2025 regulatory preview: Understanding the new US administration’s approach to digital assets and AI

In this article, we begin with a general description of the shift in federal policy with respect to digital assets, along with notable leadership changes in relevant federal departments and agencies charged with carrying out this new policy. We then turn to a discussion of the recent rescission of Securities and Exchange Commission (SEC) Staff Accounting Bulletin 121, which is a watershed moment as it removes a significant roadblock to traditional bank custodians providing digital asset custody services. Finally, we conclude with a discussion of how future developments in the regulatory and legislative landscape of the US may unfold under this new policy.

The winds of change – Short-term gusts or a consistent breeze?

Expectations of increasing regulatory clarity and acceptance of digital asset activities were high following the election of Donald Trump as President in November 2024. Since that time, and particularly since the inauguration in January 2025, the new administration has taken several steps to bring the US more in line with other jurisdictions that have embraced the potential for responsible innovation of digital assets through the establishment of clear regulatory frameworks.
 

Restatement of US federal policy on digital assets

Three days after his inauguration, President Trump issued the “Strengthening American Leadership in Digital Financial Technology” Executive Order (the EO),¹ which established supporting responsible growth and use of digital assets and related technology as the policy of the federal government, replacing the digital assets executive order issued by President Biden in 2022. More specifically, the EO identifies the policy objectives for the new administration as including:

• Protecting and promoting access and use for lawful purposes of public blockchain networks;
• Promoting and protecting the sovereignty of the US dollar, including through promoting the development of dollar-backed stablecoins;
• Protecting and promoting fair and open access to banking services;
• Providing regulatory clarity using technology-neutral regulations; and
• Prohibiting the establishment of a US CBDC.

In addition to setting policy scope, the EO also established the President’s Working Group on Digital Assets. The Working Group will be chaired by the Special Advisor for AI and Crypto, and will include the heads of multiple federal departments and agencies, including the SEC, the Commodity Futures Trading Commission (CFTC), the Secretary of Commerce, the Secretary of the Treasury and the Attorney General. The EO tasked the Working Group with identifying all regulations, guidance documents and orders affecting the digital asset sector within 30 days, and further with submitting recommendations for rescinding or modifying those identified items consistent with the newly stated federal policy within 60 days. Finally, the Working Group must provide a written report within 180 days recommending regulatory and legislative proposals to advance the policies established in the EO.
 

Notable personnel changes portend a cultural shift in approach to digital assets in the US

The first sign of a shift in regulatory approach came in December 2024, when the incoming administration announced that David Sacks would fill a newly created role of Special Advisor for AI and Crypto (more commonly referred to as the White House AI and Crypto Czar), a post charged, in part, with helping to create a legal framework that provides clarity to digital asset matters. Sacks, a Silicon Valley investor and former Chief Operating Officer of PayPal, is known for pro-crypto asset viewpoints.²

Around the same time, President-elect Trump identified Paul Atkins as his choice to head the SEC, replacing former Chairman Gensler. Atkins, a former SEC Commissioner from 2002 to 2008, is known as a supporter of digital assets and previously served as a Board Advisor for the Digital Chamber, an industry group focused on promoting digital asset and blockchain innovation. While Atkins’ candidacy is evaluated by Congress, President Trump appointed SEC Commissioner Mark Uyeda to be Acting SEC Chairman on January 21, 2025. On the day of his appointment, Acting Chairman Uyeda announced the creation of a Crypto Task Force, to be led by SEC Commissioner Hester Pierce, “dedicated to developing a comprehensive and clear regulatory framework for crypto assets”.³

At the CFTC, the other federal agency that has been at the center of the regulatory focus for digital assets alongside the SEC, Commissioner Pham, a historic supporter of responsible digital asset regulation and innovation, has been named Acting Chairwoman. Shortly following her appointment, she announced the launch of a series of roundtables, including one on digital assets, and noted the importance of innovation and new technology in the commodities markets.⁴

