On December 18, 2020, the US Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) issued a notice of proposed rulemaking (NPR) requesting public comment on proposed requirements (proposed rule) for certain transactions involving convertible virtual currency (CVC) or digital assets with legal tender status (LTDAs). The proposed rule is designed to address certain anti-money-laundering (AML) deficiencies in virtual currency and digital asset transactions under the Bank Secrecy Act (BSA). To effectuate certain of these proposed requirements, FinCEN would prescribe by regulation that CVC and LTDA are "monetary instruments" for purposes of the BSA.

Under the proposed rule, banks and money services businesses (MSBs) would be required to submit reports, keep records, and verify the identity of customers in relation to transactions above certain thresholds involving CVC/LTDA wallets that are:

The proposed rule is designed to complement existing BSA requirements applicable to banks and MSBs by proposing to add reporting requirements for CVC and LTDA transactions exceeding $10,000 in value.

The proposed rule would add a new reporting requirement at § 1010.316(b) to require banks and MSBs, including foreign-located MSBs, to file a report similar to the currency transaction reporting (CTR) for transactions between their customers' CVC or LTDA hosted wallets and unhosted or otherwise covered wallets, either as senders or recipients. Consistent with the CTR form, the reporting requirements under the proposed rule have a threshold of $10,000, with similar aggregation requirements:

The proposed rule would amend the recordkeeping and verification requirements at § 1010.312, applicable to transactions that require the filing of a CTR, to add that banks and MSBs are required to verify and keep records of their hosted-wallet customers who engage in transactions with unhosted- or otherwise-covered-wallet counterparties. Under the proposed rule, the bank or MSB would be required to establish risk-based procedures for verifying their hosted-wallet customers' identity that are sufficient for the bank or MSB to form a reasonable belief that it knows the true identity of its customer.

The proposed rule would also amend certain procedural requirements that apply to the CTR reporting requirement to include CVC/LTDA transactions. These include:

In addition, for transactions greater than $3,000, the proposed rule would add a provision at § 1010.410(g) to require banks and MSBs to keep records of a customer’s CVC and LTDA transactions and counterparties, including verifying the identity of their customers if a counterparty uses an unhosted or otherwise covered wallet.

Under the proposed rule, transactions greater than $10,000 would be subject to both the reporting requirement of § 1010.316(b) and the recordkeeping and verification requirements of § 1010.410(g).

This includes collection of the following information:

FinCEN defines CVCs in its 2019 interpretive guidance as types of virtual currencies that either have an equivalent as currency or act as a substitute for currency, citing the definition from FinCEN's 2013 virtual currency guidance (see Legal Updates, FinCEN Issues Guidance on Virtual Currency Compliance and Advisory on Red Flags and FinCEN Issues Guidance on Virtual Currencies).

Update: On January 14, 2021, FinCEN reopened and extended the public comment period for 15 days for comments on the proposed reporting requirements, and for 45 days for comments on the proposed requirements to report counterparty information and the proposed recordkeeping requirements. Written comments must be submitted on or before:

Update: On January 28, 2021, FinCEN superseded the previously established February 1, 2021 and March 1, 2021 deadlines by setting one public comment deadline at March 29, 2021.