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ICBA has serious concerns regarding threats posed by cryptocurrency to privacy and to consumers, and financial stability resulting from increases in money laundering, terrorist financing, and fraudulent activity.
Unregulated cryptocurrency threatens to disintermediate community banks and undermine their ability to provide funding to support local economic activity, growth, and development.
Cryptocurrencies have a history replete with volatile price swings, hacks, and exploits. ICBA cautions policymakers that strategic reserves of cryptocurrencies may lose value and lead to unknown risks for the US economy.
ICBA urges policymakers to ensure public trust by fostering collaboration between domestic and international regulatory authorities to mitigate risks as the adoption of cryptocurrency continues to increase.
ICBA supports ongoing efforts by policymakers to harmonize regulations to ensure strong, clear, and consistent oversight of cryptocurrency service providers and establish guidelines for any permissible activities by banks.
ICBA believes most cryptoassets are likely offered and sold as unregistered securities. Therefore, crypto entities should be subject to relevant securities laws and regulations. ICBA supports the efforts of the U.S Securities and Exchange Commission to apply the securities framework to cryptoassets and related entities.
ICBA urges policymakers, regulators, law enforcement, and national security organizations to coordinate their efforts to combat ransomware and prevent bad actors from using cryptocurrencies for illicit activities and investment scams.
ICBA encourages regulators to collaborate on a comprehensive approach to prevent the rise of decentralized finance (DeFi), a shadow banking system filled with unregulated, decentralized platforms that pose risks to consumers, the financial system, and U.S. national security.
Stablecoin issuers should not have access to Federal Reserve master accounts or the payments system.
Special purpose bank charters or similar alternatives should not be granted to crypto entities that do not fully meet the requirements of federally insured and supervised chartered banks.
Regulatory frameworks must establish strong federal oversight for stablecoin issuers to prevent a regulatory race to the bottom.
Any regulatory or supervisory regime applicable to nonbank issued stablecoins should be comparable to a functionally similar product offered by a bank or other traditional financial services provider. This will ensure risks created by loosely regulated nonbank firms do not spill over into the traditional banking system.
The separation of banking and commerce must be preserved by ensuring commercial firms are not given the significant power of issuing private currency.
ICBA is concerned about the potential development of state-issued stablecoins that could negatively impact deposits at community banks, thereby harming their ability to provide credit to their communities. If states create new forms of money or payment systems, the U.S. financial system could experience significant fragmentation, threatening financial stability.
ICBA urges policymakers to engage with community banks as the Federal Reserve begins to explore new tokenization systems.
The cryptocurrency industry has demonstrated continued growth despite large-scale malfeasance and lawsuits against significant players. Community bankers remain concerned about the risks presented by digital assets, including rampant investment scams and a lack of strong consumer protections and regulatory oversight. In particular, bankers are becoming increasingly concerned about the growing potential of digital assets to jeopardize the financial stability of the traditional banking sector.
Bankers remain unconvinced that stablecoins are the “silver bullet” for cross-border payments. In fact, the global financial system may be disrupted if stablecoins become widely adopted for payments. ICBA urges policymakers to develop a consistent regulatory framework for stablecoins that addresses the risks they pose to the wider financial system, establishes strong federal oversight to prevent charter arbitrage, preserves the separation of banking and commerce, and ensures that issuers do not have access to Federal Reserve master accounts. Addressing these complex issues will require collaboration with international partners to resolve critical regulatory, legal, technical and governance questions.
DeFi, a growing ecosystem of financial applications that run on public blockchains, also threatens to disintermediate community banks and create a shadow banking system filled with unregulated platforms that pose risks to consumers, the financial system, and U.S. national security. Any regulatory regime applied to cryptocurrency should be comparable to the multitude of regulations applicable to functionally similar products and services offered by the traditional financial system.
Cryptocurrencies also have a long history of being used for illicit activities. North Korea continues to steal and launder billions of dollars’ worth of cryptocurrency to circumvent U.S. sanctions and advance its weapons of mass destruction program. The broader use of cryptocurrency, without accompanying regulation or oversight, allows financial crimes and threats to national security to proliferate. Therefore, protecting national security and implementing anti-crime measures should be primary drivers of cryptocurrency policymaking and regulation. ICBA strongly supports regulatory efforts to curtail the use of cryptocurrency mixers and anonymity-enhanced cryptocurrencies.
March 16, 2022
On March 9, 2022, President Joe Biden signed an executive order that outlines the administration’s strategy to address cryptoasset risks, develop a framework to promote responsible innovation and competition with digital assets, and conduct more research on the potential impacts of a digital dollar.
The executive order is wide-ranging in its actions, with seven primary directives issued to multiple agencies, including prudential regulators and the Commerce Department.
Address consumer, business, and investor protection — In recognition of the growing risk of crypto-related cybercrimes and incidents, the order instructs the Treasury Department and other government agencies to evaluate how digital assets may impact financial markets and to develop policy recommendations to ensure regulators have appropriate oversight capabilities and address systemic risks.
The EO directs the Treasury Department to work with the Labor Department, Consumer Financial Protection Bureau, Federal Trade Commission, Securities and Exchange Commission, and federal banking regulators to issue a report within 180 days that analyzes the impact of digital assets on the financial markets and payment system and assesses “the conditions that would drive mass adoption of different types of digital assets and the risks and opportunities such growth might present to United States consumers, investors, and businesses.”
Address U.S. and global financial stability and systemic risks — The EO directs the Financial Stability Oversight Council (FSOC) to assess systemic risks posed by digital assets and provide recommendations to close regulatory gaps.
Mitigate illicit use of digital assets by bad actors and threats to national security — The EO calls upon multiple agencies to collaborate on efforts to combat the illicit use of digital assets, including increased cooperation with allies and partners to make sure international frameworks and actions are “aligned and responsive to risks.”
