Focus and Coordination: Two Principal Themes of White House March 9 Executive Order on Digital Assets

The United States is proactively and positively focusing on digital assets.

According to an Executive Order (EO) issued by the White House on March 9, 2022, President Biden argued that "[w]e must reinforce United States leadership in the global financial system and in technological and economic competitiveness, including the responsible development of payment innovations and digital assets." 

The EO noted the importance of the US taking a leadership role in the "development and design of digital assets and the technology that underpins new forms of payment and capital flows in the international financial system, particularly in 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."

While promoting this leadership role for the United States, the EO indicated that developments involving digital assets must be coupled with:

• protection of US consumers, investors and businesses;
• protection of US and global financial stability and mitigation of systemic risk; 
• mitigation of the "illicit finance national security risks posed by misuse of digital assets, such as involving money laundering, cybercrime and terrorism financing.

Through the EO, the President said that digital asset issuers, exchanges, trading platforms and intermediaries  "whose risks may increase risks to financial stability should, as appropriate, be subject to and in compliance with regulatory and supervisory standards that govern traditional market infrastructures and  financial firms, in line with the general principle of 'same business, same risks, same rules'."

Additionally, the EO placed the "highest urgency on research and development efforts into the potential design and deployment options of a US central bank digital currency." Among other features, a US CBDC, if adopted, that is interoperable with other jurisdictions' CBDC's could facilitate "faster and lower-cost cross-border payments and potentially boost economic growth, support the continued centrality of the United States within the international financial system and help to protect the unique roll that the dollars plays in global finance," stated the EO.

To help ensure the United States' leadership role in digital assets, the EO called on various relevant departments and federal organizations to issue reports and make recommendations on tight time frames regarding specific aspects of digital assets and related industry participants. For example, within 210 days, the Secretary of the US Department of Treasury is required to convene the Financial Stability Oversight Counsel (FSOC) to produce a report to address the "specific financial risks and regulatory gaps posed by various types of digital assets and providing recommendations to address such risks." (FSOC includes among its ten voting members, the Commodity Futures Trading Commission and the Securities and Exchange Commission; one state securities commissioner and one state banking commissioner, among others, are non-voting members.) Regretably, there is no specific instruction for the CFTC and SEC to develop an objective methodology to determine when a digital asset is a security.

The Executive Order also called for international cooperations among public authorities to "maintain high regulatory standards and a level playing field" in the digital asset space.

According to Rostin Behnam, Chairman of the CFTC, in response to the EO, "[t]he Executive Order signed by President Biden today marks a significant step. The EO will ensure greater cooperation and coordination between various cabinet-level agencies, the independent market regulators and prudential regulatory bodies." In response to the EO, SEC Chairman Gary Gensler Tweeted "I look forward to collaborating with colleagues across the government to achieve important public policy goals: protecting investors & consumers, guarding against illicit activity, & helping ensure financial stability."

The EO signals a more coordinated effort by the Executive Branch to evaluate digital assets.  The mere issuance of an EO meaningfully increases the profile of digital assets within the government and ensures enhanced activity and engagement with regulators and with Congress.  In essence, the EO marks the opening of a new, defining phase for the development of the U.S. approach to regulating digital assets.