In his testimony before the Senate Finance Committee, on February 12, Treasury Secretary Steven Mnuchin stated that the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) will soon release new regulations related to cryptocurrency. FinCEN is responsible for issuing and implementing anti-money laundering (AML) and counter-terrorist financing (CTF) regulations applicable to certain US financial institutions. According to Secretary Mnuchin:
We’re spending a lot of time on the issue of cryptocurrencies and digital payment systems …. on pure cryptocurrencies like Bitcoin, and there are others, we want to make sure that these are not used as the equivalent of secret bank accounts. So, we are working with FinCEN, and we will be rolling out new regulations to be very clear on greater transparency so that law enforcement can see where the money is going and that this isn’t used for money laundering.
FinCEN previously issued guidance on virtual currency in 2013 and 2019, which clarify how FinCEN’s existing rules for money services businesses, or MSBs, apply to “administrators,” “exchangers,” and “users” of what the agency calls “convertible virtual currency.” The MSB rules apply to certain persons dealing in fiat currency, convertible virtual currency, and other “value that substitutes for currency,” but does not treat MSBs dealing in convertible virtual currency differently than other types of MSBs. Therefore, if FinCEN were to issue new regulations specifically addressing cryptocurrencies or digital assets more broadly, such regulations would be a first of its kind.
Secretary Mnuchin did not offer any additional details with respect to the timing or scope for any new regulations. Assuming FinCEN used the formal notice and comment process to issue any new regulations, this would be the first opportunity for digital asset companies to formally weigh in on FinCEN’s approach to the industry. The outcome of such a process could have a significant impact on the digital asset industry in the United States. (However, it is possible the agency issues an interim final rule or utilizes another process whereby industry would not be granted the same opportunity to comment).
Secretary Mnuchin also addressed stablecoins and central bank issued cryptocurrencies, telling lawmakers, “There is another component of the market which people refer to as stablecoins, where we do think technology can be used to reduce payment processing quite considerably, particularly for small dollar payments cross-border. And then there’s a third component that people are looking at, which is central bank digital issued currency. That is something that Chairman Powell and I do not think the US needs to consider now, but could consider again down the road.”
Although not clear, his comments with respect to stablecoins suggest there is a possibility that FinCEN might take a different approach toward stablecoins than other types of digital assets in any new regulations. While most regulators in the US have treated varying types of digital assets similarly with respect to AML laws and regulations, there has been some movement toward treating stablecoins differently, as noted in our prior blog post on guidance from the Texas Department of Banking.