The Background of Crypto Framework Released by White House
On September 16, 2022, the White House released a “First-Ever Comprehensive Framework for Responsible Development of Digital Assets” (“Framework”) outlining the conclusions and recommendations of nine federal agencies’ research on crypto industry over the past six months.
President Biden’s executive order on Ensuring Responsible Development of Digital Assets, signed in March this year, directed the government to study and research cryptocurrency.
Like the executive order, Framework does not lay down any new legislation, but it does provide a clearer vision of U.S. crypto regulation. The Framework is the result of nine separate reports, which have been submitted to the President since the order.
The framework consists of 7 sections:
- Protecting Consumers, Investors, and Businesses;
- Promoting Access to Safe, Affordable Financial Services;
- Fostering Financial Stability;
- Advancing Responsible Innovation;
- Reinforcing Global Financial Leadership and Competitiveness;
- Fighting Illicit Finance;
- Exploring U.S. Central Bank Digital Currency (CBDC).
Consumer and Investor Protection
The Framework speaks about the risks of crypto assets, citing price volatility and crypto scams, and encourages regulators like the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), to “aggressively pursue investigations and enforcement actions against unlawful practices in the digital assets space” and permitted regulators to continue coordinating efforts to enforce the law in the sector and exchange information on consumer complaints.
The report also calls for the Consumer Financial Protection Bureau and Federal Trade Commission to punish bad practices. Additionally, government agencies should work together to address consumer risks and issue clear guidance and rules for the crypto space. The Financial Literacy Education Commission (FLEC) would lead public-awareness efforts to educate the public on crypto risks and pursue fraudulent actors.
Promoting Access to Financial Services and Fostering Financial Stability
To make the digital economy accessible to everyone, federal agencies recommend:
- To develop financial services that are secure, reliable, affordable, and accessible to everyone;
- To create a federal framework for nonbank payment providers and encourage the adoption of instant payment systems;
The Framework also drew attention to stablecoins, saying that intertwining digital assets and traditional finance services can have spillover effects and create disruptive runs if not paired with appropriate regulation.
To support financial stability, the U.S. Department of the Treasury (“Treasury”) will work with financial institutions to identify risks and improve capacities to fight cyber vulnerabilities and with other agencies to identify and analyze emerging strategic risks.
The Treasury would extend this responsibility to American allies through international institutions such as the Financial Stability Board (FSB) and the Organization for Economic Co-operation and Development (OECD).
Supporting Innovation
As a part of advancing responsible innovation efforts, the Framework indicated that the government intends to promote innovation, and it outlines several steps to ensure to foster responsible crypto space innovation.
The Office of Science and Technology Policy (OSTP) and The National Science Foundation (NSF) will develop a Digital Assets Research and Development Agenda to help mitigate the negative climate impacts. would conduct research on cryptography, “transaction programmability” cybersecurity, privacy protection, and climate-friendly digital asset solutions. With the same goal the government has encouraged the Treasury and other agencies to provide guidance and assistance to U.S. companies working on new financial technology, while the Department of Energy, the Environmental Protection Agency, and other agencies will consider further tracking digital assets’ environmental impacts.
The Importance of Framework for Crypto Industry
The White House made various recommendations on specific areas with the way Federal agencies should move forward. Their concerns are wide-ranging, and the recommendations include not just the obvious (such as consumer protections, environment, and national security) but are the clearest sign yet that the government wants to support the growth of digital assets and encourage private-sector innovation and cooperation on an international level safely and securely.
With President Biden’s executive order signed in March 2022, the Framework shows that the government is busy working out how it will deal with digital assets as the technology moves toward mass adoption and solidify the U.S.’s position as a worldwide leader in crypto by fostering private-sector innovation and global cooperation.
It outlines the risks of cryptocurrencies and how consumers can be adversely affected by the recent instability that has plagued cryptocurrencies. Still, with a clear focus on protecting customers, preventing crime, and the possible launch of a CBDC, it is clear that the government wants to capture the opportunities that crypto can create while acknowledging the potential risks. The fact that the U.S. is now taking space seriously is only a positive sign for where things could head in the future.
Our Regulatory & Compliance team at Crystal Blockchain comprises experts from financial services and regulators. We have hands-on professionals with experience in helping you to transform regulation into effective risk management. For any compliance-related questions, please contact us at: [email protected] .
