cryptocurrencies: not considered legal tender
cryptocurrency exchanges: legal, regulation varies by state: while it is difficult to find a consistent legal approach at state level, the us continues to make progress in developing federal-level cryptocurrency legislation.
the financial crimes enforcement network (fincen) does not consider cryptocurrencies to be legal tender but considers cryptocurrency exchanges to be money transmitters on the basis that cryptocurrency tokens are “other value that substitutes for currency.”
the internal revenue service (irs) does not consider cryptocurrency to be legal tender but defines it as “a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value” and has issued tax guidance accordingly.
cryptocurrency exchange regulations
cryptocurrency exchanges are legal in the united states and fall under the regulatory scope of the bank secrecy act (bsa). in practice, this means that cryptocurrency exchange service providers must obtain the requisite license from fincen, implement an aml/cft and sanctions program, maintain appropriate records, and submit reports to the authorities.
meanwhile, the us securities and exchange commission (sec) has indicated that it considers cryptocurrencies to be securities, and applies securities laws to digital wallets comprehensively in an approach that will affect both exchanges and investors alike.
by contrast, the commodities futures trading commission (cftc) has adopted a friendlier, “do no harm” approach, recognising bitcoin and ethereum as commodities and allowing other virtual and cryptocurrency derivatives to trade publicly on exchanges that it regulates or supervises.
in response to guidelines published by fatf in june 2019, fincen has also made clear that it expects crypto exchanges to comply with record-keeping requirements and the “travel rule” by sharing information about the originators and beneficiaries of cryptocurrency transactions.
the us places virtual currency exchanges in the same regulatory category as traditional aml/cft gatekeepers, financial institutions, and money transmitters: accordingly, it applies the same regulations, including those set out in the 2021 amendments to the bank secrecy act (which has established its own version of the travel rule).
future cryptocurrency regulations
the us treasury has emphasized an urgent need for crypto regulations to combat global and domestic criminal activities. in 2018, treasury secretary steve mnuchin announced a new fsoc working group to explore the increasingly crowded cryptocurrency marketplace and in december 2020, fincen proposed a new data collection requirement for persons responsible for managing cryptocurrency exchanges, digital assets, dtls, and crypto payments and on certain private digital wallets. if implemented, the regulation would also require exchanges to submit suspicious activity reports (sar/ctr) for transactions (over the current threshold of $10,000) and require non-registered financial institutions or msb wallet owners to identify themselves when sending $3,000 or more in a single or series of linked transactions.
the justice department continues to coordinate with the sec, cftc, and other agencies over future cryptocurrency regulations to ensure effective consumer protection and more streamlined regulatory oversight. however, with the covid-19 crisis hampering (yet adding urgency to) efforts to advance cryptocurrency regulation, the federal approach continues to be gradual. despite setbacks, us lawmakers remain keen to bring cryptocurrencies under regulatory oversight in anticipation of their potential destabilizing effect on the globally dominant us dollar, and of the impact that private and centrally banked currencies might have.
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It is a stronger law and regulation-system, and complements the system.
Crypto assets, wallets and exchanges are now considered “obliged entities” under 5AMLD, and face the same CFT/AML regulations applied to financial institutions under 4AMLD. Practically, this involves an obligation to perform customer due diligence (CDD), and submit suspicious activity reports (SAR).
The anonymity and high risks models within this industry has led to enhanced supervision by auditors and banking partners.
Crypto companies are now held accountable to have robust AML processes in place and to verify the identity of any sender and beneficiary, to ensure no illegal activity, such as money laundering and terrorist financing, slips through the net.
The configurability of the API enables you to quickly adjust to a change in financial crime risk appetite at the bank or regulation.
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