On May 9, 2019, FinCEN issued guidance relating to business customers who deal with money transmission through a substitute for currency and even more specifically those deemed convertible virtual currencies (CVCs) and how those businesses can be defined as an Money Service Business (MSBs).
The 2011 MSB Final Rule clearly defined that persons who accepted or transmitted that which is a substitute for currency, such as virtual currency, would be deemed a money transmitter and would be required (like all money transmitters) to register with FinCEN as an MSB and comply with AML program, recordkeeping, monitoring, and reporting requirements (such as the filing of SARs and CTRs).
The guidance also contains examples of how the money transmitter regulations apply to some of the more common business models that would involve convertible virtual currencies (CVCs) such as natural persons providing CVC money transmission or P2P exchangers (4.1), CVC wallets (4.2), CVC money transmission services provided through electronic terminals (CVC “Kiosks”, “ATMs”, or “Vending Machines”)(4.3), CVC money transmission through decentralized applications (DApps)(4.4), anonymity-enhanced CVC transactions (4.5), payment processing services involving CVC money transmission (4.6), and CVC money transmission performed by internet casinos.
It is highly recommended that all financial institutions, regardless of size, be mindful of the regulatory guidance regarding these types of MSBs. Cryptocurrency is not limited to metro-areas or larger institutions due to the easy obtainability of several types of CVCs. Financial Institutions should begin performing due diligence on their existing customer base and include questions on account opening questionnaires to help anticipate customers who could be engaged in CVC activity.
Finally, FinCEN is expecting that financial institutions who introduce some of these more innovative products and services to an area that is highly regulated (money transmission) will ensure that they will comply with the regulatory framework for such activities before taking these new innovations to market.
The complete guidance may be found at: https://www.fincen.gov/sites/default/files/2019-05/FinCEN%20Guidance%20CVC%20FINAL%20508.pdf
FinCEN also issued an advisory on illicit activity involving CVCs which details out some of the risks posed by these types of currency, the types of marketplaces in which this currency can be abused, valuable information in reporting suspicious activity involving virtual currencies, and some red flag indicators that CVC-focused MSBs could be abusing virtual currencies.
The full advisory can be found at: https://www.fincen.gov/sites/default/files/advisory/2019-05-10/FinCEN%20Advisory%20CVC%20FINAL%20508.pdf