Crypto

Biden’s White House Excludes Congress From Its Crypto Policy Framework

What happened

The Biden administration wants to implement a digital assets strategy to preserve the government’s ability to set monetary policy, regulate financial markets, ensure consumer protection and protect against misuse of assets digital. Notably, much of this is being done without regard to congressional industry-focused legislative efforts, none of which are expected to pass this year.

This back-and-forth attitude is starting to creak on Capitol Hill. Rep. Pete Sessions (R-Tex.), a senior member of the House Financial Services Committee, told an audience of crypto miners at an event in Round Rock, Texas on Oct. 5, “…The White House tells Congress they don’t.” We don’t need to do anything about digital asset legislation at this time. Manuel Ortiz, a Democratic strategist close to the White House and founder and chairman of lobbying firm Vantage Knight, agreed with Sessions’ assessment of the administration’s position. “It was clear from the start that the tail was not going to wag the dog, that digital asset technology was not going to limit what the US government is required to do by law.” According to Ortiz, the White House determined that the majority of the digital asset regulatory framework was already covered by existing laws and that a strategy of asking regulators to take enforcement action would slowly lead the industry to adopt the executive approach.

Key context

As crypto increasingly enters the public consciousness, regulators and lawmakers are scrambling to find the right way to oversee its development. There are currently over 70 bills before Congress relating to crypto and blockchain, none of which appear likely to pass before the end of this legislative session. Meanwhile, the crypto market, which reached a market valuation of over $3 trillion before falling below $1 trillion, has thrown investors into a volatile race.

In this climate, the White House attempted to align interagency efforts following the March 9 release of Executive Order 14067 Responsible Development of Digital Assets. According to Ortiz, the White House, the Financial Services Oversight Committee (FSOC), the Treasury, and the Federal Reserve were previously engaged in discussions about digital asset rules.

The White House’s strategy is to avoid conflicts with industry, according to Ortiz, and instead slowly roll out policies through law enforcement. The Executive Order broadly outlines six priorities for digital asset policy, including consumer and investor protection; promote financial stability; fight against illicit financing; US leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation.

The output of a the first-ever federal framework for digital assets on September 16, the detailed steps the administration would take to achieve the priorities. Brian Deese, National Economic Director, explains that “the order directed the agencies to carry out a thorough analysis of the risks and opportunities of digital assets by submitting policy recommendations so that we can build a framework that exploits the potential benefits while decisively mitigating risks”. With nine reports from various U.S. agencies submitted to the president, Deese says the White House saw “a clear framework for the responsible development of digital assets” that “sets the stage for further action at home and abroad.”

Deese highlighted three White House priorities during a press briefing the day before the framework was released: the urgent push for research and development of a central bank digital currency (CBDC), mitigation harm to consumers and the environment and the creation of a research and development program.

Most results were long on aspirations and short on proposed actions. This leaves regulatory actions as the main route to implementing the administration’s objectives. The penalty imposed by the of the Treasury The Office of Foreign Assets Control (OFAC) against Tornado Cash and the Commodities Futures Trading Commission (CFTC) action against Ooki DAO may represent this type of coordinated enforcement approach.

key quote

“We recommend that agencies continue to rigorously pursue enforcement efforts focused on the crypto-asset sector. Agencies should use existing powers to issue additional guidance and oversight rules to address current and emerging risks,” Treasury Secretary Janet Yellen said at a White House press conference Sept. 15.

Key character

The inter-agency process to develop a digital asset framework in the United States at the federal level consisted of at least 17 agencies required to participate and seven independent federal financial regulators encouraged to participate. Of what was made public, nine digital asset reports totaling 505 pages were sent to the White House and 326 public comments were received by US agencies while compiling the reports.

Prospects and implications

According to Oritz, the next steps for the administration are to find the appropriate budgeting to fulfill the actions of the framework. New funding is proposed for traditional regulators such as the SEC to seek enforcement action. However, these funds are not yet allocated to crypto.

At the same time, the SEC and CFTC will likely continue their enforcement strategies to curb the digital asset industry. The SEC nearly doubled the size of its enforcement team. There have been regulatory turf wars that are hard not to notice, especially since the SEC says the vast majority of digital assets are securitieswhile the CFTC is open to categorizing others as commodities, which would bring them under its mandate.

Legislation such as the Lummis-Gillibrand Responsible Financial Innovation Act (RFIA) and the Digital Commodities Consumer Protection Act of 2022 (DCCPA) are designed in part to help ease tensions between agencies. One limitation of the White House is that financial regulators traditionally maintain independence from the administration in rule-making, enforcement and jurisdictional disputes.

Legislation can help resolve remaining policy questions regarding digital assets that can help place the industry under administration. For example, the DCCPA continues to gain momentum in the Senate and broadly grants this power to the CFTC to regulate crypto spot markets. There also remains a need for a federal payment licensing regime for digital assets, which could be negotiated through a stablecoin bill that was recently discussed by Maxine Waters ( D-California), who chairs the House Financial Services Committee, and Patrick McHenry. (RN.C.), the panel’s Republican ranking.

A Republican sweep of both chambers in next week’s election could slow things down at the SEC and the CFTC, where each commissioner has been appointed by Chairman Joe Biden. Midterm elections will have minimal impact on the state of cryptocurrency regulation, as bills for cryptocurrency spot markets and federal payment licenses are sought on a bipartisan basis .

Decision Points

The White House has sought to establish an approach to digital assets without wanting to upend the crypto industry or rely on Congress to legislate. After concluding that the vast majority of laws covering digital assets were already in effect, the administration’s policy has been to encourage an enforcement approach by regulators to bring the digital asset industry into compliance with regulations. applicable.

With one of the actions of the White House being to encourage the SEC and CFTC to double down on their enforcement actions, regulators such as the SEC, CFTC and OFAC Treasury and Financial Crimes Enforcement Network should continue to take enforcement action. In addition, potential new funds can be allocated to the application of digital assets to these regulators. As enforcement actions continue, these should be viewed more as a general direction of FSOC policy regarding pressure from the White House to ensure it can set monetary policy, enforce the Bank Secrecy Act and other financial market regulations, and mitigate illicit use of digital. assets.

The administration’s approach limits the impact pending legislation could have even if it moves forward. A change in the White House in 2024, rather than the results of the upcoming midterm elections, would be the next opportunity for major changes in US crypto policy.

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