In an Executive Order (EO) issued March 9, 2022, President Joseph Biden set out the guiding principles for US policy on digital assets and digital asset regulation, including US policy with respect to a US Central Bank Digital Currency (CBDC). The EO is an anticipated and hoped-for development among some in the financial services industry, signaling for the first time a unified US approach to digital asset policy going forward.

The EO makes clear that the rise in digital assets creates an opportunity to reinforce US leadership in the global financial system. It is imperative, according to the EO, that the US maintain technological leadership in digital assets, supporting responsible financial innovation that protects consumers, businesses, the global financial system, and the climate, while promoting democratic values and US global competitiveness. The EO is divided into ten sections, which we summarize below.

Policy and objectives

Section 1. Policy. In one concise paragraph, the EO sets forth the reasons the US, through coordination among many departments and agencies, needs to establish a unified approach to digital assets. The reasons cited include the tremendous growth in digital assets (estimated to have a combined market capitalization of $3 trillion as of November 2021); actions taken by other governments to establish their own CBDCs; inconsistent approaches and controls with respect to key risks; and, notably, a desire on the part of the administration to reduce the cost of domestic and cross-border funds transfers and payments. This section concludes with the imperative: the US government must take “strong steps” to reduce the risks of digital assets, ensure financial system stability, combat crime and protect national security, foster financial inclusion and equity, and address climate change and pollution, all in relation to the use and development of digital asset technologies.

Section 2. Objectives. The EO sets forth six principal policy objectives with respect to digital assets:

• Consumer, Investor and Business Protection: The EO seeks to ensure that safeguards are implemented and that the US promotes the responsible development of digital assets to protect consumers, investors, and businesses; maintain privacy; and shield against arbitrary or unlawful surveillance.
• Protection of US and Global Financial Stability and Mitigation of Systemic Risks: The EO seeks to implement regulatory and supervisory standards appropriate in governing digital asset issuers, exchanges and trading platforms, and intermediaries whose activities may increase risks to financial stability.
• Mitigation of Illicit Finance and National Security Risks Posed by Misuse of Digital Assets: The EO calls for controls and accountability for current and future digital assets systems that promote high standards for transparency, privacy, and security — including through regulatory, governance, and technological measures — in order to counter illicit activities and preserve or enhance the efficacy of US national security tools.
• Promotion of US Leadership in Global Financial System and Technological and Economic Competitiveness: The EO envisions the US setting standards that promote democratic values; the rule of law; privacy; the protection of consumers, investors, and businesses; and interoperability with digital platforms, legacy architecture, and international payment systems.
• Promotion of Access to Safe and Affordable Financial Services: The EO aims to promote responsible innovation that expands equitable access to financial systems and envisions actions to make investments and domestic and cross-border funds transfers and payments cheaper, faster, and safer; promote greater and more cost-efficient access to financial products and services; and mitigate against disparate impacts of financial innovation.
• Support of Technological Advances Promoting Responsible Development and Use of Digital Assets: The EO envisions the US acting to ensure that digital asset technologies and the digital payments ecosystem are developed, designed, and implemented in a manner that includes privacy and security in their architecture, integrates features and controls that defend against illicit exploitation, and reduces negative climate impacts and environmental pollution.

Interagency cooperation

Section 3. Responsibility for Implementation. The executive branch of the US government, through the Assistant to the President for National Security Affairs and the Assistant to the President for Economic Policy, will be responsible for taking the actions necessary to implement the EO. Representatives of agencies including the Securities and Exchange Commission (SEC), the Federal Trade Commission (FTC), the Consumer Financial Protection Bureau (CFPB), the Commodity Futures Trading Commission (CFTC), and the Federal Reserve Board are likely to be called upon for consultation and to attend interagency meetings. Note that the EO does not bind Congress, nor preclude legislative action.

