What lessons can Africa draw from the United States’ approach to digital asset regulation
- The White House fact sheet on digital assets contains highlights from 9 reports submitted to President Joe Biden
- Reports have encouraged improved supervision of the digital assets landscape and CBDC development
- While the White House releases may seem far from the African landscape, they may contain some important highlights for the continent to consider
On the 16th of September, the White House released a fact sheet on their Comprehensive framework for Responsible Development of Digital Assets.
The fact sheet follows the March 9th release of the executive order on ensuring responsible development of digital assets. It also gives detail and highlights some key areas offering direction and action steps. This includes guidance on the development of a US Central Bank Digital Currency and a regulatory framework for digital assets in the US.
White House fact Sheet to pave the way for digital assets regulation
“If America sneezes, the whole world catches a cold”. As the world starts to grapple with the task of regulating web 3.0 technologies such as blockchain, cryptocurrency and NFTs, a lot is unclear. Without a doubt, the world’s largest economy’s approach to these technologies will provide some guidance for other nations on the path to regulation.
While the White House releases may seem far from the African landscape, they may contain some important highlights for the continent to consider.
What’s in the White House Fact Sheet
The White House fact sheet on digital assets contains highlights from 9 reports submitted to President Joe Biden to date on matters of creating a comprehensive regulatory framework for digital assets.
The reports have wide-ranging input from key government, academia, industry and civil society stakeholders. A key standout of United States policy that many Africans aspire to implement in their countries’ policies is the government’s focus on creating platforms for private sector players to move the country forward in any area.
Once again, this idea is clearly espoused in the White House fact sheet. The reports also include encouragement for ongoing work on the development of a US CBDC.
Protecting Consumers, Investors, and Businesses
The reports encourage regulators like the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), consistent with their mandates, to aggressively pursue investigations and enforcement actions against unlawful practices in the digital assets space.
The reports encourage Consumer Financial Protection Bureau (CFPB) and Federal Trade Commission (FTC), as appropriate, to redouble their efforts to monitor consumer complaints and to enforce against unfair, deceptive, or abusive practices.
The reports encourage agencies to issue guidance and rules to address current and emergent risks in the digital asset ecosystem. Regulatory and law enforcement agencies are also urged to collaborate to address acute digital assets risks facing consumers, investors, and businesses. In addition, agencies are encouraged to share data on consumer complaints regarding digital assets—ensuring each agency’s activities are maximally effective.
The Financial Literacy Education Commission (FLEC) will lead public-awareness efforts to help consumers understand the risks involved with digital assets, identify common fraudulent practices, and learn how to report misconduct.
In this area, the reports have encouraged improved supervision of the digital assets landscape. I identification of risks, monitoring complaints and aggressive pursuit of enforcement of existing laws are the main highlights. We’ve seen a similar push from the South African Reserve Bank encouraging banks to play friendly with digital asset promoters and facilitators within the confines of present legal frameworks while regulation is being worked on.
Promoting Access to Safe, Affordable Financial Services
Agencies will encourage the adoption of instant payment systems, like FedNow, by supporting the development and use of innovative technologies by payment providers to increase access to instant payments, and using instant payment systems for their own transactions where appropriate – for example, in the context of distribution of disaster, emergency or other government-to-consumer payments.
The President will also consider agency recommendations to create a federal framework to regulate nonbank payment providers.
Agencies will prioritize efforts to improve the efficiency of cross-border payments by working to align global payments practices, regulations, and supervision protocols, while exploring new multilateral platforms that integrate instant payment systems.
The National Science Foundation (NSF) will back research in technical and socio-technical disciplines and behavioral economics to ensure that digital asset ecosystems are designed to be usable, inclusive, equitable, and accessible by all.
Reports relating to the accessibility and affordability of finances encourage the adoption of instant payment systems to increase efficiency. A federal law regulatory framework for nonbank payment providers was recommended and will be taken into consideration. It was also highlighted to improve the usability of digital asset ecosystems, focusing on making them inclusive, equitable and accessible to all.
Fostering Financial Stability
The Treasury will work with financial institutions to bolster their capacity to identify and mitigate cyber vulnerabilities by sharing information and promoting a wide range of data sets and analytical tools.
The Treasury will work with other agencies to identify, track, and analyze emerging strategic risks that relate to digital asset markets. It will also collaborate on identifying such risks with U.S. allies, including through international organizations like the Organization for Economic Co-operation and Development (OECD) and the Financial Stability Board (FSB)
In terms of fostering financial stability, the White House fact sheet highlights the identification, tracking and analysis of emerging risks to the financial system posed by the inclusion of digital assets. Cooperation with international organisations such as the Organization for Economic Co-operation and Development (OECD) and the Financial Stability Board (FSB) were also highlighted.
Advancing Responsible Innovation
The Office of Science and Technology Policy (OSTP) and NSF will develop a Digital Assets Research and Development Agenda to kickstart fundamental research on topics such as next-generation cryptography, transaction programmability, cybersecurity and privacy protections, and ways to mitigate the environmental impacts of digital assets. It will also continue to support research that translates technological breakthroughs into market-ready products. Additionally, NSF will back social-sciences and education research that develops methods of informing, educating, and training diverse groups of stakeholders on safe and responsible digital asset use.
