What has happened?
The Director of the U.S. Financial Crimes Enforcement Network (FinCEN) has said that stablecoins are covered by FinCEN's definition of “money transmission services.”
What does this mean?
Speaking at Chainalysis Blockchain Symposium in New York, FinCEN Director Kenneth A. Blanco spoke about regulatory clarity around virtual currencies, as well as stablecoins and anonymity-enhanced cryptocurrencies (AECs).
Blanco said that FinCEN adopts a technology-neutral approach to activities that provide the same functionality at the same level of risk, regardless of the label applied.
"It is not what you label it; it is the activity you actually do that counts," he said.
He also said that money transmission denominated in convertible virtual currency is "money transmission pure and simple" and, as such, any requirement, guidance, ruling or enforcement action conducted in that space has a bearing on transmittals of value denominated in convertible virtual currency.
On stablecoins, Blanco said that stablecoins "are not a new concept in this space."
Indeed, FinCEN has been looking at them since the earliest experiments into virtual currency in the early 2000s, with FinCEN's first piece of public guidance being published in 2008, which dealt with the issues that underlie the type of convertible virtual currency now referred to as a “stablecoin.”
Further, because FinCEN is technology neutral, for anti-money laundering/combating the financing of terrorism purposes, it should be understood that transactions in stablecoins, like any other value that substitutes for currency, are covered by FinCEN's definition of “money transmission services.”
"This means that accepting and transmitting activity denominated in stablecoins makes you a money transmitter under the Bank Secrecy Act (BSA). It does not matter if the stablecoin is backed by a currency, a commodity, or even an algorithm — the rules are the same," he said.
Administrators of stablecoins therefore have to register as money transmitter businesses with FinCEN.
FinCEN’s technology neutral approach also means that other types of activity in convertible virtual currency are already covered by its money transmitter requirements, including AECs such as monero, zcash, grin, dash, and others.
In practice, this means that whether a money transmitter offers bitcoin, ether, or AECs, its obligations under the BSA are the same.
"Furthermore, FinCEN expects that you understand the differences that exist in these different products and services. You should be able to tell your examiner, and/or your regulator like FinCEN, how you mitigate risks associated with AECs, including how you identify potentially suspicious activity and comply with reporting and recordkeeping requirements — including the Funds Travel Rule. You can count on being asked about this during an examination."
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