On Friday, December 18, the U.S. Treasury’s bureau FinCEN proposed new crypto rules making it mandatory for virtual asset service providers (VASPs) to record and report transactions related to private cryptocurrency wallets. There’s been a significant disagreement expressed by the crypto community members and even some crypto-friendly U.S. lawmakers.
Diving deep into what these proposed rule changes mean for crypto users, lawyer Jake Chervinsky decodes how these rules fail to address the fundamental concerns of preventing illicit activities and money laundering. The lawyer adds that the FinCEN proposed rules only add new obligations on VASPs such as custodians and exchanges. Below are some of the few interesting pointers that Chervinsky notes:
- The new FinCEN crypto rules proposed by FinCEN doesn’t stop VASP customers from transacting with bad actors. Rather it just forces them to pay an extra fee to withdraw funds to their own wallets. (This was in reference to the deposit and withdrawal limits >10K).
- It doesn’t give any additional details to the regulators knowing the fact that VASPs already have all the KYC details of their customers and record all transactions.
- More importantly, it infringes the financial privacy rights of U.S. customers. As per the current framework, law enforcement agencies need to issue a subpoena to VASPs to get any information about their customers. Later, the VASPs can challenge this. However, the proposed rules mean that VASPs would need to automatically handover this information every time.
- The recent attack on the federal agencies and breach of sensitive information is a testament to the fact that the top regulators are themselves not capable enough to secure their citizens’ information. “Considering the FinCEN Files leak & recent hacks, government hasn’t really shown that it’s using our information effectively or storing it safely. Now isn’t the time to expand government’s warrantless mass surveillance & data collection operations,” notes Chervinsky.
In his complete thread, Chervinksy presents many such loopholes that the new crypto rules fail to address. However, looking at the positive side, Chervinsky notes that this could have been even worse. The only good thing he mentions is that the newly proposed crypto rules “doesn’t require KYC for every transaction with a non-custodial wallet. It isn’t an outright ban on self-custody. It doesn’t prohibit the act of using a permissionless network”.
Crypto Community Doesn’t Approve FinCEN’s Recent Actions
Brian Armstrong, the CEO of Coinbase exchange has been vehemently opposing it, soon as the rumors broke out last month. Armstrong details all his views in this Twitter thread. He notes:
“Given these barriers, we’re likely to see fewer transactions from crypto financial institutions to self-hosted wallets. This would effectively create a walled garden for crypto financial services in the U.S., cutting us off from innovation happening in the rest of the world.”
Wyoming Senator-elect Cynthia Lummis, who also happens to Bitcoins, has expressed her dissent with the latest FinCEN action. She notes:
“Congress is best placed to weigh the competing policy issues at stake. A rule adopted now could also potentially extend the BSA to new types of transactions beyond Congress’ intent. Treasury’s rule would also likely be adopted without public comment under an often-abused portion of the Administrative Procedure Act. Transparency makes good policy. It’s really that simple. Let the sunshine in, Mr. Secretary.”