We will have more information and thoughts on many of these developments, but wanted to first set out a quick-fire summary below so that you can keep track of the headlines (which we will update as more reforms are introduced).
1. White House
Executive Order: Strengthening American leadership in digital financial technology—January 23
The White House issued an Executive Order (EO) to establish United States leadership in digital financial technology. According to its Fact Sheet, the EO is intended to “establish regulatory clarity for digital financial technology and secure America’s position as the world’s leader in the digital asset economy”.
Notable aspects of the EO include:
- The establishment of a new working group tasked with developing a Federal regulatory framework governing digital assets, including stablecoins, and evaluating the creation of a strategic national digital assets stockpile. The working group will be chaired by the White House Special Advisor for AI and Crypto and will be made up of heads of major government and regulatory agencies, but won’t (at this stage) include representatives of the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), or Office of the Comptroller of the Currency. The working group is given 180 days from the issuance of the EO to submit its proposed regulatory framework for digital assets to the President.
- Promoting “the development and growth of lawful and legitimate dollar-backed stablecoins worldwide”.
- Generally prohibiting agencies from undertaking any action to establish, issue, or promote central bank digital currencies (CBDCs).
The EO also revokes the Executive Order on digital assets that was issued by the Biden Administration in 2022 (Executive Order 14067—Ensuring Responsible Development of Digital Assets).
2. Securities and Exchange Commission
Repeal of Staff Accounting Bulletin 121—January 23
On January 23, the Securities and Exchange Commission (SEC) published Staff Accounting Bulletin (SAB) 122, which repeals SAB 121.
SAB 121 required that financial institutions which hold digital assets on behalf of customers (e.g., centralized exchanges, banks) to report their customer’s digital assets as a liability on their balance sheets and include, in notes to their financial statements, a clear disclosure of the nature and amount of digital assets that they are holding for platform users, with a separate disclosure for each significant digital asset, and the vulnerabilities entities face due to any concentration in such activities. SAB 121 did not consider the reporting institution’s assessment as to who controls the digital asset. The value of the asset and corresponding liability would also need to be marked to fair value each reporting period.
The effect of SAB 121 was to effectively make the cost of providing custody services for digital assets to be prohibitive from a regulatory capital perspective for many firms, in particular banks that traditionally provided custody services. Commissioner Hester Peirce strongly opposed the adoption of SAB 121.
SAB 122 repeals SAB 121, and therefore appears to give digital asset custodians greater flexibility as to how they structure custody services.
Creation of Crypto Task Force—January 21
The SEC also announced the creation of a Crypto Task Force “dedicated to developing a comprehensive and clear regulatory framework for crypto assets”. Commissioner Peirce, known widely for her support for developing a sensible regulatory approach and for favorable views on crypto and digital assets, will lead the agency-wide effort. The Task Force’s focus “will be to help the Commission draw clear regulatory lines, provide realistic paths to registration, craft sensible disclosure frameworks, and deploy enforcement resources judiciously.” The Task Force also noted that it “anticipates holding roundtables in the future” with the industry to ensure that all relevant feedback from a variety of market participants is considered. Previously, Commissioner Peirce proposed a “token safe harbor” which would provide a bridge from a token having an initial development team to being sufficiently decentralized such that it would no longer be an “investment contract” under Howey.
3. Federal Deposit Insurance Corporation
Travis Hill’s statement on digital assets—January 21
The Acting Chairman of the FDIC, Travis Hill, gave a speech setting out the FDIC’s preliminary thoughts on a range of policy issues, including the need to reset the FDIC’s approach to digital assets and tokenization. Acting Chairman Hill noted that this reset is necessary given how the agencies past processes of having institutions engage with its regulator on an individual basis before engaging digital asset activity was “damaging” and “stifled innovation and contributed to a perception that the FDIC is closed for business if institutions are interested in anything related to blockchain or distributed ledger technology.” In a follow-up statement, Acting Chairman Hill suggested that the FDIC may adopt a more open-minded approach to innovation and technology adoption, including by taking “a more transparent approach to fintech partnerships and to digital assets and tokenization”.
4. Commodity Futures Trading Commission
Appointment of Acting Chairman and Acting Chief of Staff—January 20 and 22
Caroline Pham has been named as the Acting Chairman of the Commodity Futures Trading Commission (CFTC). She has prior experience in digital assets, and sponsors the CFTC’s Global Markets Advisory Committee, which has a Digital Assets Market subcommittee and has recommended a US digital asset taxonomy. Following her appointment, the CFTC announced the appointment of Harry Jung as the Acting Chief of Staff. In this role, Mr. Jung will serve as Acting Chairman Pham’s top advisor and also “lead engagement on crypto, decentralized finance (DeFi), and other digital assets.”
5. Congress
Senate Banking Committee Priorities – January 15
Senator Tim Scott (R-S.C.), the Chairman of the Senate’s Banking Committee, which has purview over (among other things) banking, insurance, financial markets, and securities, announced the Banking Committee Priorities for the 119th Congress. These Priorities include developing a framework for digital assets, including “innovative financial technologies and digital asset products, like stablecoins”.
Chairman Scott also approved subcommittee assignments, including naming pro-crypto Senator Cynthia Lummis (R-WY) as the first-ever chair of the new Senate panel devoted to digital assets. This Subcommittee will have two focus areas:
- building a regulatory framework that establishes a tailored pathway for the trading and custody of digital assets, promotes consumer choice, education, and protection and ensures compliance with any Bank Secrecy Act requirements; and
- fostering an open-minded environment for new, innovative financial technologies and digital asset products, like stablecoins, that promote financial inclusivity.
Congressional resolution disapproving the IRS rule on digital asset reporting requirements
Rep. Mike Carey (R-OH) and Senator Ted Cruz (R-TX) introduced resolutions (H. J. Res. 25 and S. J. Res. 3) to repeal an Internal Revenue Service (IRS) rule applying digital asset broker tax reporting requirements to certain DeFi front end service providers. The final IRS rule was issued on December 27, 2024, and would, among other things, expand the scope of who is considered a “broker” and the transactions that must be reported under Section 6045 of the Internal Revenue Code to include operators of various digital asset service providers. Notably, the definition covered DeFi brokers who are not brokers in the traditional sense and would face technical difficulties complying with the rule. In response to the rule, a group plaintiffs filed a complaint against the IRS seeking injunctive relief to stop the rule from going into effect.
6. Proposed legislation
The following legislation is currently being considered within the legislative process and may, in whole or in part, contribute to the emerging U.S. regulatory framework for digital assets.
