SEC, CFTC, FinCEN Warn Crypto Industry to Follow US Banking Laws

The heads of three U.S. financial regulators warned the cryptocurrency industry to abide by banking laws in a joint statement published Friday.

The statement, signed by Commodity Futures Trading Commission (CFTC) Chairman Heath Tarbert, Financial Crimes Enforcement Network (FinCEN) Director Kenneth Blanco and Securities and Exchange Commission (SEC) Chairman Jay Clayton, "reminds" actors in the crypto space that they must comply with various banking and financial services laws in the U.S., regardless of what they call their cryptocurrencies or tokens.

The agencies referred to the Bank Secrecy Act (BSA), which outlines how different financial services businesses should register with regulators.

Specifically, the agencies explained that the "nature of the digital asset-related activities" a person participates in will determine which agencies that person should register with, as well as which other laws they need to comply with.

"For example, something referred to as an 'exchange' in a market for digital assets may or may not also qualify as an 'exchange' as that term is used under the federal securities laws," the statement reads, adding:

"As such, regardless of the label or terminology that market participants may use, or the level or type of technology employed, it is the facts and circumstances underlying an asset, activity or service, including its economic reality and use (whether intended or organically developed or repurposed), that determines the general categorization of an asset, the specific regulatory treatment of the activity involving the asset, and whether the persons involved are 'financial institutions' for purposes of the BSA."

Blanco, Tarbert and Clayton defined the scope of their agencies with regard to cryptocurrencies and service providers in additional comments published with the joint statement, addressing futures commission merchants, introducing brokers, exchanges, broker-dealers and mutual funds, as some examples. Each of the agency directors went as far as to describe which types of companies their regulatory bodies oversee.

In his comments, Blanco seemingly applied the BSA to virtual currency service providers, noting that his agency published interpretive guidance in May to address "money transmission denominated in value that substitutes for currency," including cryptocurrencies.

"As set forth in the 2019 CVC Guidance, a number of digital asset-related activities qualify a person as an MSB [money services business] that would be regulated by FinCEN," he said. "FinCEN’s BSA regulations also provide that any person 'registered with, and functionally regulated or examined by, the SEC or the CFTC,' would not be subject to the BSA obligations applicable to MSBs, but instead would be subject to the BSA obligations of such a type of regulated entity."

Clayton said his agency's mandate is to protect investors, ensure fair markets and aid capital formation, which generally oversees the securities space, but added that the BSA does provide the SEC with some other requirements.

"Broker-dealers and mutual funds are required to implement reasonably-designed AML Programs and report suspicious activity. These rules are not limited in their application to activities involving digital assets that are 'securities' under the federal securities laws," he said.

Jay Clayton image via CoinDesk archives