At the federal prudential regulators, namely the Federal Deposit Insurance Corporation (FDIC), the Office of the Comptroller of the Currency (OCC) and the Board of Governors of the Federal Reserve System (Federal Reserve), the changes are a bit more muted, but still notable. At the FDIC, following the resignation of Chairman Martin Gruenberg on January 19, 2025, President Trump appointed Vice Chairman Travis Hill as Acting Chairman of the FDIC. In a statement published on January 21, 2025, Acting Chairman Hill identified his areas of focus for the FDIC, which include “adopt[ing] a more open minded approach to innovation and technology adoption, including a more transparent approach to fintech partnerships and to digital assets and tokenization.”⁵

Additionally, in a speech on January 10, 2025, Vice Chairman Hill notably stated that:
 

“I continue to think a much better approach would have been — and remains — for the agencies to clearly and transparently describe for the public what activities are legally permissible and how to conduct them in accordance with safety and soundness standards. And if regulatory approvals are needed, those must be acted upon in a timely way, which has not been the case in recent years.”

At the OCC, while Acting Comptroller of the Currency, Michael Hsu, continues in his role, it is expected that the new administration will appoint a new Comptroller of the Currency in the near future. Further, while the Chairman of Federal Reserve, Jerome Powell, has indicated that he intends to remain in place for the remainder of his term through 2026, Vice Chairman for Supervision, Michael Barr, announced that while he will continue to serve as a governor, he will step down from the role of Vice Chairman of Supervision on February 28, 2025. This resignation enables the Trump Administration to appoint a new head of supervision, likely from among the existing Board members. One Board member who is viewed by some as a potential candidate for the role is Michelle Bowman.⁶

Governor Bowman has expressed a desire for regulators and industry to work more closely together to determine how innovation can be conducted responsibly, noting in comments made to the Digital Chamber DC Blockchain Summit that:
 

“While the obligation to promote understanding [of new innovations] may fall more heavily on industry, the obligation to be receptive to innovation falls more heavily on regulators. We must fight the temptation to say "no" and resist new technology, and instead focus on solutions — how can we mitigate the risk of new technology? What benefits will technology bring to the financial system? How can we provide clear regulatory expectations?”⁷

Finally, in Congress, the Senate Banking Committee recently established a Subcommittee on Digital Assets to be chaired by Senator Cynthia Lummis (R-WY), the co-author of numerous previous bills seeking to establish a framework for the regulation of digital assets. The focus of the subcommittee includes “passing bipartisan digital asset legislation that promotes responsible innovation and protects consumers, including market structure, stablecoins and a strategic bitcoin reserve.”⁸

So long, SAB 121: What SAB 122 means for institutional investors

While the cultural shift foreshadowed by the above changes in policy and personnel are welcome to promoters of digital asset technology and innovation, a key regulatory roadblock to the growth of digital assets and related technology on an institutional scale was SEC Staff Accounting Bulletin 121 (SAB 121),⁹ issued on March 31, 2022. SAB 121 required an entity that safeguards crypto assets for customers to recognize the fair value of the custodied assets as both a liability and an asset on its balance sheet.

The SAB 121 position represented a marked departure from the historical treatment of custodied assets as off-balance sheet items, and disproportionately impacted entities subject to prudential capital requirements, such as banks, which are required to maintain capital based on assets included on their balance sheets. The requirement to maintain additional capital increases the cost of providing the custody service, translating into fees that would be higher than those of a custodian institution that was not required to maintain such capital. As a result, SAB 121 essentially made it commercially impractical for traditional bank custodians to provide digital asset custody services, and thus served as a barrier to entry into the market.

On January 23, 2025, however, SEC staff issued Staff Accounting Bulletin 122 (SAB 122), which rescinded SAB 121. SAB 122 further clarified that the accounting treatment for safekeeping of crypto assets should be the same as that for traditional assets, meaning that in the normal course of business, the safekept, or custodied, assets would not be reflected as an asset or a liability on the balance sheet of the custodian.

