A broad front of opposition is growing against FinCEN’s latest regulatory proposal regarding KYC/AML rules for digital assets. Opponents say the rules would destroy many of the benefits of the technology and create new, centralized data collection points. An overview.
The U.S. Treasury Department under Steve Mnuchin proposed strict KYC rules for cryptocurrencies in December that go far beyond the current ones. It wants to force exchanges to verify the identity of wallet holders when a transaction to a self-hosted wallet exceeds $3’000.
In addition, the agency has asked digital exchanges to submit personal information of wallet owners, including their name, address and the purpose of the transaction, to the Financial Crimes Enforcement Network (FinCEN) when the total value of the transaction exceeds $10’000.
Broad opposition to FinCEN rules
Over 7’553 comments from exchanges, organizations, and individuals addressed various problems and weaknesses with the new regulations to FinCEN. The large number of public comments shows that many people in the space are dissatisfied with the regulations. The final decision will have to be made by the Biden administration.
- FinCEN’s new rule is about to wall off the poor from our financial system forever (Kraken)
- Stop pushing for more financial surveillance (Electronic Frontier Foundation)
- Constraining the technology as it was actually designed (Square)
- Negative impact on Blockchain innovation (Andreessen Horowitz)
- Mnuchin tries to bypass public consultation to finalize hasty rule (Coinbase)
Janet Yellen replaces Mnuchin
According to an official announcement, Biden now wants to ensure that his appointees have enough time to review the pending rules. In a memorandum to the heads of executive departments and agencies, Biden ordered that the effective date of the rules be delayed for at least 60 days. Treasury Secretary-elect Janet Yellen already commented on Bitcoin. For her, the role of crypto in terrorist financing and money laundering is “concerning.”
Nevertheless, Yellen may see more benefits in cryptocurrencies than previous statements suggest. The future Treasury secretary wants the United States to “take a leadership role in digital assets and financial technology”. She added that she wants to develop a regulatory framework for cryptocurrencies “and other fintech innovations”. This will be done in collaboration with the Federal Reserve Board.
No legal tender for 7 years
Since March 2013, the U.S. Treasury has classified digital payment systems like Bitcoin as “virtual currency”. This is because they are not legal tender under a sovereign jurisdiction. At the time, the agency more or less exempted users from legal obligations and trading platforms from registration, reporting and data retention requirements.
Only direct exchanges of digital assets for national currencies were regulated as money transmitters. This made some exchanges register with FinCEN and comply with AML/KYC regulations. These have always required large transactions and suspicious activity to be disclosed, money laundering regulations to be complied with, and information about their customers to be collected. After all, similar things are required of traditional financial institutions.