Treasury Proposes International Coordination of Digital Asset Regulation
Commentary by Steven Lofchie
The Secretary of Treasury, in consultation with relevant agencies, delivered to President Joseph R. Biden a framework for international engagement on digital assets. The framework was a response to directives included in Executive Order ("EO") 14067 ("Ensuring Responsible Development of Digital Assets"). The EO directed Treasury to develop a framework to:
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promote technology and regulatory standards reflecting U.S. values,
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protect customers, investors and businesses and reinforce U.S. global leadership;
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mitigate systemic risk and protect financial stability;
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address illicit activities and security risks;
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improve access to financial services; and
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support responsible research, development and use of digital assets.
In the fact sheet, Treasury emphasized the importance of cross-border consistency, noting that "[u]neven regulation, supervision and compliance across jurisdictions creates opportunities for arbitrage and raises risks to financial stability and the protection of consumers, investors, businesses and markets." Further, Treasury stated that inadequate anti-money laundering and anti-terrorism regulation from other countries hinders the U.S. in investigating "illicit digital asset transaction flows that frequently jump overseas, as is often the case in ransomware payments and other cybercrime-related money laundering."
Additionally, Treasury described ongoing engagement and coordination with a number of organizations, including the G7, the G20, the Financial Stability Board, the Financial Action Task Force and the Egmont Group of Financial Intelligence Units (FIUs), the Organization for Economic Cooperation and Development, the International Monetary Fund, the World Bank and other multilateral development banks and various other standard-setting bodies.
Commentary
Before the U.S. government tries to pressure other countries to develop a globally coordinated regulatory scheme for digital assets, it should put its own house in order. The U.S. financial regulators have no coordinated program as to how digital assets should be treated. In fact, different regulators have come out with policies that are fundamentally at odds with each other. For example, the CFTC permits futures on Bitcoin to be traded on futures exchanges, but the SEC has numerous times rejected allowing a bitcoin fund to trade on a U.S. securities exchange. The OCC permits national banks to custody crypto-assets, but the SEC has issued an accounting statement that is punitive in its treatment of entities holding crypto assets.
The framework describes perfectly legitimate reasons why U.S. regulators should address issues raised by crypto-assets, including the protection of investors, and the potential for crypto currencies to be used for the evasion of tax or AML obligations. U.S. regulation, however, has largely focused on preventing risk, not on extracting benefits or allowing for innovation. (See prior commentary on The Securities Law Treatment of Utility Tokens; see also SEC Commissioner Peirce Criticizes SEC's Inaction on Crypto.)
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President Joseph R. Biden signed an "Executive Order on Ensuring Responsible Development of Digital Assets," which outlined a "first ever, whole-of-government approach" to address the risks and potential benefits of digital assets.