The repeal of SAB 121 marks a defining moment in the growth of the digital asset market, as it removes a commercial barrier for experienced, prudentially regulated custodians to pursue the development of a digital asset custody solution at scale. It does not mean that banks can immediately custody digital assets. Banks will still need to consult with their prudential regulators to demonstrate the safety and soundness of their proposed offerings and obtain written non-objection prior to commencing operations. Even if prudential regulators were to remove the written non-objection standard implemented under the prior administration, banks will still need to work with their regulators to demonstrate safety and soundness prior to launching.

As a result, much of this year will likely focus on building these capabilities and working with regulators to ensure risk management has been fully considered and addressed. While banks focus on building scalable solutions, institutional investors, many of whom have been hesitant to enter the digital asset market without traditional bank custodial services for digital assets being widely available, will be able to reassess their approach to digital assets and focus more intently on incorporating a range of digital assets into their investment strategies.
  

What to expect for digital asset regulation going forward

With the SEC’s new Crypto Task Force and the EO on digital assets refocusing US policy, calling for a clear US regulatory and legislative framework on digital assets — along with bipartisan support for many digital asset matters generally — the likelihood of a documented US framework for digital assets has never been higher. In considering what that framework may look like, it is instructive to look at historical positions taken by the new leaders in the administration.

In the case of the SEC and the Crypto Task Force, the Token Safe Harbor Proposal 2.0¹⁰ published by Commissioner Pierce in 2021 offers a glimpse into her views for enabling risk managed innovation with digital assets. The proposal called for a three-year exemption from securities registration requirements for tokens if certain conditions were met, including, “(i) making specified disclosures required by the proposed rule on a freely accessible public website, (ii) offering and selling the token for the purpose of providing access to, participation on or the development of the network, (iii) filing a notice of reliance on the exemption with the SEC with certain specified information; and (iv) filing an exit report within three years containing specified information regarding network maturity or failure to achieve network maturity.”¹¹ If, at the end of that three-year period the network had matured into a functional network as opposed to a decentralized network, then the tokens would need to be registered as securities.

From a legislative perspective, the policy focus of the EO on stablecoins and enhancing regulatory clarity — along with the sense of urgency implicit in the tight deadlines for the Working Group to act — should increase the likelihood of legislation following or incorporating concepts from bills introduced in Congress last year.

• In the case of stablecoins, future legislation may be informed by the Lummis-Gillibrand Payment Stablecoin Act, introduced by Senators Lummis (R-WY) and Gillibrand (D-NY) in April 2024, which would give the US Federal Reserve Board a level of responsibility over all stablecoins. The Lummis-Gillibrand bill would require stablecoin issuers to be either a federally regulated depository institution or, for stablecoins with an outstanding balance of less than US$10 billion, a state non-depository trust company that registers with the Federal Reserve Board. In addition, stablecoin issuers would be required to (i) maintain reserves equal to at least 100 percent of the nominal value of outstanding coins, (ii) invest reserves only in limited, specified highly liquid assets, (iii) prohibit rehypothecation of reserve assets, except as necessary to meet redemption requests, (iv) honor redemption requests at par in legal tender within one day of the request, (v) produce mandatory reports regarding the stablecoin reserves, which reports must also be filed by the Chief Financial Officer of the issuer with the Federal Reserve Board under penalties of perjury and (vi) comply with anti-money laundering, countering the financing of terrorism and sanctions rules as a financial institution under the Bank-Secrecy Act. Other notable features of the bill are that, while stablecoins would not benefit from FDIC insurance, the bill would create a conservator and receivership regime managed by the FDIC to help mitigate the risk of an issuer default.
• In the case of a broad regulatory framework for digital assets, the Financial Innovation and Technology for the 21st Century Act (FIT 21), which was passed by the House of Representatives in May 2024, may be a harbinger of future legislation. This bill proposed bifurcating the supervision of the digital asset market between the SEC and the CFTC based on key characteristics of a particular digital asset, including the level of decentralization of the asset’s underlying network and how the asset was distributed, and further contemplated the possibility for the characteristics of the digital asset to change over time, thereby switching between SEC and CFTC oversight. Similar to the Markets in Crypto Assets Regulation (MiCA) in the European Union, the bill also called for the regulation of digital asset market intermediaries, such as custodians, broker-dealers and trading systems. While there are a number of details to be worked out, it was a bipartisan bill that offered the most comprehensive framework for the US to date.

