21 Analytics Unpacks First-Ever White House Digital Asset Framework
“Following the President’s Executive Order, New Reports Outline Recommendations to Protect Consumers, Investors, Businesses, Financial Stability, National Security, and the Environment.”*
The Biden-Harris Administration, or simply the Administration, has clarified their feelings towards all things crypto; the Administration aims to regulate the US crypto arena.
The framework encompasses 6 fundamentals and was a joint effort involving the expertise of various stakeholders such as the government, academia, civil society and various industries.
The new framework hopes to evoke action both locally and internationally, as well as incite private-sector research into the crypto arena, assist US fintechs in the global playing field, mitigate risks, and recognise the benefits of digital assets (virtual assets) and related aspects, amongst other benefits.
Below we will break down the 6 fundamentals and their goals.
Consumer, Investor and Business Protection
In 2022, we saw a wave of risks associated with digital assets in regions with (then) lax regulations.
In addition, it was noted that non-compliance could lead to fraud, scams and theft. According to statistics presented by the Federal Bureau of Investigation (FBI), monetary losses from digital asset scams have increased by 600% since 2020.
As pointed out more than once, the Administration is focused on protecting consumers by ensuring fair play in the digital asset market. To ensure this, guidance has been issued along with enforcement resources and active pursuit of fraudulent actors.
Financial Inclusion Through Safe and Affordable Financial Services
Research has shown that nearly 7 million Americans do not own a bank account, and 24 million use expensive non-bank services. The population that does use banks find that traditional banking infrastructure is slow and costly, especially for foreign transactions.
The goal of the Administration is to create a digital economy that is accessible and works for all Americans, which can make financial services faster and cheaper.
A step towards this goal is the 2023 planned launch of FedNow, an interbank clearing infrastructure for instant payments. More work is needed in developing the digital asset's functionality of FedNow’s banking system, as it wants to ensure that it meets the needs of its clients completely.
Promoting Financial Stability
As the digital world evolves - its finance and the traditional fiat world become more intertwined. A prime example of this mixture is stablecoins.
As stablecoins are often pegged to fiat, the need for clear regulations is a must.
Further attention was drawn to this need in May with the crash of TerraUSD. Many users suffered significant financial losses.
The Biden-Harris Administration has recommended steps for regulators to make stablecoins safer. Measures include the work of the US Treasury with financial institutions and other agencies to mitigate cyber vulnerabilities and analyse emerging risks.
Read about MiCA’s stance on stablecoins.
Advancing Responsible Innovation
The US is home to roughly half of the world’s most valuable fintech companies. Moreover, the US government has played a crucial role in the private sector. Not only does the government sponsor research and development, but it assists these companies with compliance and the mitigation of negative side effects due to technological advancement.
The Administration plans to continue fostering the US’s power in the technology arena.
As part of the framework, key organisations, such as the US Treasury, and the Department of Commerce, amongst others, will work with smaller agencies to ensure the best results.
Reinforcing the US’s Global Financial Leadership
The US will be working to maintain its role as a global financial leader within this framework. In accordance with global standard-setting organisations, like the FATF, the US is working to ensure that these policies and the US’s goals and values are aligned.
Additionally, the US wishes to align with foreign players through international engagements.
One example includes the Department of Justice (DOJ) entering bilateral information-sharing agreements with partner agencies abroad.
Countering Illicit Finance
The US considers itself a leader in applying its anti-money laundering and countering the financing of terrorism (AML/CFT) framework within the crypto ecosystem.
In efforts to remain a leader in the AML/CFT framework, the US will be engaged in a regular dialogue with the public-private sector and strengthen existing campaigns.
What about the Travel Rule in the US?
In 2019, FinCEN issued guidance on virtual assets. The guidance emphasised that the Travel Rule had been in effect since 2013. There was no mention of the topic in the latest framework.
If your company is considered a money services business (MSB) or operates with convertible virtual currencies (CVCs) as defined by FinCEN, or if your business is a virtual asset service provider (VASP) as per the FATF, then it should already be complying with the Travel Rule.
If you have not been complying with the Travel Rule and are considered an MSB or VASP and operate with CVCs, you will need to comply with the Travel Rule as soon as possible. Failure to do so can result in severe penalties.
In essence, the Administration’s Digital Asset Framework is a holistic approach to solving the “Wild West” aspects of crypto within the US.
The framework is a well-researched and inclusive document that, when completely implemented, will be of benefit to the US crypto scene.
However, possible hiccups could be seen in the time frame of implementation.
The framework's goals are ambitious and may take longer than anticipated due to the reliance on conversations with additional players. Moreover, the amount of ongoing research required, i.e. The Office of Science and Technology Policy and NSF’s development of a digital assets research agenda, could hinder the time frame.
Yet, this will only be determined upon the implementation of the framework.
Curious to find out more about the Travel Rule in the US? Click here to find out more.
* The White House. (2022, September 16). FACT SHEET: White House Releases First-Ever Comprehensive Framework for Responsible Development of Digital Assets. [Press release]. https://www.whitehouse.gov/briefing-room/statements-releases/2022/09/16/fact-sheet-white-house-releases-first-ever-comprehensive-framework-for-responsible-development-of-digital-assets/