Reed Smith In-depth

U.S. Secretary of the Treasury Janet L. Yellen offered new insights into the U.S. Administration’s view of the future the regulatory framework for digital assets in the first landmark speech following issuance of President Biden’s Executive Order on Ensuring Responsible Development of Digital Assets.
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Emphasizing both the importance of innovation and the need to reduce the risks that digital assets technologies may present to the financial system, Secretary Yellen called for a technology neutral regulatory framework, under which companies that provide similar services would be regulated similarly, regardless of the technology underlying those services. This vision of functional regulation of digital assets, based on activities and risks, rests upon the view that, “Digital assets may be new, but many of the issues they present are not.”

As with the evolution of other innovative financial products and services, Secretary Yellen focused on the potential risks of digital assets to investors, businesses and consumers. Just as the government addressed the risks of earlier innovative financial products and services through appropriate regulation, the Secretary explained that appropriate government oversight is necessary to mitigate the risks arising from the explosive growth of digital assets. In the Secretary’s view, it will be critical to account for these risks in constructing a new regulatory framework, as banks and traditional financial companies become more involved in the digital assets markets.

Public-private dialogue is a key component of the Biden Administration’s approach to digital assets while the Department of the Treasury (“Treasury”) and other government agencies conduct the reviews mandated by the Executive Order on digital assets. Secretary Yellen emphasized the need for international collaboration and offered an approach to technology-driven financial innovation that is “inherently cross-border and requires international cooperation.