Finally, the position of the EO prohibiting the pursuit of a US central bank digital currency (CBDC) is in stark contrast to most other G-20 nations. For example, jurisdictions exploring CBDC pilots include numerous European jurisdictions, Australia, Japan, Turkey and all original BRICS (Brazil, Russia, India, China and South Africa) jurisdictions. In addition, the Bank for International Settlements (BIS), along with a working group of six central banks,¹² has noted that “compared with today’s central bank reserves, wholesale CBDC might enable programmability, composability and tokenization within the future financial system.”¹³

Having a high-credit, quality digital cash asset will be important to scaling institutional investor interest in the digital asset market, particularly with respect to tokenized assets. Private sector alternatives, such as Fnality International, a consortium in which State Street is a minority investor, could potentially help bridge this gap for USD where the US does not pursue a CBDC. For more information on Fnality, please see the article in the prior version of our Digital Digest.
 

A note on artificial intelligence (AI) regulations

With the rescission of Executive Order 14110 (signed by former President Biden in late 2023), the US federal government has created a degree of uncertainty over its leadership role in AI standard setting and safety research, at least in the short term.

In January, the new administration ordered a review of all activities conducted under EO 14110 and announced a new Executive Order, stating that the “policy of the United States [is] to sustain and enhance America’s global AI dominance.”¹⁴

This mandates the development of a new overarching AI policy. The Assistant to the President for Science and Technology (APST), the Special Advisor for AI and Crypto, and the Assistant to the President for National Security Affairs (APNSA) are responsible for delivering this policy in July of this year.

That move predated the release of a new version of the Chinese Large Language Model (LLM) DeepSeek, which spooked US technology investors earlier this year, with its ability to perform the same tasks as previous American AIs with much lower development costs and lead times, albeit subsequent concerns have come to light over its privacy and security.¹⁵

However, that development is likely to have reinforced the new administration’s urge to prioritize the US’s domestic AI industry by removing what it sees as regulatory impediments to innovation, and development appearing to be its main approach.

This is a break from the rescinded order, which formalized the previous administration's strategy of multilateral coordination, as exemplified by participation in the multinational network of AI Safety Institutes. These activities promised alignment of expectations across global markets and regulatory jurisdictions, which is often essential for firms with an international presence.

However, despite the difference in tone on AI between the previous and current administrations, the rescinded executive order did contain measures driving innovation in government and addressing US national security that were in line with current policy. It was also a major catalyst for the maturation of AI governance in 2024.

Lastly, it established new initiatives at National Institute of Standards and Technology (NIST) to define the risks and limitations of generative AI, including publication of opt-in governance frameworks (notably NIST AI 100-1), research papers and software tools, which were taken up by many risk-aware industries in the US and across the globe. The scope of these resources has been wide-ranging, from methods for improving accuracy of LLM outputs to suggested design principles for user interfaces.

Whether US standard setting and research activities will continue at the federal level is uncertain until the new strategy on AI is announced. In the meantime, it is possible that the center of gravity in AI standard-setting will shift more towards private sector self-regulation, and guidance associated with the EU AI Act, if developments in the US bring the mandate of NIST into doubt.

For now, companies may start to look elsewhere for authoritative resources on how to design controls for the new risks associated with generative AI. In addition to the EU legislation, recent examples of these include the United Kingdom’s AI Standards Hub and International AI Safety Report.
 

Conclusion

The new political administration in the US has clearly included regulatory clarity for digital assets amongst its key priorities. In addition to a restatement of federal policy on digital assets through the EO, a number of agency and division leadership roles have been filled by people who are regarded as supporters of responsible digital asset innovation. While much of the focus has been on providing clarity with respect to cryptocurrencies, many of the actions, such as the rescission of SAB 121, will also remove uncertainty regarding the treatment of tokenized traditional assets, facilitating the growth of tokenization alongside a potential resurgence in cryptocurrencies for institutional investors.