Rule Against Cryptocurrency Wallets That Aren’t Hosted Is Potentially Back In The US

Rule Against Cryptocurrency Wallets That Aren't Hosted Is Potentially Back In The US
Voiced by Amazon Polly

The United States government may reconsider a controversial planned rule that would impose know-your-customer rules on unhosted or self-hosted crypto wallets.

The Financial Crimes Enforcement Network (FinCEN), the US money-laundering watchdog, first proposed the rule at the end of 2020. If passed, cryptocurrency exchanges would be compelled to collect names, addresses, and other personal information from anyone wishing to move cryptocurrency to their own private wallets.

Because certain wallets are not managed by humans and hence are not attached to this personal information, industry proponents are afraid that the standards will be impossible for them to follow. Others were afraid that the rule would be too difficult for people to comply with.

Instead of FinCEN, then-Treasury Secretary Steven Mnuchin was the driving force behind the rule. The plan was first made public on Treasury’s website, not FinCEN’s. When the comment period was extended, the watchdog merely posted the proposed regulation.

The Treasury Department, which is currently led by Secretary Janet Yellen, said the rule could be included in the semiannual regulatory agenda, which will be formally published in the Federal Register on Jan. 31. The agenda defines the Treasury Department’s priorities, but it does not guarantee that the rules will be enacted, or that they will be implemented in their current form. Rather, the agenda is a mechanism for Treasury to communicate what it will be working on over the next six months.

“FinCEN is proposing to amend the regulations implementing the Bank Secrecy Act (BSA) to require banks and money service businesses (MSBs) to submit reports, keep records, and verify the identity of customers in relation to transactions involving convertible virtual currency (CVC) or digital assets with legal tender status (‘legal tender digital assets’ or ‘LTDA’) held in unhosted wallets, or held in wallets hosted in a jurisdiction identified by FinCEN,” the document said.

FinCEN intends to finalize the rule by the end of August, according to a timetable in the section.

The proposed rule had an extremely short 15-day comment period, which sparked even more debate among business supporters. Typically, comment periods range from 30 to 90 days, while some rules may have comment periods of up to 120 days.

FinCEN twice extended the comment time in public notices, the first for another 15 days and the second for another 60 days.

FinCEN interpreted the rule’s provisions as two different issues in the first extension. One of these sections attempted to impose CTR requirements on crypto transactions to non-hosted wallets. CTRs are currently filed by financial institutions for consumers who transact $10,000 or more in a single transaction.

Customers sending more than $3,000 in crypto every day to private wallets would be subject to the personal data rule, often known as the counterparty data collecting rule.

This second rule sparked an outcry from the business, with thousands of comments filed in response. Before implementing the counterparty data collection rule, FinCEN may need to open a new comment period to address these responses.

There were no comments available from FinCEN about whether the agency is considering the entire regulation or individual components. A link on the Federal Register website, on the other hand, takes you to the original proposed rule from December 23, 2020.

The Federal Reserve and FinCEN also intend to “clarify the concept of money” as it relates to digital assets under the Bank Secrecy Act (BSA), ensuring that digital asset transactions are subject to the same BSA restrictions as to their fiat counterparts.

“The Agencies intend that the revised proposal will ensure that the rules apply to domestic and cross-border transactions involving convertible virtual currency, which is a medium of exchange (such as cryptocurrency) that either has an equivalent value as currency, or acts as a substitute for currency, but lacks legal tender status,” the document said.

No comments yet! You be the first to comment.

Your email address will not be published.

WANT MORE NEWS LIKE THIS?

Sign up to receive our weekly email newsletter and never miss an update!