The US federal government could again consider a controversial rule proposal that would enforce know-your-customer rules on non-hosted or self-hosted crypto wallets.
The rule was first proposed in late 2020 by the Financial Crimes Enforcement Network (FinCEN), the US money laundering watchdog. If passed, cryptocurrency exchanges will be required to collect the names and addresses, among other personal information, of anyone who wishes to transfer cryptocurrency to their own private wallet.
Industry advocates said they fear the rules are impossible for some wallets to follow because they are not controlled by people and therefore not linked to such personal information. Others were also concerned that the requirement was too onerous for individuals to comply with.
The Treasury Department, which is now overseen by Secretary Janet Yellen, revealed that the rule could be considered in this semi-annual regulatory program, which is expected to be officially published in the Federal Register on January 31. The program describes the priorities of the Treasury Department, but does not indicate that the rules will be implemented with certainty, or that they will be implemented as they are. On the contrary, the agenda is a tool that indicates the things that the Treasury will work on during the next six months.
“FinCEN proposes to amend the Bank Secrecy Act (BSA) regulations to require banks and money service businesses (MSBs) to file reports, maintain records, and verify the identity of customers with respect to transactions involving virtual currency. convertible (CVC) or legal tender. digital assets ("Legal Tender Digital Assets" or "LTDA") held in non-hosted wallets, or in wallets hosted in a jurisdiction identified by FinCEN," the document reads.
A timeline in the section suggests that FinCEN aims to finalize the rule by the end of August, if it decides to finalize it.
split rule
The proposed rule originally had an unusually short 15-day comment period, further fueling controversy among industry advocates. Comment periods are typically 30-90 days, although some rules may have 120-day comment periods.
In public notices, FinCEN twice extended the comment period, first for an additional 15 days and then for an additional 60 days.
In this first expansion, FinCEN treated the provisions of the rule as two separate issues. One such provision was imposing currency transaction reporting (CTR) rules on crypto transactions to non-hosted wallets. Financial institutions are currently introducing CTRs for clients who transact more than €10,000 in a single day.
The personal data rule, called the Counterparty Data Collection Rule, would apply to customers transferring more than $3000 in crypto per day to private wallets.
It was this second rule that sparked the industry backlash, including several thousand comments filed in response. FinCEN may need to issue a new comment period to respond to these responses before implementing the counterparty data collection rule.
A FinCEN spokesman did not immediately respond to a request for comment on whether the agency was considering the general rule or the provisions individually. However, a link on the Federal Register page leads to the original December 23, 2020 proposed rule.
define "money"
The Federal Reserve and FinCEN also plan to "clarify the meaning of 'money'" under the Bank Secrecy Act (BSA) with respect to digital assets, ensuring that digital asset transactions are subject to the same BSA rules as their fiduciary counterparties.
“The agencies anticipate 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 has equivalent value as currency, acts as a substitute for but it is not legal tender”, the document states.
In addition, the BSA rules will also apply to all digital asset transactions that are "legal tender," the document says.