FinCEN and Federal Reserve Board Issue Proposal Clarifying That BSA Regulations Apply to Virtual Currencies and Lowering Recordkeeping Thresholds | Practical Law

FinCEN and Federal Reserve Board Issue Proposal Clarifying That BSA Regulations Apply to Virtual Currencies and Lowering Recordkeeping Thresholds | Practical Law

The Financial Crimes Enforcement Network (FinCEN) and the Federal Reserve Board jointly issued a proposed rule that would amend regulations under the Bank Secrecy Act (BSA) to clarify that the definition of money includes convertible virtual currencies and digital assets that have legal tender status. The proposal would also lower applicable thresholds for certain recordkeeping requirements for international fund transfers from $3,000 to $250.

FinCEN and Federal Reserve Board Issue Proposal Clarifying That BSA Regulations Apply to Virtual Currencies and Lowering Recordkeeping Thresholds

by Practical Law Finance
Published on 10 Nov 2020 • USA (National/Federal)
The Financial Crimes Enforcement Network (FinCEN) and the Federal Reserve Board jointly issued a proposed rule that would amend regulations under the Bank Secrecy Act (BSA) to clarify that the definition of money includes convertible virtual currencies and digital assets that have legal tender status. The proposal would also lower applicable thresholds for certain recordkeeping requirements for international fund transfers from $3,000 to $250.
On October 23, 2020, the Financial Crimes Enforcement Network (FinCEN) and the Federal Reserve Board (FRB) (collectively, the agencies) jointly issued a proposed rule that would amend regulations under the Bank Secrecy Act (BSA) to:
  • Clarify that the definition of "money" includes convertible virtual currencies (CVCs) and digital assets that have legal tender status.
  • Lower the applicable threshold for certain recordkeeping requirements for international fund transfers from $3,000 to $250.
Public comment on the proposals must be submitted on or before November 27, 2020.
FinCEN and the FRB, under a jointly issued recordkeeping rule, require banks and nonbank financial institutions to keep certain records related to fund transfers and transmittal of funds (recordkeeping rule) (31 CFR 1010.410(a) and (e)). In addition, FinCEN also requires, under a separate rule, banks and nonbank financial institutions to transmit information on certain funds transfers and transmittals of funds to other banks or nonbank financial institutions participating in the transfer or transmittal (travel rule) (31 CFR 1010.410(f)).
The proposed rule would clarify that "money," as used in both the recordkeeping rule and travel rule, explicitly includes domestic and cross-border transactions in CVC and digital assets that have legal tender status. The proposed rule would amend the definitions of "payment order" and "transmittal order" – at 31 CFR 1010.100(ll) and 1010.100(eee), respectively – to explain that "money" includes:
  • A medium of exchange currently authorized or adopted by a domestic or foreign government, including any digital asset that has legal tender status in any jurisdiction.
  • CVC, which is defined under the proposed rule as a medium of exchange, such as cryptocurrency, that either has an equivalent value as currency, or acts as a substitute for currency, but lacks legal tender status.
The proposed rule would lower the applicable thresholds in both the recordkeeping rule and travel rule from $3,000 to $250 for international transfers, subjecting a greater number of transfers to the collection, retention, and transmission requirements. The proposed rule would not change the domestic threshold, which would remain at $3,000. Under the proposed rule, financial institutions, including banks, credit unions, money transmitters, and other money services businesses (MSBs) must:
  • Collect and retain certain information related to fund transfers and transmittal of funds in the amount of $250 or more that begin or end outside the US.
  • Transmit certain information (as collected under the recordkeeping rule) on fund transfers and transmittals of funds in the amount of $250 or more that begin or end outside the US to other banks or nonbank financial institutions that are participating in the transfer or transmittal.
According to the agencies, lowering the thresholds will provide a benefit to national security and law enforcement since, according to suspicious activity reports (SARs), since a substantial volume of potentially illicit funds transfers and transmittals of funds occur below the $3,000 threshold.