White House Releases Framework on Regulating Crypto
The Biden White House just unveiled the first-ever framework for crypto regulation in the United States, outlining how the financial services sector should develop to facilitate borderless transactions and how to stop fraud in the market for digital assets.
Crypto companies have been anxiously anticipating a number of US government reports they anticipated would make clear what the Biden administration and regulators intend to do about digital assets. The majority of the documents are now open to the public, although the circumstances are still unclear.
The federal government recognizes several potential concerns associated with cryptocurrency, and the various agencies believe that stepping up enforcement operations may be a crucial step.
The framework comes after President Joe Biden called on federal agencies to investigate the advantages and disadvantages of cryptocurrencies and publish public reports on their findings in an executive order released in March.
Government agencies have been working to create their own frameworks and policy recommendations for the past six months to address the half-dozen priorities listed in the executive order, including financial inclusion, responsible innovation, countering illicit finance, promoting financial stability, and protecting consumers and investors. These suggestions make up the first “whole-of-government approach” to industry regulation.
The new regulations are intended to establish the nation as a leader in the administration of the digital assets ecosystem at home and abroad, according to national security adviser Jake Sullivan and head of the National Economic Council Brian Deese in a joint statement.
Digital Dollars:
Whether the United States will launch a digital currency (CBDC) issued by a central bank – Federal officials came to the conclusion that no digital dollar should be developed unless it is determined to be in the “national interest” despite the studies’ proposals and recommendations that the Federal Reserve “continue its continuing CBDC research, experimentation, and review.”
Who determines what is in the country’s best interest?
That’s a little unclear. Since the Fed will be in charge of managing it, the Fed will undoubtedly have a say in this. The government might also need to issue a decree, and Congress might also need to get involved. Future legal guidance from the Justice Department, which is anticipated to specify the credentials the Federal Reserve needs before it can issue a digital dollar, may provide the answer.
Although the Fed is independent, it will work with lawmakers, the government, and other federal agencies to determine the best course of action in the interest of the country.
Fighting Illicit Finance:
The White House’s new framework for crypto regulation includes a section on fighting illegal activity in the sector, and the suggested restrictions seem to have some actual impact.
A White House fact sheet states that the president will consider whether to ask Congress to amend the Bank Secrecy Act, anti-tip-off laws, and laws against unlicensed money transmitting to explicitly apply to providers of digital asset services, such as digital asset exchanges and nonfungible token (NFT) platforms.
The president is also considering whether to ask Congress to increase the fines for unauthorized money transmission and whether to change some federal laws to enable the Department of Justice to pursue crimes involving digital assets in any location where a victim of those crimes is detected.
The fact sheet states that Treasury will finish its assessment of the risk of illegal finance related to decentralized finance by the end of February 2023 and before the end of July 2023, it will have examined all non-fungible coins.
There is a lot of crime on the market for digital assets. The Federal Trade Commission’s investigation shows that since the beginning of 2021, more than $1 billion in cryptocurrency has been lost to fraud.
The SEC revealed 11 allegations against a fraudulent crypto pyramid and Ponzi scheme that raised more than $300 million from millions of retail investors worldwide, including in the US. Meanwhile, in February, in connection with the 2016 hack of the cryptocurrency exchange Bitfinex, U.S. officials conducted their largest-ever cryptocurrency seizure when they seized $3.6 billion worth of bitcoin.
National Security Advisor Jake Sullivan and Director of the National Economic Council Brian Deese stated in a statement that the various studies express concerns about consumer protections and illegal activity and offer solutions for the government to address these problems.
“Together, we are establishing the foundation for a smart, all-encompassing strategy to reduce the serious risks associated with digital assets and, when possible, to make use of their advantages. The future of this ecosystem will be shaped by our collaboration with allies, partners, and the larger community of digital asset holders.”, the statement stated.
A senior administration official told reporters that while the agencies are independent of the executive branch, the assessments urge that regulators “release new rules and advice” to fill in any gaps over how current financial regulations apply to cryptocurrencies.
The official stated, “The advice is for the agencies to evaluate, clarify, and coordinate their policies, and I believe that the view is just saying… they have the required authorities… for corporations who are not complying.”
Other Recommendations:
Senior administration officials stated that they are looking for a “redoubling” of investigations and enforcement activities against the industry in response to the question of what other practical next steps the reports propose. The SEC and Commodity Futures Trading Commission were singled out in a document released by the White House on Friday.
The Consumer Financial Protection Bureau and Federal Trade Commission, two federal regulatory bodies that have not been as active in the crypto sector as earlier regulators, should “redouble their efforts to monitor consumer complaints and to enforce against unfair, deceptive, or abusive practices,” the White House added.
Biden would advocate a federal license or oversight scheme for nonbank payment firms, according to the White House memo. One of the Treasury papers elaborated on this, stating that a legal framework for payments would reduce risks while assisting these kinds of businesses.
“Nonbanks are increasingly offering payment services, such as processing payments and issuing liabilities with a monetary value. Nonbank payments companies’ involvement could, on the one hand, promote greater levels of competition, inclusivity, and innovation. On the other hand, there may be dangers to customers, the financial system, and the whole economy if these enterprises are not effectively regulated and overseen.”, according to a Treasury report.
The report did not, however, describe a potential design for this structure. The federal regulatory framework that would allow crypto exchanges to operate nationwide with just one license, as opposed to needing to apply for a money transmitter license in each state where they wish to conduct business, has long been sought after by the industry.
