, 2022, the U.S. Department of the Treasury announced that a new subgroup, under the Financial Literacy and Education Commission, was established to provide digital asset financial education and develop educational materials and outreach to help consumers make informed decisions about digital assets.
What this Executive Order Means for the Industry
Cryptocurrencies have garnered further interest in recent weeks due to the sanctions placed on Russia by the U.S. and its allies. The concern is that cryptocurrencies may be used to evade restrictions.
As mentioned in one of our previous blogs on cryptocurrencies, there is a potential opportunity for digital assets, including cryptocurrencies, to be a 3 trillion dollar industry. Large banks are investing billions into cryptocurrency and blockchain. As stipulated earlier in December, it may be only a matter of time before Congress passes additional laws and the regulators’ issue rules and regulations affecting cryptocurrencies markets.
In 2020, it was estimated by fundera that approximately 15,174 businesses worldwide accept bitcoin and an estimated 2,300 businesses in the US accept bitcoin.
Asia is expected to play a significant role in the market growth due to digital assets management’s ability to tackle problems when dealing with expansion regions, global teams, and content. The food and beverage industry is also expected to grow due to the use of digital assets.
With the signing of today’s Order, the digital assets industry should continue to concentrate and place a higher degree of interest on Anti-Money Laundering (AML) regulations, including Know Your Customer procedures. The pillars of an effective AML program not only apply to banks and credit unions, but may soon apply to the digital assets industry.
How to Keep Track of the Upcoming Regulatory Changes
There are many ways to stay up-to-date with regulatory changes around cryptocurrencies: monitor regulatory agency websites, follow regulatory agencies on social media, create news alerts, subscribe to newsletters, and attend webinars on the topic. These are, however, labor-intensive tasks, considering the information can be outdated by the time it reaches you.
Regology’s regulatory intelligence platform addresses those challenges in one centralized place and keeps organizations up-to-date with regulations specific to their needs and line of business.
If you are interested in learning how you can stay abreast of any future regulatory changes based on today’s Executive Order, please contact us by filling out this form.