The Treasury and financial regulators are encouraged to, as appropriate, provide innovative U.S. firms developing new financial technologies with regulatory guidance, best-practices sharing, and technical assistance through things like tech sprints and Innovation Hours.
The Department of Energy, the Environmental Protection Agency, and other agencies will consider further tracking digital assets’ environmental impacts; developing performance standards as appropriate; and providing local authorities with the tools, resources, and expertise to mitigate environmental harms. Powering crypto-assets can take a large amount of electricity—which can emit greenhouse gases, strain electricity grids, and harm some local communities with noise and water pollution. Opportunities exist to align the development of digital assets with transitioning to a net-zero emissions economy and improving environmental justice.
The Department of Commerce will examine establishing a standing forum to convene federal agencies, industry, academics, and civil society to exchange knowledge and ideas that could inform federal regulation, standards, coordinating activities, technical assistance, and research support.
While the US pushes for innovation, the importance of doing so in a responsible manner is key. In this regard, the NSF will back education research to reach stakeholders and educate them on the opportunities and risks of digital assets. The idea of a professional working group from federal agencies, industry, academia and civil society to discuss and exchange knowledge on digital assets was mooted.
Reinforcing Global Financial Leadership and Competitiveness
U.S. agencies will leverage U.S. positions in international organizations to message U.S. values related to digital assets. U.S. agencies will also continue and expand their leadership roles on digital assets work at international organizations and standard-setting bodies—such as the G7, G20, OECD, FSB, Financial Action Task Force (FATF), and the International Organization for Standardization. Agencies will promote standards, regulations, and frameworks that reflect values like data privacy, free and efficient markets, financial stability, consumer protection, robust law enforcement, and environmental sustainability.
The State Department, the Department of Justice (DOJ), and other U.S. enforcement agencies will increase collaboration with—and assistance to—partner agencies in foreign countries through global enforcement bodies like the Egmont Group, bilateral information sharing, and capacity building.
The State Department, Treasury, USAID, and other agencies will explore further technical assistance to developing countries building out digital asset infrastructure and services. As appropriate, this assistance may include technical assistance on legal and regulatory frameworks, evidence-gathering and knowledge-sharing on the impacts, risks, and opportunities of digital assets.
The Department of Commerce will help cutting-edge U.S. financial technology and digital asset firms find a foothold in global markets for their products.
The White House reiterated a push for the US and US-based companies to be at the forefront of the new frontier of digital assets. This will include working with developing countries that are also wading into the waters of digital assets and web 3.0 technologies. You can draw a stark contrast with the approach of many African countries that have shunned collaboration with other countries in the digital assets arena.
Fighting Illicit Finance
The President will evaluate whether to call upon Congress to amend the Bank Secrecy Act (BSA), anti-tip-off statutes, and laws against unlicensed money transmitting to apply explicitly to digital asset service providers—including digital asset exchanges and nonfungible token (NFT) platforms. He will also consider urging Congress to raise the penalties for unlicensed money transmitting to match the penalties for similar crimes under other money-laundering statutes and to amend relevant federal statutes to let the Department of Justice prosecute digital asset crimes in any jurisdiction where a victim of those crimes is found.
The United States will continue to monitor the development of the digital assets sector and its associated illicit financing risks, to identify any gaps in our legal, regulatory, and supervisory regimes. As part of this effort, Treasury will complete an illicit finance risk assessment on decentralized finance by the end of February 2023 and an assessment on non-fungible tokens by July 2023.
Relevant departments and agencies will continue to expose and disrupt illicit actors and address the abuse of digital assets. Such actions will hold cybercriminals and other malign actors responsible for their illicit activity and identify nodes in the ecosystem that pose national security risks.
Treasury will enhance dialogue with the private sector to ensure that firms understand existing obligations and illicit financing risks associated with digital assets, share information, and encourage the use of emerging technologies to comply with obligations. This will be supported by a Request for Comment published to the Federal Register for input on several items related to AML/CFT.
The fact sheet discussed action to be taken regarding the risks associated with illicit financial flows and digital assets. Particular attention was placed on monitoring decentralised finance (DeFi) platforms and dialogue with private sector players.
Exploring a U.S. Central Bank Digital Currency (CBDC)
Finally, the White House fact sheet spent some time discussing the potential of a US CBDC and the opportunities it presents for inclusion and innovation. As such, the administration will continue to support the development of a US CBDC while assessing matters of inclusion, utility and sustainability.
What did we learn from the Fact Sheet?
We can easily pick up from the fact sheet that the US government is, at the very least interested in moving forward in the digital assets space. To manage the space in a realistic and holistic view, we need to look at both the benefits and risks associated with digital assets.
Such attention to detail is expected from the world’s largest economy. With many other African countries working on a regulatory framework for digital assets and web 3.0 technologies, the White House approach can serve as a perspective document; in case anybody wanted to see other approaches to regulation. The landscape is wide and complex; this amplifies the challenges associated with regulation.
While work on the US CBDC is in its early stages, the multifaceted approach to its development could give some much-needed advice on the approach to CBDCs. All said, there is a lot that African authorities could (and should) learn from the White House approach to digital assets.