Promote innovation and competition and reinforce U.S. leadership in technology and financial markets — To ensure the United States maintains its leading role in developing new technologies and serving as the keystone in the global financial system, the EO directs the Commerce Department to create a framework to encourage innovation and competition in the digital asset economy. The framework will then serve as a guiding document for other agencies as they research digital assets.
Promote equitable access to financial services — The order identifies the need for “safe, affordable, and accessible financial services” as a national priority and recognizes that digital assets may have a role to play. It directs Treasury Secretary Janet Yellen to work with other agencies to produce a report about the future of money and payment systems within 180 days of the order.
The report will evaluate the impacts of digital assets on national security, financial inclusion, and economic development. Separately, the U.S. attorney general will consult with the Treasury Department and Federal Reserve to determine whether legislative changes are necessary to issue a CBDC and then develop legislative proposals within 210 days of the order’s release.
Support innovation and responsible development and use of digital assets — The order calls for more research on the development and design of digital asset technologies. It identifies several areas of focus, including ensuring privacy, mitigating climate concerns, and preventing illicit uses by bad actors.
The order says the director of the Office of Science and Technology Policy will consult with the Treasury Department, Energy Department, Environmental Protection Agency, Council of Economic Advisers, and national climate advisor to report within 180 days on the “connections between distributed ledger technology and short-, medium-, and long-term economic and energy transitions; the potential for these technologies to impede or advance efforts to tackle climate change at home and abroad; and the impacts these technologies have on the environment.”
Conduct research on a U.S. central bank digital currency (CBDC) — The EO says President Biden “places the highest urgency” on the government to continue its research on the technology that might be needed to support a potential digital dollar and protect U.S. interests. Notably, it does not specifically endorse a digital dollar, but calls for the research to assess benefits and risks and “actions required to launch a United States CBDC if doing so is deemed to be in the national interest.”
To that end, the order supports ongoing efforts by the Federal Reserve to consider the development of a digital dollar. Finally, it encourages participation with other countries as they experiment with CBDCs to ensure the United States will continue to play a leading role in the global financial system.
Multiple departments and agencies, such as the State Department and Director of National Intelligence, must issue classified or unclassified assessments on illicit finance and digital assets.
An Attorney general report on enhancing international law enforcement cooperation.
Multiple departments and agencies will coordinate on plans to mitigate illicit finance and national security concerns.
The Treasury secretary will notify agencies about rulemaking to combat illicit finance concerns.
Treasury, State, and Commerce Departments will work with USAID on an interagency framework for international collaboration on digital assets principles and standards.
A report on the future of money and payments, including implications of a CBDC.
A report from the attorney general on the need for legislative changes to support CBDC.
A report on the adoption of digital assets and their impact for consumers, investors, businesses, and economic growth.
A technical evaluation of infrastructure, capacity, and expertise necessary across the government to support CBDC.
An attorney general report on law enforcement activities related to digital assets.
A report on short- to long-term climate impacts and energy policy from digital assets.
A Commerce, State, and Treasury Departments report on how to improve U.S. competitiveness with digital assets.
Attorney general’s legislative proposals to support CBDC.
An FSOC report on financial stability risks, regulatory gaps, and recommendations to provide more oversight.
Within one year, agencies will issue a report on progress and effectiveness of an international framework.
Within one year, an update on the climate and energy policy report.
The executive order does not have immediate effects for community banks. However, it appears to mark a turning point in the government’s approach to digital assets and developing the future of the U.S. financial and payment systems.
In a national news release following the release of the EO, ICBA reiterated its support for a coordinated approach to regulating digital assets to:
As federal departments and agencies develop their reports, ICBA will work closely with them to convey the community bank perspective on digital assets and the potential impact of crypto policies on local communities.
Meanwhile, ICBA will continue working with community bankers to understand and communicate the implications of the findings. While the EO is a clear signal that bankers need to learn more about digital assets, ICBA stands ready to help community banks navigate these new technologies and their challenges.
For the past year, ICBA has called on regulators to harmonize their approach to digital assets to ensure strong and consistent oversight of cryptocurrency service providers in light of the risks posed, and establish a path forward with clear guidelines for permissible activities by community banks.
ICBA has also urged regulators, law enforcement, and national security agencies to coordinate their efforts to combat ransomware and prevent illicit use of cryptocurrencies by bad actors. The executive order, therefore, marks a step in the right direction and demonstrates the strength of ICBA’s efforts to advocate for more collaboration and regulatory clarity.
Nevertheless, there is still more work to be done, and questions remain. The executive order calls for several actions to explore and evaluate a potential U.S. digital dollar, but there are already efforts underway by the Federal Reserve, including an open comment period on the agency’s CBDC report. How these efforts will affect one another remains unclear.
Furthermore, the stablecoin market continues to accelerate its growth. There is a sense of urgency building due to concerns about the financial stability risks caused by unregulated stablecoins with uncertain backing. Plus, stablecoins continue to support the growth of a shadow banking system populated with unregulated decentralized-finance programs. ICBA is urging policymakers to resolve regulatory and legal questions about digital assets and bring stablecoins within the regulatory perimeter.
ICBA is working with community bankers to understand how the evolving digital assets economy will affect community banks, including through cross-functional groups that analyze potential regulatory paths for stablecoins.
This engagement will help inform ICBA advocacy as we continue working with policymakers on the future of digital assets policy. As the debate continues, ICBA will continue working to keep community bankers fully informed of the latest developments, including federal reports mandated by the EO.
Questions and concerns about the EO or digital assets in general may be directed to ICBA Vice President of Payments and Technology Policy Brian Laverdure at brian.laverdure@icba.org.
