https://www.elliptic.co/blog/fincen-seeks-comments-on-modernizing-approach-to-aml/cft?utm_campaign=Elliptic Essentials | Crypto Regulatory Affairs&utm_medium=email&_hsmi=198771788&_hsenc=p2ANqtz-8UsBjX6GdLLSmTOywk3WHpYnrXv59c1881hJxNn-NxoP0gwbt242fXPvxVSA-mwrYlp1coD20RA-DYM144RIkoMUOV7w&utm_content=198702138&utm_source=hs_email
Elliptic Global Policy and Research Group
On December 14 2021 the US Financial Crimes Enforcement Network (FinCEN) announced it was seeking comments on the modernization of the US anti-money laundering and counter terorism financing (AML/CFT) regulatory regime. Specifically, FinCEN said it is “interested in comments on ways to modernize risk-based AML/CFT regulations and guidance, issued pursuant to the Bank Secrecy Act (BSA) so that they, on a continuing basis, protect U.S. national security in a cost-effective and efficient manner.”
The BSA, officially titled “Financial Recordkeeping and Reporting of Currency and Foreign Transactions Act of 1970”, is the main regulation that seeks to detect and prevent money laundering and financing of terrorism risks in the US. The Director of FinCEN is responsible for enforcing the BSA and associated regulations.
The BSA covers banks and non-bank financial institutions. This includes crypto businesses which fall under the FinCEN’s money service businesses category. This has been made clear by FinCEN since its 2013 interpretive guidance regarding the applicability of the Bank Secrecy Act to crypto businesses.
The FinCEN’s request for information document recognizes that: “[a]s innovation has presented new business and other opportunities, illicit finance threats have also evolved and present new challenges for financial institutions to comply with BSA obligations.”
FinCEN also sees efficiency gains for compliance practitioners and enhanced data analytics capability for authorities. Indeed, “FinCEN also recognizes that innovation and technological advancements can enhance the ability of financial institutions to comply with their BSA obligations, making it easier to collect information that may be highly useful in combatting a variety of financial crimes, and for U.S. Government authorities to better analyze the information reported by financial institutions.”
Crypto businesses operating in the US may be specifically interested in providing comments back to FinCEN on the following three questions:
“11. Are there any BSA regulations or guidance that are obsolete because of changes in compliance business practices and/or technological innovation in the financial system or elsewhere? If so, how should FinCEN address this?
Do FinCEN’s regulations and guidance sufficiently allow financial institutions to incorporate innovative and technological approaches to BSA compliance? If not, how can FinCEN facilitate greater use of these tools, while ensuring that appropriate safeguards are in place and highly useful information continues to be reported to government authorities? [...]
In what ways could BSA regulations or guidance be more efficient in light of innovative approaches and new technologies. For should any BSA regulations or guidance account for technological advancements, such as digital identification, machine learning, and artificial intelligence? If so, how?”
The comments submitted to FinCEN will serve to inform its recommendations to Congress which may lead to legislative and administrative changes. Elliptic welcomes the opportunity to engage with the authorities and will provide recommendations to the authority in the coming weeks. FinCEN encourages all interested parties to submit their comments on this matter by February 14, 2022.
On December 14th 2021, the Council of Europe’s committee of experts on money laundering and terrorist financing (MONEYVAL), released a report on Gibraltar’s implementation of 40 AML/CFT recmmendations. The assessment covered the territory’s compliance with the FATF guidance on virtual assets. For this area, the jurisdiction was upgraded to the “largely compliant” rating, up from “compliant” in 2019. This is not surprising as Gibraltar has taken a forward-looking approach to crypto regulation with a tailored regulatory framework. Indeed, MONEYVAL reported that: “requirements are in place for VASPs to be licensed or registered for the purposes of AML/CFT supervision” and “Gibraltar applies adequate risk-based AML/CFT supervision and the authorities can apply appropriate sanctions to VASPs.”
This review of AML/CFT policies comes at an important time as the FATF released its updated guidance relating to crytpoasset businesses. As Gibraltar remains in the enhanced follow-up category it is expected to report back on its progress in the next three years. Regulators around the globe should act swiftly to implement AML/CFT recommendations. This will mitigate risk in their economy and avoid reputational harm.
In its December 2021 Financial Stability Report, the Bank of England highlighted that the rapid growth of cryptoasset activity could present financial stability risks. This is exacerbated by the growing linkages between cryptoassets and the financial system. The report highlights that the market capitalization of cryptossets has increased tenfold since early 2020 to reach $2.6 trillion in November 2021.