The U.S. Treasury’s FInCEN Introduces New Rules for Unhosted Cryptocurrency Wallets

On Friday, December 18, the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) proposed new rules that could majorly impact cryptocurrency wallets. The new rules makes it mandatory for banks and other money services businesses to submit reports, keep records, and verify the identity of customers” who are making transactions with unheated private wallets.

Although the new rules have gone out for public comments until the 4th of January, they tend to categorize “convertible digital currencies” and “legal digital assets” as “monetary instruments” under the Bank Secretary Act (BSA).

Besides, the FinCEN also makes it compulsory to apply the Know-your-Customer (KYC) rules to private crypto wallets. As per the newly introduced rules, all transactions greater than $10,000 shall be reported to the FinCEN in 24 hours.

FinCEN noted that the "targeted expansion of BSA reporting and record-keeping obligations” is just to stop the illicit financing through digital currencies. It particularly notes that private cryptocurrencies like Monero have a "well-documented connection to illicit activity."

The notice reads: "U.S. authorities have found that malign actors are increasingly using CVC to facilitate international terrorist financing, weapons proliferation, sanctions evasion, and transnational money laundering, as well as to buy and sell controlled substances, stolen and fraudulent identification documents and access devices, counterfeit goods, malware and other computer hacking tools, firearms, and toxic chemicals”.

Well, the rumours of the proposed changes were already out there in the market over the last few weeks. As a result, some of the prominent figures from the crypto industry have also expressed displeasure with the new rules.

Brian Armstrong, the CEO of crypto exchange Coinbase noted: "Given these barriers, we're likely to see fewer transactions from crypto financial institutions to self-hosted wallets. This would effectively create a walled garden for crypto financial services in the U.S., cutting us off from innovation happening in the rest of the world.”

Moreover, Wyoming’s Senator-elect Cynthia Lummis - who herself happens to hold Bitcoins - hinted that the rules changes are taking place in a wrong way. Writing to the Treasury Secretary Steven Mnuchin, she wrote: "Congress is best placed to weigh the competing policy issues at stake. A rule adopted now could also potentially extend the BSA to new types of transactions beyond Congress intent. Treasury’s rule would also likely be adopted without public comment under an often-abused portion of the Administrative Procedure Act. Transparency makes good policy. It’s really that simple. Let the sunshine in, Mr. Secretary.”

The newly introduced proposal will hit the registers within a week’s time by December 23.