The US Department of Treasury, Financial Crimes Enforcement Network (FinCEN), recently sent a letter to US Senator Ron Wyden clarifying its stance on cryptocurrency exchanges that these entities must register as Money Services Businesses (MSBs). While the letter from FinCEN signed by Assistant Secretary for Legislative Affairs Drew Maloney states that Treasury wants to promote innovation it opens a question as to how many virtual currency exchanges are operating without the benefit of being compliant.
The letter says FinCEN maintains a team of analysts reviewing filings including digital coins, tokens and initial coin offerings (ICOs). The document states that virtual currency exchanges have been subject to Bank Secrecy Act Regulations (BSAs) since 2011. These requirements include:
- Registering with FinCEN as an MSB
- Preparing a written AML compliance program
- Filing BSA reports including suspicious activity and currency transaction reports
- Maintaining records for “certain types of transactions”
- Obtaining customer identification information sufficient to comply with AML
- Virtual currency transmitter that is a US person must comply with all Office of Foreign Assets Control financial sanctions obligations
The letter indicates that to date FinCEN has examined approximately 1/3 of 100 virtual currency exchanges. It is noted that most jurisdictions do not regulate nor supervise cryptocurrency exchanges and this creates a significant challenge for regulators.
Regarding ICOs, if an issued token is transferable to another type of currency it must comply with AML / CFT and exchanges that sell ICO coins / tokens would typically be considered a money transmitter.
The letter is embedded below.