Biden’s digital assets directive fails to provide clarity for advisers

President Joe Biden on Wednesday launched a governmentwide effort to establish a policy around digital assets, but financial advisers waiting for regulatory clarity will have to wait a while longer.

Biden issued an executive order that directs several federal agencies to consider measures that would protect consumers and investors in the $3 trillion crypto market as well as address a range of other issues, such as financial stability, illicit finance, economic inclusiveness and climate change.

As part of the order, Treasury Secretary Janet Yellen, in consultation with other agency heads, must submit a report to Biden that includes policy recommendations for regulatory and legislative actions.

The directive also encourages regulators, including Securities and Exchange Commission Chairman Gary Gensler and the heads of the Commodity Futures Trading Commission, the Federal Deposit Insurance Corp. and the comptroller of the currency “to consider the extent to which investor and market protection measures within their respective jurisdictions may be used to address the risks of digital assets and whether additional measures may be needed.”

It’s not clear what that directive will do to help agencies that are already grappling with how to address digital assets, said Nicholas Losurdo, a partner at Goodwin Procter.

“I don’t know if this really moves the needle at all,” said Losurdo, who served as counsel for former SEC Commissioner Elad Roisman. “It sounds like hurry up and wait for more coordination between an alphabet soup of regulatory bodies. It’s not going to accelerate anything on the SEC side. It’s going to further delay it.”

Financial advisers are fielding questions about cryptocurrencies from their clients but can be hesitant to recommend them because of regulatory uncertainty. That situation is likely to continue despite the executive order.

“For financial advisers, we need more clarity around things like custody, trading and billing,” said Steve Larsen, co-founder of PlannerDAO, a cryptocurrency education community for financial planners.

Custody can be a thorny issue even when dealing with traditional securities. It becomes more complex when it applies to digital assets. The SEC may continue to be in a holding pattern on the issue.

“Is [the executive order] going to cause the SEC to wait another two to three years to make definitive statements on what is or is not custody of digital assets in the context of the [Investment] Advisers Act custody rule?” Losurdo asked. “My fear is this causes the agency to have further paralysis and kick the can down the road.”

Gensler has said that the SEC has jurisdiction over many cryptocurrency offerings because they’re sold as investment contracts. But others say crypto is a commodity and should be overseen by the CFTC.

The “whole of government approach” outlined in the executive order doesn’t designate a regulatory leader on crypto.

“You wonder whether there’s going to be turf wars in Washington over who gets to regulate crypto,” said Larsen, who's also president of Columbia Advisory Partners.

He’s hopeful the executive order will provide some direction on oversight of digital assets, but said the government must move quickly to get its arms around the rapidly growing market.

“We should finally get some answers on where we’re headed,” Larsen said. “At the rate that crypto moves, they need to issue the report quickly or it will be outdated by the time they release it.”