New Report on Digital Asset Regulations Released by Presidential 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, a response to January’s Executive Order 14178, presents a broad array of recommendations aimed at governing digital assets and blockchain technology within the United States. Below, we explore the crucial impacts this report may hold for businesses, financial institutions, and investors.
Purpose and Priorities of the Report
This report serves to fulfill the working group’s directive to propose regulatory and legislative measures that encourage the responsible advancement of digital assets and blockchain technologies. While it does not bring about immediate regulatory changes, it is anticipated that significant federal agencies will pursue recommendations that do not necessitate new legislation. Key priorities outlined in the report include: safeguarding the rights of individuals and businesses to utilize open blockchain networks and self-custody of digital assets; enhancing the global standing of the U.S. dollar by endorsing stablecoins; opposing the introduction or acceptance of central bank digital currencies (CBDCs) in the nation; offering legal clarity regarding digital asset ownership and self-custody; ensuring equitable treatment of digital asset enterprises by banks and regulators; and bolstering U.S. leadership in digital asset innovation, payment systems, and efforts against illicit finance.
Structuring Digital Asset Markets
The report suggests a three-tier classification for digital assets: security tokens regulated by the SEC, commodity tokens overseen by the CFTC, and commercial or consumer use tokens such as stablecoins and utility tokens. This classification aims to mitigate regulatory overlap and facilitate a clearer regulatory environment. Additional recommendations include: granting special exemptions from securities registration for digital asset distributions, providing safe harbors for nascent projects that are not yet fully developed or decentralized, allowing non-security digital assets tied to investment contracts to be traded on non-SEC platforms shortly after issuance, and offering certain decentralized finance (DeFi) service providers relief from broker-dealer, exchange, and clearing agency registration requirements. The report also emphasizes the need to modernize definitions and regulations for exchanges, transfer agents, and self-hosted wallet providers, along with coordinated rulemaking between the SEC and CFTC, including the establishment of regulatory sandboxes for innovation.
Immediate Recommendations for Market Participants and Regulators
The report outlines several urgent recommendations, including: creating exemptions from registration for digital asset securities offerings, encompassing safe harbors for early-stage projects and established guidelines for airdrops and rewards from decentralized networks; allowing the trading of non-security digital assets on non-SEC platforms post-issuance and providing relief from registration for DeFi providers; updating market rules to redefine “exchange facility,” support tokenized securities and digital assets, refresh transfer agent regulations, and clarify registration requirements for wallet providers. Additionally, it calls for clearer guidelines on how investment firms and advisors can securely hold digital assets classified as securities, alongside specifications for state-chartered trusts acting as qualified custodians. The CFTC is also urged to provide clarity regarding the classification and trading of digital assets as commodities, including rules for leveraged trades and customer identification.
Coordination Between SEC and CFTC
The report advocates for collaboration between the SEC and CFTC on rulemaking and public comment processes. It suggests the establishment of regulatory sandboxes or safe harbors with explicit eligibility criteria and exit strategies. Additionally, it considers creating a specialized category for certain qualified participants to trade digital asset derivatives through regulated intermediaries.
Longer-Term Recommendations for Digital Asset Market Structure
In terms of long-range recommendations, the report proposes a unified user interface that enables digital asset firms to offer trading, custody, and brokerage services under a single platform, ensuring robust safeguards and clear disclosures. It also recommends revisions to CFTC regulations to allow blockchain-based derivatives, including requirements for clearing, reporting, and margin, even in non-intermediated settings. Should Congress remain inactive, it urges the SEC and CFTC to leverage existing authority to provide regulatory clarity and support responsible innovation.
Market Structure Legislation Insights
The report identifies the Digital Asset Market Clarity Act of 2025 (CLARITY) as a cornerstone for market structure, advocating for a division of oversight between the SEC and CFTC, the protection of self-custody rights, and the promotion of efficient trading and DeFi. It calls on Congress to ensure that federal law supersedes state law for firms registered with the SEC and CFTC, and to establish transparent, efficient licensing and reporting protocols for digital asset intermediaries.
DeFi and Innovation Considerations
The report recommends regulations based on the actual control over assets, software modification capabilities, and the level of centralization. It emphasizes the need for tailored regulations for DeFi that acknowledge its distinctive characteristics, rather than defaulting to traditional financial regulations, while also preventing the creation of products designed merely to evade legal obligations.
