Posted on 02-21-2020.
On February 12th, Treasury Secretary Steven Mnuchin said that the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) is going to release new cryptocurrency regulations with “significant new requirements” regarding crypto. The statement took place in a hearing before the Senate Finance Committee. Senator Maggie Hassan pointed out the difficulties of fighting illegal activities with cryptocurrencies and asked Mr. Mnuchin how the Treasury’s budget increase helps the cause.
"How will the Treasury's proposed budget increases assist the Department in monitoring suspicious cryptocurrency transactions and prosecuting terrorists and other criminal organizations financing illicit activities with cryptocurrency," Senator Hassan enquired.Without noting any significant details, Treasury Secretary Mnuchin said that the work on new regulation is being done and we may see it soon:
“Specifically on cryptocurrencies, we’re spending a lot of time on this both on interagency basis and with the regulators. We’re about to roll out some significant new requirements at FinCEN.”Mr. Mnuchin also assured the Senate that they will be seeing “a lot of work coming out very quickly." We’ve ventured on a quest to find leads and establish the context to help see the picture better. In this piece, we share our findings and suggest our educated guesses on the matter.
“Additionally, there are cross-border digital currency efforts, decentralized applications or distributed/disintermediated platforms that could enable cross-border digital currency in lieu of major fiat currencies like the U.S. dollar without adequate AML/CFT controls,” the Strategy warns.In terms of enforcing the rules, the document mentions that AML/CFT obligations are imposed “based on a person’s or entity’s activity, not self-description or business status or label.” Depending on the nature of the financial service involving digital assets, regulatory requirements can be different. It is also stated that different activities with digital assets will be dealt with by different authorities:
“Digital asset activity involving securities by SEC-regulated institutions, commodities by CFTC-regulated institutions, or any other type of financial service would fall under authorities based on that classification.”The Strategy broadly describes the initiative to “clarify or update” the existing regulations so they can cover digital assets along with the old-school finance.
“Treasury and other U.S. agencies will also use all tools at their disposal to prevent individuals and entities from providing financial services involving digital assets or other novel technological financial products that we believe do not effectively mitigate illicit financial risks,” the document reads.It appears that the Department of Treasury, FinCEN, and “other agencies” are as keen as ever on dealing with cryptocurrency regulation, at least in terms of monitoring and restricting whatever can’t be monitored.
“The amount and type of extra personal information we would be required to collect from our users would alter the current user experience so radically, and so negatively, that we are not willing to force this onto our community,” said the company’s blog post published last December.Another example is a cryptocurrency derivatives exchange called Deribit. Previously operated by a Netherlands-based company Deribit B.V., the exchange is now officially run by DRB Panama Inc., a full subsidiary of the Dutch company. https://twitter.com/DeribitExchange/status/1215348918390751234 Yet, despite the relocation to Panama, the clients will still have to pass KYC, including the submission of their legal name, name, date of birth, address, and country of residence. It appears that for European crypto-businesses the new strict AML requirements are harmful and hard to comply with, at least in the short term. If the U.S. rolls out a similar framework, then many businesses in the crypto-industry will have to find alternatives to those obviously significant jurisdictions.