You thought we’d talk more about FTX huh, didn’t you? We will, but not this week. CoinDesk published its annual Most Influential series on Monday, highlighting a number of regulators, lawmakers and similarly impactful individuals. I spoke to Carole House, one of the authors of the White House executive order on crypto, to take a look at the document, its origins and where we are now.
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6 month review
I spoke with Carole House, a former National Security Council official with the White House and one of the authors of the Executive Order on Ensuring Responsible Development of Digital Assets, about how the document came together and the results to date.
Why it matters
You can read the bulk of this in CoinDesk’s Most Influential series. But here’s some additional detail from our conversation.
Breaking it down
It’s worth noting up front that many major questions about how the U.S. will regulate digital assets remain up in the air. A simmering turf war between the Securities and Exchange Commission and Commodity Futures Trading Commission is no closer to conclusion than it was when the order first published. Whether and how the federal government may adopt policies supportive of blockchain development is also up in the air.
Still, we now have a clearer sense of how the government is approaching this. The White House and various executive branch departments have published the first few sets of reports, addressing a number of issues including considerations for a central bank digital currency, how crypto-related crimes might be prosecuted and how the U.S. sees itself on the world stage.
More reports are expected, including one addressing whether the Federal Reserve has the authority to issue a digital dollar and one examining what sort of regulatory gaps still exist within crypto oversight.
One of the White House’s documents, published in September, proposed a “comprehensive framework for [the] responsible development of digital assets,” which suggested a federal regulatory regime for nonbank payment providers, something crypto companies would want, given the current system of applying for state money transmitter licenses in each state the companies want to set up in.
“I’m totally thrilled with the reports that the White House issued, and I'm so proud of the entire interagency, for coming together and just creating this first ever comprehensive framework for responsible development of digital assets,” House said. “There's some incredibly innovative content and things that we've never seen before, certainly under any U.S. approach, and that I really don't see under many, if any, international approaches.”
To date, the departments of Treasury, Commerce and Justice, as well as the White House Office of Science and Technology Policy, have published responses to the executive order. The Justice Department may have taken the most concrete action through two reports, creating a network of prosecutors who specialize in cryptocurrency crimes and recommending a number of laws to both better pursue cryptocurrency crimes and share more information about them with the department’s international partners.
The Commerce Department took a slightly different approach, reflecting the agency’s mission. In a September report, the department recommended more engagement with both private companies and international regulators “to promote development of digital asset policies … consistent with U.S. values and standards.”
This could include supporting educational initiatives and developing a workforce, the report said.
The Treasury Department has published the most reports and launched a request for comment process asking the general public to weigh in on certain illicit finance concerns.
“We had totally complementary White House documents, like research and development guidance that came out from the Office of Science Technology Policy, the critical emerging technologies list that pointed to distributed ledger technologies and digital assets as critical emerging technologies, lots of mutually reinforcing policy objectives that are pointing to the responsible development of the space as being beneficial to the U.S. for economic and national security purposes, but also demonstrating that it must be responsible development,” House said.
House stressed the importance of the “responsible development” aspect of the reports. Financial inclusion through decentralized systems could be greatly beneficial, but if this develops without any protections for consumers, “that is not, in fact, a desirable outcome.”
Much of the executive order does focus on assessing and mitigating risks, whether that’s money laundering risks, terrorist financing risk or financial stability risk.
“The second part of the [executive order], after it outlines all the policy objectives that the president had … that's where there were some very specific concrete actions that were directed or requested, like the request for the Financial Stability Oversight Council to assess the financial stability risks that are present in the space in the future of money reports,” House said.
The administration has willingly called for more public information in answering questions about cryptocurrencies’ role in illicit finance, the same area the executive order actually began. The department’s brief request-for-comment filing asks a number of questions.
Intriguingly, the analysis of risks goes all the way down to the personal. Part of the order directs an analysis on the potential of crypto to address financial inclusion concerns.
“[The order] recognizes that our assessment of the risks and potential benefits of digital assets must include an understanding of how our financial system does and does not meet the current needs of consumers in a manner that is equitable, inclusive and efficient,” a White House official said in March. “[Our] antiquated payment infrastructures [is] leaving the United States and its consumers with options that are slow, costly or altogether inaccessible, as is particularly true of cross border payments. That is why this executive order directs a report on the future of money and payments.”
This would seem to support the U.S.’ current research into central bank digital currencies and, in particular, whether the Fed should issue a digital dollar. The idea remains controversial, with CBDC opponents just generally disliking the concept of the U.S. central bank getting involved, and others skeptical that a token-based digital currency like what has been suggested would be able to meet the needs of this ambitious goal.
But to this end, one of the reports “tried to assess, from a very holistic picture, what the future of money looks like,” House said.
Noting the expansiveness of the executive order, House pointed to concerns over climate risks (on which the White House Office of Science and Technology Policy published a report earlier this year) as an example of one of the wide range of issues addressed.
The order didn’t only look at companies, it looked at broader ecological issues, namely climate change.
“Every policy objective, which outlined a lot of different discrete issues like we had, we pointed to climate risks, which is a huge priority for the administration,” House said.
Mind you, things are different now than they were when this order was drafted and published. Crypto’s 2022 has been marked by failures, bankruptcies and millions of dollars worth of crypto likely lost by investors. The collapses have run the gamut of issues regulators are paying attention to, ranging from stablecoins to lenders to exchanges.
Regulators are already evaluating whether existing or new laws would prevent the next Terra or Celsius. The scope of the issues crypto has seen this year should demonstrate the need for transparent communication about the industry, House said.
This ranges from decentralized finance (DeFi) to more centralized projects.
“A lot of this was foreseeable, and it's extremely unfortunate so many people have been hurt in these circumstances,” House said. “But ultimately, … there are the things that some members of the sector don't want to hear, which is that there has to be more effective regulation, in some cases, enforcement in other cases, and just implementation and compliance in others.”
Changing of the guard
- (New York Magazine) Congress passed, and U.S. President Joe Biden signed, a bill intended to force U.S. rail unions to accept a new contract giving workers a raise and an additional personal day off, but not giving them any paid sick leave or addressing some of the broader concerns rail workers had about the industry. The unions were set to strike this week. New York Magazine’s Intelligencer runs down what the current status quo is, and how we got here. (See also this New York Times piece from September, and this Vice News piece.)
- (Reuters) El Salvador President Nayib Bukele’s administration operates what appears to be a very sophisticated online PR operation, Reuters reports.
- (The Wall Street Journal) Former SEC Chair Jay Clayton and former CFTC Chair Timothy Massad published an opinion piece suggesting how their former agencies could more closely regulate the industry without needing congressional action.
You can also join the group conversation on Telegram.
See ya’ll next week!