New Report on Digital Asset Regulation Released by President’s Working Group
The President’s Working Group on Digital Asset Markets has unveiled a comprehensive report titled “Strengthening American Leadership in Digital Financial Technology” on July 30. This document, which emerges from January’s Executive Order 14178, presents a detailed framework of recommendations aimed at regulating digital assets and blockchain technology within the United States. The following sections address crucial questions regarding the report’s impact on businesses, financial institutions, and investors.
Purpose and Priorities of the Report
This report serves to fulfill the working group’s obligation to propose regulatory and legislative measures that encourage the responsible advancement of digital assets and blockchain technologies. While it does not alter existing regulations immediately, it is anticipated that significant federal agencies will implement recommendations that do not necessitate legislative action. Key priorities outlined in the report include: safeguarding the rights of individuals and businesses to utilize open blockchain networks and manage their digital assets independently; enhancing the global stature of the U.S. dollar by supporting stablecoins; banning the introduction or acceptance of central bank digital currencies (CBDCs) within the country; providing legal clarity regarding the ownership, usage, and self-management of digital assets; ensuring equitable and impartial treatment of digital asset enterprises by banks and regulatory authorities; and bolstering U.S. leadership in the realms of digital innovation, payments, and efforts against illicit financial activities.
Structuring Digital Asset Markets
The report suggests a three-part classification system for digital assets: security tokens overseen by the SEC, commodity tokens monitored by the CFTC, and commercial or consumer use tokens, such as stablecoins and utility tokens. This classification aims to minimize regulatory overlap and prevent regulatory arbitrage. It further recommends: specific exemptions from securities registration for the distribution of digital assets, including protective provisions for nascent projects that are not yet fully operational or decentralized; allowing non-security digital assets linked to investment contracts to commence trading on non-SEC platforms immediately following their issuance; granting certain decentralized finance (DeFi) service providers relief from registration requirements for broker-dealers, exchanges, and clearing agencies; updating definitions and regulations concerning exchanges, transfer agents, and self-hosted wallet providers; and fostering coordinated rulemaking between the SEC and CFTC, which would include the establishment of regulatory sandboxes and clear paths for innovation.
Immediate Actions for Market Participants and Regulators
Among the immediate actions recommended are: Securities Offerings Relief, which involves creating exemptions from registration for digital asset offerings, including safe harbors for nascent projects and definitive guidelines for airdrops and rewards within decentralized networks; Trading and Registration Relief, which allows the trading of non-security digital assets on non-SEC platforms post-issuance and provides certain DeFi service providers with relief from specific registration obligations; and Modernized Market Rules, which suggest revising the definition of “exchange facility,” supporting tokenized securities and digital assets, updating transfer agent regulations, and clarifying when wallet providers must register as broker-dealers. Additionally, the report addresses Custody Rules, emphasizing the need for clarity on how investment firms can securely hold digital assets categorized as securities and whether state-chartered trusts can serve as qualified custodians or banks. It also calls for guidance from the CFTC on how digital assets are classified and traded as commodities, which includes rules pertaining to leveraged trades and customer identification.
Coordination Between SEC and CFTC
The report advocates for improved collaboration between the SEC and CFTC, recommending that they: synchronize their rulemaking and public commentary processes; create regulatory sandboxes or safe harbors with well-defined eligibility criteria and exit strategies; and consider establishing a unique category for certain qualified traders to engage in digital asset derivatives through regulated intermediaries.
Long-Term Recommendations for Digital Asset Market Structure
For the long term, the report suggests creating a Single User Interface that enables digital asset firms to offer trading, custody, and brokerage services under one umbrella, complemented by robust safeguards and transparent disclosures. It also advises updating CFTC regulations to accommodate blockchain-based derivatives, including stipulations for clearing, reporting, and margining, even in environments without intermediaries. Furthermore, the report encourages the SEC and CFTC to utilize their existing authority to provide regulatory clarity and promote responsible innovation if Congress does not take action.
Market Structure Legislation Insights
The report identifies the Digital Asset Market Clarity Act of 2025 (CLARITY) as a foundational element for establishing market structure, proposing a division of oversight responsibilities between the SEC and CFTC. It emphasizes the protection of self-custody rights and the facilitation of efficient trading and DeFi operations. The report urges Congress to prioritize federal law over state law for firms registered with the SEC and CFTC, as well as to establish clear licensing and reporting guidelines for digital asset intermediaries.