Key Accounting Recommendations
The Financial Accounting Standards Board (FASB) has provided guidance on valuing digital assets at fair market value. The report encourages FASB to seek additional input on several matters, including the timing of recognizing or removing digital assets from balance sheets, accounting for tokens created and distributed by companies, the treatment of stablecoins as cash equivalents, and the accounting for tokens that offer utility but lack definitive legal rights. It also highlights the necessity for updated accounting and audit standards as the utilization of digital assets expands.
Proposed Changes for Banks and Digital Asset Activities
The report urges the establishment of clear directives regarding banks’ permissible activities related to digital assets, such as custody, utilization of third-party providers, holding stablecoin reserves, and engaging in pilot programs. It calls for equitable treatment of all banks, irrespective of their technology, and stresses the importance of transparent and prompt processes for securing charters, insurance, and Reserve Bank master accounts, with automatic approvals if deadlines are overlooked, barring extraordinary circumstances. The report highlights the need for risk-based capital and liquidity requirements aligned with international standards, and the elimination of outdated restrictions on state-chartered banks along with consistent examiner training.
Stablecoins and Payments Overview
The report endorses the GENIUS Act, which mandates that U.S. dollar-backed stablecoins must be fully backed by high-quality, liquid assets that are redeemable on a 1:1 basis for cash. It also requires monthly disclosures of reserves and prohibits misleading claims regarding government backing. Furthermore, the act stipulates that stablecoin issuers must be licensed in the U.S. or meet comparable foreign standards, prioritizes the claims of stablecoin holders in the event of insolvency, and necessitates that custodians keep reserves segregated. The report clarifies that U.S.-licensed payment stablecoins are neither securities nor commodities, imposes stringent anti-money laundering (AML) and counter-terrorism financing (CFT) requirements on issuers, including those located abroad with U.S. customers, and promotes competition and innovation in payment systems while banning government-issued CBDCs in favor of private sector solutions.
Addressing Illicit Finance
The report calls for the rapid implementation of the GENIUS Act’s anti-money laundering regulations for stablecoin issuers, updated guidance from FinCEN on digital assets, including new classifications for digital asset financial institutions, and legislation to clarify when U.S. AML regulations apply to foreign entities. It emphasizes ensuring Americans’ rights to self-custody of digital assets, clarifying that software providers without full control are not classified as money transmitters, and enhancing information sharing between digital asset and traditional financial institutions. Additionally, it proposes new regulations that would allow the Treasury to block or condition specific digital asset transfers associated with illicit activities, even outside of conventional banking systems. The report also calls for updated victim compensation and asset forfeiture laws addressing digital assets, along with expanded laws against tipping off and theft to cover digital asset businesses, and the establishment of flexible, principle-based cybersecurity standards coupled with improved sharing of cyber threat intelligence.
Tax Recommendations Summary
Key tax recommendations in the report include providing guidance on the taxation of digital asset transactions, including staking, mining, and wrapping. It advocates for treating digital assets as a distinct asset class for tax purposes, with regulations akin to those governing stocks or commodities. The report seeks clarification on the tax status of stablecoins, addressing whether they should be treated as debt, and updating wash sale and anti-bearer bond rules. It also proposes applying wash sale rules to digital assets (excluding stablecoins) and revising broker reporting requirements, alongside allowing loans of actively traded digital assets to be treated as securities loans. Furthermore, it calls for clarity regarding small digital asset receipts (airdrops, staking, mining) and updated regulations on income timing from these activities, mandates the reporting of foreign digital asset accounts, and streamlines reporting forms for the IRS and FinCEN, ensuring that broker and business reporting requirements are consistent and not overly burdensome.
Conclusion
The White House’s roadmap for digital assets signifies a transition towards clearer, more supportive regulations for digital assets and blockchain technology in the United States. Federal agencies, including the Treasury, SEC, CFTC, OCC, FDIC, and others, are expected to act swiftly to implement the recommendations set forth in the report. Additionally, Congress is likely to consider new legislation aimed at clarifying the digital asset market structure, tax implications, and measures to combat illicit finance. Companies are encouraged to assess their compliance, risk management, and reporting practices in light of these recommendations and remain vigilant for further regulatory and legislative changes.
