The US Department of the Treasury released three documents related to digital assets on Friday, in response to US President Joe Biden’s executive order titled “Ensuring Responsible Development of Digital Assets.” One of them focuses specifically on crypto assets, and a shorter action plan looks at combating the risks of illicit finance.
The discussion of crypto-assets in “Crypto-Assets: Implications for Consumers, Investors and Businesses” strikes a cynical tone from the start, as the introductory paragraphs of the report state the following:
“The potential of Blockchain technology to transform the provision of financial services, as advocated by its developers and advocates, has yet to be realized.”
About half of the report is a descriptive study of crypto assets, after which the authors move on to discuss the risks they pose to users. It divides risks into three categories, the first of which are behavioral risks, that is, practices within the ecosystem. The report claims that cryptocurrency fraud losses have skyrocketed in 2021 and are on track to break that record this year. It also identifies transparency problems of various kinds.
Operational risks, including “deficiencies in information systems or internal processes, human errors, failures in governance and management, or disturbances resulting from external events”, are the subject of detailed consideration. Crypto asset brokering risks are closely related but discussed separately, and are the same risks faced by investors in traditional markets, such as volatility and custody issues, but form a “single picture” due to to the nature of cryptocurrencies.
Possibly the most valuable section of the report is an extensive discussion of the opportunities and the risks that crypto assets pose to vulnerable populations. This is especially due to the extensive statistical information in the section.
The report makes three recommendations: surveillance, with increased law enforcement, inter-institutional cooperation, and information sharing; for agencies to develop more guidelines and standards; and for more educational outreach to take place.
The “Action Plan to Address Illicit Financing Risks of Digital Assets” addresses digital assets from a national security perspective. It recommends seven priority actions that mainly cover monitoring and control efforts at the national and international levels.
It also recommends updating the regulations of the Bank Secrecy Law and increasing the commitment with the private sector through “the publication of official documents, debates and Treasury programs that allow the exchange of information between the public and private sectors.”
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