Last month, President Joe Biden signed an executive order on ensuring responsible development of digital assets. The order, which comes at a time of rising interest in digital assets such as cryptocurrencies, seeks to protect consumers, financial stability, national security, and reduce climate risks.
We recently spoke with Peter Torrente, National Leader of KPMG’s Banking and Capital Markets practice, to gain some insight on how the executive order may impact banks and fintechs. With more than 30 years of experience, Torrente primarily works with global financial services companies.
What are the highlights of the executive order?
Peter Torrente: The U.S. has an interest in responsible financial innovation including the continued modernization of public payment systems. This executive order details the country’s first comprehensive government strategy for exploring digital assets. It outlines steps to reduce risks that digital assets could pose to consumers, investors, and businesses. It also addresses other important considerations such as financial stability and financial system integrity; combatting and preventing crime and illicit finance; national security; U.S. leadership in the global financial system and economic competitiveness; financial inclusion and equity; and climate change and pollution. Finally, it also explores a U.S. Central Bank Digital Currency (CBDC) by placing urgency on research and development of a potential digital version of the dollar.
What are the major implications for banks and fintechs?
Torrente: The executive order seeks to ensure that the largest financial regulators, including banking regulators in the United States, make coordinated plans to oversee the blockchain industry. I see this order as a good signal for a comprehensive set of regulations for the digital asset industry. First, the new laws and regulations will require banks and fintech companies involved in the digital asset industry to enhance their governance and control frameworks related to Anti-Money Laundering (AML) / Combating the Financing of Terrorism (CFT) processes. Second, this executive order indicated that the federal government sees digital assets as an important part of the economy and society; it creates opportunities for traditional banks take another look at their digital asset strategy. Lastly, it explores a U.S. CBDC, which would significantly impact domestic and international wire transfer processes. I also see this order as an encouraging signal for banks and fintech companies to push forward with financial innovations associated with the digital asset industry.
Will the executive order benefit end consumers? Or make them worse off? How?
Torrente: Yes, it has the potential to benefit end consumers. First, the initial set of regulations will focus on establishing the baseline rules to protect investors and consumers from fraudulent activities. It can create transparency for end consumers and help them make informed decisions. Second, this executive order promotes building innovative financial platforms. End consumers may benefit from improvements in business performance, efficiency, and enhanced financial inclusion through these innovations. Given digital assets have the potential to increase the speed of payments, it can vastly improve access to financial services, especially for low-income Americans often left out of the traditional banking system. Lastly, new policies and laws for the digital asset industry could potentially help reduce excessive price volatility and improve market stability as cryptocurrency becomes a mainstream financial technology.
Do you envision further regulations around ESG in the future?
Torrente: The pace of proposed rules and regulations related to ESG risk identification, measurement and disclosure has clearly accelerated over recent months. But when we take a step back, these regulatory actions are largely the result of growing interest from a variety of stakeholders – investors, analysts, community groups, and government leaders – who may have been focused on sustainability and ESG for years. There is a widespread desire among stakeholders for enhanced consistency and comparability across ESG targets and metrics. Standardized disclosure requirements are viewed as important to advancing the broader ESG agenda. Stakeholders’ expectations of companies’ ESG strategies, commitments and disclosures are only increasing, which may lead to additional regulatory guidance and focus.
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