Biden Calls for Regulation and Legislation on Digital Assets; SRM’s Larry Pruss Provides Insights

By W.B. King


In an effort to ensure the responsible development of digital assets, including cryptocurrencies, President Joe Biden released an executive order in early March sending a signal that many players in the financial services arena already knew: the field of play has changed.


“The rise in digital assets creates an opportunity to reinforce American leadership in the global financial system and at the technological frontier, but also has substantial implications for consumer protection, financial stability, national security, and climate risk,” the order noted.


“The United States must maintain technological leadership in this rapidly growing space, supporting innovation while mitigating the risks for consumers, businesses, the broader financial system, and the climate,” the order continued. “And, it must play a leading role in international engagement and global governance of digital assets consistent with democratic values and U.S. global competitiveness.”


According to the order, digital assets, including cryptocurrencies, have seen “explosive growth” in recent years, surpassing a $3 trillion market cap November 2021 and up from $14 billion just five years prior.


“Surveys suggest that around 16% of adult Americans – approximately 40 million people – have invested in, traded, or used cryptocurrencies,” the order stated. “Over 100 countries are exploring or piloting Central Bank Digital Currencies (CBDCs), a digital form of a country’s sovereign currency.”


Credit Unions Need to Engage

In response to the executive order, and the growing trend in cryptocurrency adoption rates, Larry Pruss, senior vice president and crypto lead at Strategic Resource Management (SRM), had this message for credit union executives: Now is the time to get engaged.


“Regardless of if you decide digital assets (crypto) are or aren’t right for your membership, you will need to be able to answer the question ‘why’ and support your decision with facts,” said Pruss. “Most of our clients’ board members are starting to press them to answer this question.”


With a global footprint, the Memphis, Tenn.-based consulting company specializes in contract optimization and advisory services for banks and credit unions.


Citing a late 2021 Visa survey titled “The Crypto Phenomenon: Consumer Attitudes and Usage,” Pruss said awareness around cryptocurrency is “through the roof” at 94%. There are currently more Americans holding digital assets than have savings accounts, he added, referencing a November 2021 Morning Consult poll. "Digital assets are here to stay,” he noted.


Leading credit union industry organizations are also acknowledging the changing market. The National Credit Union Administration (NCUA), for example, sent a guidance letter to federally insured credit unions in late December 2021 regarding its stance on the issue.


“The NCUA is now clarifying that the NCUA does not prohibit FICUs from partnering with third-party providers of digital asset services that leverage evolving technologies. This includes facilitating member relationships with third parties that allow FICU members to buy, sell, and hold various uninsured digital assets with the third-party provider outside of the FICU,” NCUA Chairman Todd Harper noted.


“FICUs should conduct adequate due diligence and ensure compliance with all applicable laws and regulations when engaging in any such activity to ensure safety and soundness; comply with consumer financial protection, investor protection, and anti-money laundering/terrorism finance laws; and protect cybersecurity,” Harper added.


Details of the Executive Order


If Pruss is correct and digital assets are in fact here to stay, regulation and oversight, to Harper’s point, become critical components. These concerns are addressed, in part, in Biden’s edict.


Measures in the order include the federal government protecting U.S. consumers, investors and businesses. The Biden Administration will be “directing the Department of the Treasury and other agency partners to assess and develop policy recommendations to address the implications of the growing digital asset sector and changes in financial markets for consumers, investors, businesses, and equitable economic growth.”


The order also “encourages regulators to ensure sufficient oversight and safeguard against any systemic financial risks posed by digital assets.”


Additional measures include supporting “technological advances and [ensuring] responsible development and use of digital assets.” To that end, the Biden Administration will be “directing the U.S. Government to take concrete steps to study and support technological advances in the responsible development, design, and implementation of digital asset systems while prioritizing privacy, security, combating illicit exploitation, and reducing negative climate impacts.”


Perhaps most important, President Biden announced that his administration will explore “a U.S. CBDC by placing urgency on research and development of a potential United States CBDC, should issuance be deemed in the national interest.”


