FinCEN floats new KYC rules for crypto wallets
The Financial Crimes Enforcement Network (FinCEN), an agency of the US Treasury Department charged with combating money laundering, published a notice of proposed rulemaking that places new KYC requirements on banks and money services businesses (MSBs). These institutions would be required 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.
This proposed rule would adopt recordkeeping, verification, and reporting requirements for certain deposits, withdrawals, exchanges, or other payments or transfers of CVC or LTDA by, through, or to a bank or MSB that involve an unhosted or otherwise covered wallet. Specifically, it would require them to report identifying information for customers and counterparties for any CVC or LTDA transation in excess of $10,000 and would require the retention of such identifying information for transactions greater than $3,000 to be provided upon request.
Wallets are used to store and transact in crypto currencies. Hosted wallets are provided by an account-based money transmitter, which might be a bank, a MSB, or a fintech company. These providers are already subject to BSA rules and must comply with AML/CFT program requirements including customer due diligence and suspicious activity reporting. Unhosted wallets do not require a financial institution to execute transactions from the wallet. Instead it may reside on the owner's computer, mobile device, or even a thumb drive.
FinCEN is providing only a 15-day window for public comments with respect to this proposed rule, which would typically be open for 60 days. It cites significant national security imperatives, extensive prior interactions with the cryptocurrency industry, and its foreign affairs exemptions as justification for the truncated comment period. The cryptocurrency exchange, Coinbase, has taken issue with the process in an open letter to FinCEN asking that it "reconsider its haste."
Read the official proposal from FinCEN here.
Read the Coinbase open letter here.
