On May 9, 2019, the Financial Crimes Enforcement Network (FinCEN) issued guidance, the Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies (CVC), to provide certainty concerning the regulatory treatment of virtual assets. The guidance did not establish any new regulatory expectations. Yet, it consolidated FinCEN guidance, regulations, and administrative rulings related to virtual currency transmission and applied the same interpretive criteria to other standard business models involving virtual assets.
Please note that where FATF uses ‘virtual assets’ and ‘VASPs,’ FinCEN’s guidance uses money services businesses (MSBs.) and convertible virtual currencies (CVCs).
Cryptocurrencies are legal to use in the United States. They are not considered legal tender by the Financial Crimes Enforcement Network (FinCEN) and the Internal Revenue Service (IRS.)
Yes. FinCEN’s 2019 guidance defined certain businesses or individuals involved with virtual currencies as money services businesses (MSBs), similar to FATF’s VASPs. MSBs are subject to the exact registration requirements and anti-money laundering, recordkeeping, and reporting responsibilities as other financial services businesses. There is a proposal to lower to $250 waiting to come into effect, and the NPRM for non-custodial wallets
“The BSA and its implementing regulations require MSBs to develop, implement, and maintain an effective written anti-money laundering program (“AML Program”) that is reasonably designed to prevent the MSB from being used to facilitate money laundering and the financing of terrorist activities. The AML program must, at a minimum: (a) incorporate policies, procedures, and internal controls reasonably designed to assure ongoing compliance (including verifying customer identification, filing reports, creating and retaining records, and responding to law enforcement requests); (b) designate an individual responsible to assure day-to-day compliance with the program and BSA requirements; (c) provide training for appropriate personnel, including training in the detection of suspicious transactions; and, (d) provide for independent review to monitor and maintain an adequate program.25 25. 31 USC § 5318(g)(1); 31 CFR. § 1022.320(a)(2).”
Yes. In 1995, the US Treasury and FinCEN issued the initial Travel Rule and Recordkeeping Rule which required financial institutions to collect and retain information on fiat fund transfers that begin or end outside the US and transmit that information to other financial institutions in the payment chain. On May 9, 2019, the FinCEN issued guidance by which both of these rules apply to convertible virtual currency (“CVC”) while reiterating that the Travel Rule has been in effect for VASPs since 2013.
Various regulatory bodies regulate cryptocurrency in the United States. The entities that regulate crypto business are:
Yes. Virtual asset service providers or MSBs must obtain a Money Service Business (MSB) license to operate in the United States market. Given that the United States considers some cryptocurrencies a commodity, the MSB requirement applies to all types of VASPs (Fiat to crypto exchange, Offering/sale of virtual assets, Transfer of virtual assets, and Safekeeping). All US licensed MSBs are recorded in a public registry.
In addition, VASPs should obtain an MSB license in each state the company intends to do business in, except Montana. Specific states, including New York and Wyoming, require further operational licenses for VASPs to operate.
On May 9, 2019, the FinCEN issued guidance which reiterated that the Travel Rule has been in effect for VASPs since 2013. A new proposal that lowers the current thresholds is under revision. Industry stakeholders submitted comments by November 27, 2020.
No. There is no grace period to comply with the Travel Rule in the United States. Although it has been mandated since 2013, as of yet, there have not been any fines issued for non-compliance.
FinCEN suggests a threshold limit of is $3,000, yet there is a proposal to lower it to $250 submitted last October. According to FinCEN's schedule, it is slotted to come into effect September 2021.
To comply with the Recordkeeping and Travel Rule regulations, MSBs have the following requirements:
Originator Institution must retain the following information:
The Beneficiary Institution must also retain the following information if it receives that information from the originator institution:
Responsibility of the Intermediary Institution
Yes, FINCEN and the Board of Governors of the Federal Reserve System recently proposed rules to modify the BSA to reduce the general Travel Rule threshold from $3,000 to $250 for international transfers.
On December 23, 2020, FinCEN published a notice of proposed rulemaking suggesting requirements for banks and MSBs for transactions that involve unhosted wallets or covered wallets. If this proposal is approved, it will bring an additional requirement to non-custodial wallets: identifying the counterparty of the wallet and their address.
Notabene helps VASPs and MSBs in the United States roll out a risk-based AML framework to comply with FATF’s Recommendation 16 “Crypto Travel Rule” as required by the Financial Crimes Enforcement Network (FinCEN.) With Notabene’s software, tools, and comprehensive data, MSBs can manage their business’s incoming and outgoing transactions, identify counterparty wallets, produce reports, and establish robust risk and regulatory rules to ‘safe’ flows to regulated MSBs and VASPs around the world.
JD Supra | Pumping the Brakes: FinCEN Reopens Comment Period for Controversial Crypto Reporting & Recordkeeping Rules