The order further directs “the U.S. Government to assess the technological infrastructure and capacity needs for a potential U.S. CBDC in a manner that protects Americans’ interests” and “encourages the Federal Reserve to continue its research, development, and assessment efforts for a U.S. CBDC, including development of a plan for broader U.S. Government action in support of their work.” This effort, the order noted, will prioritize U.S. “participation in multi-country experimentation, and ensures U.S. leadership internationally to promote CBDC development that is consistent with U.S. priorities and democratic values.”


On the heels of Biden’s announcement, U.S. Secretary of the Treasury Janet Yellen released a statement noting that his “approach will support responsible innovation that could result in substantial benefits for the nation, consumers, and businesses. It will also address risks related to illicit finance, protecting consumers and investors, and preventing threats to the financial system and broader economy.”


Yellen continued. “As we take on this important work, we’ll be guided by consumer and investor protection groups, market participants, and other leading experts. Treasury will work to promote a fairer, more inclusive, and more efficient financial system, while building on our ongoing work to counter illicit finance, and prevent risks to financial stability and national security.”


If Change Is Here, What Steps Should Credit Unions Be Taking?


While Biden’s announcement is encouraging for those operating in the digital assets space, there still remain many unknowns, especially when it comes to cryptocurrencies. SRM’s Pruss said credit union executives should seek education on the expansive topic, but cautioned that not all sources are sound.

Larry Pruss

“Many ‘educators’ in this space have an angle or profit motive, which could lead to bad advice. Additionally, these topics are complex, and education is not often tailored to traditional finance people. It’s best to find a trusted partner that can help educate you on how digital assets are relevant to the credit union industry,” he continued. “SRM for the past year has been offering a range of educational resources for financial institutions at the crossroads of traditional financial solutions and digital asset solutions.”


In Pruss’ view, the real risk with digital assets is not taking action. SRM, he said, is “seeing the digitization of everything, and credit unions will need to change with the times.” This space, he added, is not unregulated, and the “volatility is decreasing” due to time and the entry of institutional investors.


“Even if it’s decided that your credit union doesn’t want to get into the digital asset space now, what will you do when a CBDC is announced? Or when stablecoins and the blockchain start to be used for settling retail transactions?” Pruss questioned. “Those junctures are coming and credit unions that fail to familiarize themselves with this space will be unable to pivot to these new paradigms. For a non-financial institution example: Consider what Uber did to the taxi industry. Change is here.”


Support From Both Sides of the Aisle


As the federal government finds it footing on digital currencies, what bodes well for proposed regulation and oversight is that Biden’s executive order is receiving bipartisan support.


“I’m encouraged to see the Biden administration acknowledge that digital assets, including cryptocurrencies and the underlying technology, have tremendous potential benefits. As the White House itself stated, the U.S. must maintain its leadership in this space, which is why lawmakers and regulators should do nothing to harm America’s longstanding tradition of fostering technological innovation,” U.S. Senate Banking Committee Ranking Member Pat Toomey (R-Pa.) said in a statement.


“The executive order also underscores the need for Congress to enact a regulatory framework specific to digital assets,” Toomey continued. “This technology empowers individuals, and they deserve to have a say in crafting thoughtful legislation. The administration should resist the urge to stretch existing laws in an effort to expand its regulatory authority.”


Congresswoman Maxine Waters (D-Calif.), chairwoman of the House Financial Services Committee, provided the following statement shortly after Biden’s announcement.


“I am heartened to see that the executive order places an emphasis on studying the potential of a U.S. CBDC. With working families across the country looking to rebuild from the pandemic by turning to financial alternatives like cryptocurrency, ensuring that people are not vulnerable to fraud, manipulation, and abuse is imperative,” Water noted.


Explaining that her committee intends to work closely with the Biden Administration on issues related to digital assets, Waters said she intends to hold hearings and consider “appropriate” legislation.


“I am proud that our committee has been a leader in exploring the emergence of digital assets, convening hearings and briefings on cryptocurrency-related investor and consumer protection issues, the potential of central bank digital currencies, the role of cryptocurrency market exchanges, and the rapid rise of stablecoins,” she stated.


If you enjoyed this article, you might like reading these Finopotamus articles as well:


Crypto ATMs on the Rise: NCR, Co-op Solutions and PSCU Provide Insights on the Trend


Cryptocurrency: Overcoming Security Issues, Enticing Credit Unions


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