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July 14, 2022

Treasury Seeks Comments on Digital Assets, Including Opportunities and Risks for Consumers

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Key Takeaways

  • The “Key Priorities”: Consumer and Investor Protection; Financial Stability; Illicit Finance; U.S. Leadership in the Global Financial System; Fnancial Inclusion; and Responsible Innovation.”

On July 8, with limited fanfare, the Department of Treasury issued a request for public comment regarding the March 9, 2022 Executive Order entitled "Ensuring Responsible Innovation in Digital Assets" (the "Order").  The request for comment poses five core questions, each with multiple subparts, on a spectrum of topics of great complexity.  Nonetheless, the request for comment sets a deadline of only 30 days - August 8, 2022 - for responses.

The complexity of the request for comment flows from the breadth of the Order.  According to its press release, the Order outlines "the first ever, whole-of-government approach to addressing the risks and harnessing the potential benefits of digital assets and their underlying technology."  The Order seeks a national policy for digital assets across six "key priorities": consumer and investor protection; financial stability; illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation."  The Order makes no substantive conclusions.  Rather, it sets forth requirements for various government agencies to coordinate and submit reports and recommendations regarding the six priorities, which are:

a.   Protection of consumers, investors, and businesses in the United States;

b.   Protection of United States and global financial stability and the mitigation of systemic risk;

c.   Mitigation of illicit finance and national security risks posed by misuse of digital assets;

d.   Reinforcement of U.S. leadership in the global financial system and in technological and economic competitiveness, including through the responsible development of payment innovations and digital assets;

e.   Promotion of access to safe and affordable financial services; and

f.    Support of technological advances that promote responsible development and use of digital assets.

The request for comment seeks input to help Treasury deliver a report required by the Order.  Specifically, Treasury, in consultation with other agencies such as the FTC, the SEC, the CFTC, Federal banking regulators, and the CFPB, must report to the President on the development and adoption of digital assets and the associated implications for consumers, investors, and businesses; this report also must address the conditions that might drive "mass adoption" of digital assets and its risks.  (The Order requires the report to be delivered in early September 2022, which may explain the short comment period.) 

The request for comment therefore focuses on consumer protection.  It explains that "the increased use of digital assets and digital asset exchanges and trading platforms may increase the risks of crimes such as fraud and theft, other statutory and regulatory violations, privacy and data breaches, unfair and abusive acts and practices, and other cyber incidents faced by consumers, investors, and businesses."  According to the request for comment, additional protections are needed, particularly for "less informed market participants" and other vulnerable populations. 

The five questions posed by the request for comment pertain to:

  1. The level of current adoption of digital assets, and how mass adoption might be furthered.  The request for comment defines "mass adoption" as "a scenario where digital assets are accepted and used by the U.S. public on a large scale.  For example, mass adoption of digital assets as a payment method would translate to use and acceptance of cryptocurrencies as a common and regular payment method for goods and services."
  2. Opportunities for consumers, investors and businesses, including the potential benefits of decentralized and disintermediated systems, and the potential for improved cross-border payments.
  3. General risks in digital assets financial markets, including market transparency.
  4. Risks to consumers, investors and businesses, including frauds, scams, theft, loss of private keys, and losses from the insolvency of wallets, custodians and intermediaries.
  5. Impact on the most vulnerable, considering factors such as financial and technical literacy.

These are all important questions.  They should draw a considerable range of responses, from digital asset critics to digital asset enthusiasts and everyone in between.  However, the 30-day deadline - assuming it remains in place - will curb the utility of the responses, many of which likely will be very general, given the time constraints.  Although this request for comment is not directly related to proposed regulations, it will inform an important report to the President that almost surely will drive legislation, regulation and/or enforcement policy in general.

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