FinCEN Extends Comment Period for Controversial Crypto Rule

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FinCEN Extends Comment Period for Controversial Crypto Rule

The Financial Crimes Enforcement Network (FinCEN) has extended the comment time for a contentious proposed regulation that would compel cryptocurrency companies and banks to collect and preserve client identity information for self-hosted wallets by 60 days. Last month, the government proposed the Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets regulation, and the comment period concluded on January 15. FinCEN extended the comment period for reporting requirements by 15 days and for record-keeping and counterparty reporting by 45 days.

Key Takeaways

  • FinCEN has extended the comment deadline for a contentious proposed regulation that would force crypto firms to keep track of transactions made using self-hosted or private wallets.
  • The crypto community was outraged by the regulation, claiming that it will stifle innovation and have legal and financial ramifications for the fledgling industry.

A Controversial Rule

The FinCEN regulation compels cryptocurrency firms and exchanges to keep a record of transactions with self-hosted wallets above $3,000 and to submit a currency transaction report (CTR) to the agency exceeding $10,000.

The regulation has been met with criticism and backlash from the crypto community since its inception. Because it mandated disclosure of transaction information for self-hosted wallets, or wallets that are not linked to the internet and sit on an individual’s computer or offline, civil rights attorneys alleged that it violated personal liberty.

Crypto firms, on the other hand, stated that it would raise the expenses and work necessary to monitor and track their transactions using private wallets.

The fact that the regulation was pushed through its commenting period did not help things, raising suspicions that it was intended to be finalized before the new government took office. Legislators stepped in, asking Treasury Secretary Steven Mnuchin, who is generally assumed to be in charge of the regulation, to take industry opinion into account before adopting the rule.

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A Variety of Comments

The regulation has already received over 7,500 comments from a diverse range of commentators in its first version, underlining the technological and legal challenges of implementing such a rule. Dr. Neha Narula, director of the Massachusetts Institute of Technology’s Digital Currency Initiative (DCI), and Patrick Murck, an affiliate at Harvard University’s Berkman Klein Center, highlighted how smart contracts can be used to escrow and then transfer cryptocurrencies without a proper recipient.

“In its current form, the proposed regulation would bar MSBs (Money Services Businesses) from enabling this whole class of consumer transactions. This would make transactions with CVCs and LTDAs less secure and greatly inhibit the innovation and growth of this exciting new technology,” they wrote, adding that “dissimilar treatment” of digital and analog dollars will weaken future U.S. central bank digital currencies (CBDCs) in comparison to other countries’ CBDC projects.”

Others discussed the ramifications of sharing sensitive consumer data with FinCEN in light of recent government agency intrusions. “Several preliminary discussions with potential and actual customers indicate that they are seriously concerned about providing detailed information to FinCEN, citing recent FinCEN security breaches as risks,” wrote Kristin Boggiano, co-founder and president of CrossTower, a global digital asset infrastructure platform.

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