Pursuant to its Bank Secrecy Act (BSA) authority, FinCEN has issued a proposed rule that would require banks and money service businesses (MSBs) to submit reports, keep records, and verify the identity of customers in relation to transactions involving convertible virtual currency (CVC) or digital assets with legal tender status (LTDA) that are held in wallets not hosted by a financial institution (unhosted wallets) or “otherwise covered wallets” defined as CVC/LTDA wallets hosted by a financial institution that is not subject to the BSA and is located in a foreign jurisdiction identified by FinCEN (initially proposed to be jurisdictions of primary money laundering concern). Comments are requested no later than January 4, 2021.
Under the proposed rule:
- Banks and MSBs would be required to keep records and verify the identity of their hosted wallet customers when those customers engage in transactions with unhosted or otherwise covered wallets with a value of more than $3,000. For each transaction, information as outlined in the rule, would be required to be obtained and retained as an electronic record.
- The identity of the customer must be verified pursuant to risk-based procedures consistent with the bank’s or MSB’s anti-money laundering and countering the financing of terrorism program.
- Banks and MSBs would be required to report transactions between their customers’ CVC/LTDA hosted wallets and unhosted or otherwise covered wallets, either as senders or recipients, that aggregate to greater than $10,000 in a 24-hour period. A bank or MSB must include transactions from all its offices and records, wherever they are located; the report would be similar to a Currency Transaction Report. The new report would be required to be filed with FinCEN within 15 days from the date of a reportable transaction and retained for a period of five years.
- The BSA definition of “monetary instruments” for purposes of 31 USC 5313 (Reports on domestic coins and currency transactions) would be expanded to include CVC and LTDA.
Note: CVC is a medium of exchange, such as a cryptocurrency, that either has an equivalent value as currency, or acts as a substitute for currency, but lacks legal tender status. Blockchain-based types of CVC (e.g., Bitcoin) are peer-to-peer systems that allow any two parties to transfer value directly with each other without the need for a centralized intermediary (e.g., a bank or MSB).