MCS | FinCEN's New KYC Regulation on Personal Wallets

MCS | FinCEN's New KYC Regulation on Personal Wallets


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The current travel rules of the International Anti-Money Laundering Organization (FATF) require virtual asset providers (VASP) to verify the identity of the sender for hosted wallets. A hosted wallet is a wallet that gets help from an intermediary, and the wallets of cryptocurrency exchanges are the most common examples. However, the Financial Crimes Enforcement Administration (FinCEN) regulatory document published by the US Treasury Department is controversial as it includes personal wallets that are not hosted wallet.

The published document, in summary, states that when transferring cryptocurrency from a centralized exchange to a personal wallet, personal information identifying the possession of the wallet must be provided to the exchange if the daily transfer amount is more than $3,000. Exchanges must also keep records of transfers of funds over $3,000, and records of transactions over $10,000 must be reported to the Financial Crimes Enforcement Agency (FinCEN).

This will require all Virtual Asset Providers (VASPs) to build a new identification infrastructure for transactions over $3,000.

In response to the above change in travel rules, the US Treasury Department said it is aiming to eliminate the “dead zone” related to transaction reporting. According to a document from the Financial Crimes Enforcement Agency (FinCEN), it has revealed the purpose of expanding the scope of the regulation in preparation for the increasing proportion of the movement of various illegal funds including terrorist funds through cryptocurrency.

However, the industry is expressing concern that this move will drive the cryptocurrency market further into the underground.

There is no way to regulate transactions between personal wallets, i.e. between non-hosted wallets, and it is expected that the regulation will eventually lead traders to use decentralized exchanges and anonymous cryptocurrencies.

The regulations will be finalized after receiving opinions by January 4th, 2021.

It is worth paying close attention to how the regulatory proposal will affect the cryptocurrency market.

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