The US Financial Crimes Enforcement Network (FinCEN) recently published its new guidelines detailing how know-your-customer (KYC) and anti-money laundering (AML) laws apply to cryptoassets.
FinCEN’s “interpretive guidance” is chiefly aimed at reminding persons subject to the Bank Secrecy Act (BSA) how regulations relating to money services businesses apply to certain business models involving money transmission denominated in value that substitutes for currency, specifically, what it calls “convertible virtual currencies (CVCs)”.
The guidance document does not establish any new regulatory expectations or requirements. Rather, it consolidates current FinCEN regulations, and related administrative rulings and guidance issued since 2011, and then applies these rules and interpretations to other common business models involving CVCs engaging in the same underlying patterns of activity.
Accordingly, FinCEN classifies peer-to-peer (P2P) cryptocurrency trading platforms as money transmitters and requires them to conduct mandatory KYC checks and follow applicable AML laws. Unlicensed P2P cryptocurrency traders, and those who fail to follow FinCEN’s requirements, could face jail time.
“This guidance is intended to help financial institutions comply with their existing obligations under the BSA as they relate to current and emerging business models involving CVC by describing FinCEN’s existing regulatory approach to the issues most frequently raised by industry, law enforcement, and other regulatory bodies within this evolving financial environment,” states the introduction to FinCEN’s guidance document.
It goes on to caution all operators within the cryptoassets space to be aware of their regulatory compliance requirements under the Banking Services Act, whether their business model is directly addressed in the guidance or not.
“In this regard, it covers only certain business models and necessarily does not address every potential combination of facts and circumstances. Thus, a person working with a business model not specifically included in this guidance may still have BSA obligations,” it states.
The guidance is intended to outline FinCEN’s existing regulatory approach to current and emerging business models using patterns of activity involving CVCs.
“This approach illustrates how FinCEN fits existing interpretations about certain activities to other activities that at first may seem unrelated, but conform to the same combination of key facts and circumstances,” it states.
In effect, all cryptocurrency exchanges, cryptocurrency wallets providers, crypto mining pools and cloud miners, along with decentralized applications (dApps) developers and those that use them to carry out financial activities, have compliance requirements under the BSA.