Central Bank Digital Currencies

Section 4. Policy and Actions Related to United States Central Bank Digital Currencies. The EO lays out the administration’s policy to urgently focus on the research and development of a potential US CBDC — or a “digital dollar” — should issuance be deemed in the national interest. Many other countries have been exploring their own CBDCs, so this policy reflects the effort to prioritize US participation in that process and better ensure US leadership internationally to promote CBDC development that is consistent with US concerns and democratic values. Three directives follow:

• The EO directs a broad swath of federal agencies to report on wide-ranging implications from a potential US CBDC, including relating to economic growth and stability, financial inclusion, national security, relationship with private sector digital assets, the future of payment systems, and how foreign CBDCs could undermine US interests.
• The EO then encourages the Federal Reserve to (i) continue to research and report on whether CBDCs could improve efficiency and reduce costs of future payment systems; (ii) assess the optimal form of a US CBDC, including preparing for the implementation and launch of a US CBDC; and (iii) determine whether a US CBDC could enhance or impede the ability of monetary policy to function effectively as a critical macroeconomic stabilization tool.
• Finally, the EO directs the Attorney General to report on whether new federal legislation is required to issue a US CBDC and to provide a corresponding legislative proposal.

This section of the EO is a natural follow-on to the “Report on Stablecoins” published by the President’s Working Group on Financial Markets in November 2021 that discussed the urgent need to comprehensively address the risks relating to stablecoins and to require that stablecoin issuers be insured depository institutions subject to the regulatory, supervisory and examination authority of a US federal banking agency.¹

Consumer protection

Section 5. Measures to Protect Consumers, Investors, and Businesses. Concerned that the rise in use of digital assets may increase the risks of fraud, theft, privacy violations, and data breaches, and may also exacerbate inequities and disparate financial impacts on the less informed, the EO calls for protections to be put in place to expand access to safe and affordable digital assets. It sets out a series of deadlines for multiple reports from agencies across the federal government, including:

• A Treasury-led report due within 180 days that will consider the implications of digital asset growth and changes to the payment system infrastructure for US consumers, investors, and businesses, with an eye toward how technological innovation may affect those most vulnerable to disparate impacts. The report should include policy recommendations on regulatory and legislative actions needed to protect consumers, investors, and businesses and to expand access to safe and affordable financial services.
• A scientific and technology report due within 180 days on the technological infrastructure, capacity, and expertise needed at various agencies to support the introduction of a CBDC. The report should address the technological risks of various designs, taking into account emerging and future technologies, such as quantum computing. The report shall also reflect on how the use of digital assets in the provision of government services may affect the customer experience and various safety net programs.
• A law enforcement report due within 180 days led by the Attorney General on the role that law enforcement agencies can play in detecting, investigating, and prosecuting criminal activity related to digital assets.
• The FTC and CFPB are encouraged to consider what privacy and consumer protection measures can now be used and what additional measures may be required to protect users of digital assets.
• The SEC and other agencies are encouraged to consider how investor and market protection measures within their jurisdictions may be used to address the risks of digital assets and whether additional measures are needed. SEC Chairman Gary Gensler has tweeted that the SEC, with state securities regulators and attorneys general, will be very active in pursuing investor protection as the reports called for by the EO are being written this year.
• A climate change and energy report due within 180 days led by the Office of Science and Technology Policy, along with the EPA, Energy, Treasury, and other agencies, on the potential for distributed ledger technology to impede or advance efforts to tackle climate change and the impacts of these technologies on the environment and on energy policy, including as it relates to grid management and reliability, energy efficiency, and sources of energy supply.

Financial market stability

Section 6. Actions to Promote Financial Stability, Mitigate Systemic Risk, and Strengthen Market Integrity. This section of the EO emphasizes the impact of digital assets on financial system stability and financial market integrity. The EO highlights the important role federal agencies, including the SEC, CFTC, CFPB, and federal banking agencies, play in promoting financial stability. In addition to these federal agencies, the EO calls attention to the ongoing work of the Financial Stability Oversight Council (FSOC), which has been studying the risks posed by the adoption of digital assets since 2017. Importantly, the EO requires the FSOC — which is comprised of several federal agencies, including the SEC, CFTC, and CFPB, and chaired by Treasury — to issue a report within 210 days of the EO, outlining the specific financial stability risks and regulatory gaps posed by digital assets.

