US administration issues initial framework for future cryptocurrency regulation balancing risks and opportunities
The US administration has released an initial framework for future regulation of cryptocurrencies and other digital assets, seeking to minimise their potential risks while encouraging private sector innovation and international cooperation.
The framework looks for ways the financial services industry should evolve, including making cross-border transactions easier, as well as cracking down on rampant fraud in crypto currencies and other digital assets.
The recommendations are the result of an executive order signed in March of this year that called on federal agencies to examine the risks and benefits of digital assets and issue official reports on their findings.
The order asked them to address priorities including consumer and investor protection, promoting financial stability, countering illicit finance, US leadership in the global financial system and economic competitiveness, financial inclusion and responsible innovation.
The White House said its framework reflects “the input and expertise of diverse stakeholders across government, industry, academia, and civil society” and seeks to take a whole-of-government approach to regulation.
It says regulators such as the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) should continue coordinating regulatory and data-sharing efforts surronding crypto, with the US Treasury to take an active role in working with financial institutions to help identify and mitigate cyber risks.
The Treasury is expected to complete an illicit finance risk assessment on decentralised finance (DeFi) by the end of February 2023 and on non-fungible tokens (NFTs) by July 2023.
President Biden will then decide whether to call upon Congress to amend the Bank Secrecy Act, anti-tip-off statutes and laws against unlicensed money transmitting to apply explicitly to digital asset service providers, including digital asset exchanges and NFT platforms.
Central bank cryptocurrency
In addition to anti-fraud measures the framework mentions a possible US central bank digital currency (CBDC) which it said could have “significant benefits”.
The document singles out so-called stablecoins, which are pegged to official currencies such as the US dollar but are themselves run by private organisations, saying they could create disruptive runs if not overseen by appropriate regulation.
The administration said the Treasury would work with financial institutions and international bodies such as the Organisation for Economic Cooperation and Development and the Financial Stability Board to make stablecoins “safer” through information-sharing and identifying cyber-risks.
In May the sudden collapse of popular stablecoin TerraUSD cost investors tens of billions of dollars, and led to a series of insolvencies that erased nearly $600 billion (£525bn) in wealth, according to the White House.
It said the Financial Stability Oversight Council (FSOC) would publish a report in October discussing digital assets’ financial stability risks, identifying related regulatory gaps and making additional stability recommendations.