Addressing DeFi and Innovation
In terms of DeFi and innovation, the report advises that regulations should be based on actual control over assets, the capability to modify software, and the level of centralization. It calls for specific rules tailored to the unique characteristics of DeFi rather than applying conventional financial regulations indiscriminately. Additionally, it emphasizes the importance of preventing abuse by ensuring that products cannot be structured merely to evade legal obligations.
Key Accounting Recommendations
The Financial Accounting Standards Board (FASB) has released guidance for assessing digital assets at fair value. The report recommends that FASB seek further feedback on: the timing for recognizing or removing digital assets from balance sheets; accounting practices for tokens developed and issued by companies; the classification of stablecoins as cash equivalents; and the accounting treatment for tokens that offer utility or access but lack explicit legal rights. It underscores the necessity for revised accounting and auditing standards as the utilization of digital assets expands.
Recommendations for Banks Regarding Digital Asset Activities
The report advocates for clear directives on permissible digital asset activities for banks, including custody, utilization of third-party providers, management of stablecoin reserves, and participation in pilot programs. It calls for equitable treatment of all banking types under a technology-neutral supervisory framework, along with transparent and prompt processes for acquiring charters, insurance, and Reserve Bank master accounts. The report also recommends risk-based capital and liquidity requirements for digital asset activities that align with international standards, as well as the removal of obsolete restrictions on state-chartered banks and consistent training for examiners.
Stablecoins and Payment Regulations
The report endorses the GENIUS Act, which mandates that U.S. dollar-backed stablecoins be fully secured by high-quality, liquid assets and redeemable on a 1:1 basis for cash. It requires monthly reserve disclosures and forbids misleading assertions about government backing. Additionally, stablecoin issuers must obtain licenses in the U.S. or meet equivalent foreign standards, while their claims will be prioritized in cases of insolvency, necessitating custodians to segregate reserves. The report clarifies that U.S.-licensed payment stablecoins do not fall under the categories of securities or commodities and imposes stringent anti-money laundering (AML) and counter-terrorism financing (CFT) requirements on issuers, including those based outside the U.S. who serve American customers. Furthermore, it promotes competition and innovation in payments while prohibiting government-issued CBDCs, favoring solutions from the private sector.
Combating Illicit Finance
The report emphasizes the urgent need for the swift implementation of the GENIUS Act’s AML regulations for stablecoin issuers. It calls for updated guidance from the Financial Crimes Enforcement Network (FinCEN) regarding digital assets, which includes establishing new classifications for digital asset financial institutions. Legislation is also needed to clarify when U.S. AML regulations apply to foreign entities. The report underlines the importance of safeguarding Americans’ rights to self-custody digital assets and clarifying that software providers lacking full control are not classified as money transmitters. Improved information sharing between digital asset and traditional financial institutions is encouraged, along with greater involvement in FinCEN’s information-sharing initiatives. Additionally, new regulations should empower the Treasury to restrict or condition specific digital asset transfers associated with illicit actors, even outside conventional banking. The report calls for updates to victim compensation and asset forfeiture laws relevant to digital assets and expanded anti-tipping-off and theft statutes to encompass digital asset enterprises, along with flexible, principle-based cybersecurity standards and enhanced sharing of cyber threat information.
Tax Recommendations Summary
The report outlines recommendations for tax guidance on digital asset transactions, which includes staking, mining, and wrapping. It suggests treating digital assets as a distinct asset class for tax purposes, with regulations comparable to those for stocks or commodities. Clarifications are sought regarding the tax implications of stablecoins, including whether they should be classified as debt, and addressing wash sale and anti-bearer bond regulations. The report advocates for applying wash sale rules to digital assets (excluding stablecoins) and updating broker reporting requirements. It also recommends treating loans of actively traded digital assets similarly to securities loans, providing guidance for small digital asset receipts (airdrops, staking, mining), and revising rules concerning the timing of income from mining and staking. Furthermore, it calls for mandatory reporting of foreign digital asset accounts and simplification of reporting forms for the IRS and FinCEN, ensuring that broker and business reporting obligations are consistent and not overly burdensome.
Concluding Remarks
The White House’s roadmap for digital assets indicates a move towards more transparent and supportive regulations for digital assets and blockchain technology in the U.S. Federal agencies, including the Treasury, SEC, CFTC, OCC, and FDIC, are anticipated to act promptly on the report’s suggestions. Additionally, Congress may contemplate new legislation aimed at clarifying market structure, tax treatment, and measures against illicit finance. Companies are encouraged to examine their compliance, risk management, and reporting practices in light of these recommendations, while remaining vigilant for further developments in regulation and legislation.