The FSOC report authorized by the EO signals the administration’s appreciation for the different features and characteristics of each digital asset, as the FSOC report must consider the various types of digital assets and not treat digital assets with a one-size-fits-all regulatory solution. In addition, this represents an acknowledgement by the administration of the importance of interagency regulatory collaboration, something that was immediately emphasized by SEC Chairman Gensler in a tweet citing to the EO’s public policy goals of investor protection and financial stability. Finally, the EO requires FSOC to specifically consider additional regulations or new legislative proposals to address the risks posed by digital assets, which is something that certain regulators have been urging because their existing rules may not be appropriate (or include the appropriate authority) to supervise digital assets.

National security and illicit finance

Section 7. Actions to Limit Illicit Finance and Associated National Security Risks. Section 7 discusses potential uses of digital assets to facilitate illicit activities such as money laundering, fraud and theft, corruption, and the financing of terrorism, and highlights the need to scrutinize practices and mitigate risk. The section requests three actions by the heads of various departments, including the Secretaries of State, Treasury, Commerce, and Homeland Security, as well as the Attorney General, the Secretary of Commerce, the Secretary of Homeland Security, the Director of the Office of Management and Budget, the Director of National Intelligence, and the heads of any other relevant agency wishing to participate: (1) within 90 days of submission to Congress of the National Strategy for Combating Terrorism and Other Illicit Financing (the Strategy), the agencies may each submit supplemental “annexes” to the Strategy offering views on the illicit finance risks posed by digital assets; (2) within 120 days of submission of the Strategy, the Secretary of the Treasury, in consultation with the other agencies, must create an action plan for mitigating illicit activities and national security risks related to digital assets; and (3) within 120 days of completion of the National Money Laundering Assessment, the National Terrorist Financing Risk Assessment, the National Proliferation Financing Risk Assessment, and the updated Strategy, the Secretary of the Treasury must notify the relevant agencies regarding any pending, proposed, or prospective rulemaking to address digital asset illicit finance risks, and consider their views in implementing regulations.

Fostering international cooperation and US competitiveness

Section 8. Policy and Actions Related to Fostering International Cooperation and United States Competitiveness. Section 8 of the EO sets out the Biden administration’s policy on fostering international cooperation and American competitiveness in the digital asset space. It emphasizes the need for cross-border cooperation due to the often borderless nature of digital financial innovations like cryptocurrency. Uneven regulation of digital assets creates havens for illicit activities despite robust rules in the United States. The EO lists US international efforts to date, such as its role in developing the first international standards on digital assets and establishing the G7 Digital Payments Experts Group, and emphasizes the Biden administration’s desire to continue working with international partners to protect consumers, investors, and businesses.

To that end, the EO directs various agencies and the Attorney General to take four actions: (1) within 120 days of the EO, the Secretary of the Treasury will establish a framework for interagency international cooperation with foreign partners and international bodies to further the establishment of global principles and standards governing the development and use of digital assets; (2) within one year of establishment of this international engagement framework, the Secretary of the Treasury will submit a report to the President on actions taken under the framework and their effectiveness; (3) within 180 days of the EO, the Secretary of Commerce will establish a framework for enhancing US economic competitiveness in and potential use of digital asset technologies; and (4) within 90 days of the EO, the Attorney General will submit a report on ways to strengthen international law enforcement cooperation for investigating and prosecuting crime related to digital assets.

Definitions and current law

Section 9. Definitions. Section 9 defines key terms used throughout the EO and is notable for making clear that regardless of the label used, a digital asset may be a security, a commodity, a derivative, or another financial product.

Section 10. General Provisions. The EO concludes with Section 10, stating that nothing in the EO shall be construed to affect or impair the existing authority of executive departments or agencies and that the EO shall be implemented consistent with applicable law and subject to the availability of appropriations.

Conclusion

From now on, virtually all US government departments and agencies will need to have staff and programs dedicated to a unified US effort to review digital asset technologies and chart the path forward for US regulation of digital assets. If it was not clear prior to the issuance of the EO, it is now: a disjointed US regulatory approach to issues raised by the creation of digital assets and provision of services supportive of digital assets is coming to an end.

^{1 President’s Working Group on Financial Markets, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency, “Report on Stablecoins,” US Department of the Treasury (November 2021), available at https://us.eversheds-sutherland.com/portalresource/StableCoinReport_Nov1_508.pdf. For more details on this report, please see our legal alerts available here and here.}

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