On December 18 of last year, FinCen announced a regulatory proposal to strengthen the conditions for identification of cryptocurrency transactions. Anyone who has transacted over $3,000 in cryptocurrency, including non-trusted wallets outside the United States, is considered subject to KYC (customer verification obligation). It also regulates the splitting of large transactions into smaller pieces.
The period for collecting opinions, which is usually 60 days, has been shortened to 15 days, and the request to extend the collection of opinions has also been rejected. According to Cointelegraph, more than 6,000 comments have been submitted to FinCen.
◆ What is the core of FinCen regulation?
The Block analyzed that “the core of the regulation is an attempt to apply traditional banking standards to the cryptocurrency ecosystem.” The issue raised by experts is that cryptocurrency is a different technology from existing systems, and restraining decentralized entities from anonymous transactions can limit innovation.
The regulation itself focuses on non-trusted wallets. However, there is no clear explanation for which one is a non-trusted wallet. Andrew Jacobson said that “there is a lot of gray areas that are vague.”
If the regulation comes into force in the next few weeks, it is unclear how KYC will be applied when sending money through protocols rather than personal wallets, which could cause a decentralized financial ecosystem to suffer in the short term. The Block predicted, “Companies can freeze wallets until a KYC system that meets the new regulations is in place.”
◆ Jack City, Kraken, etc. Opposition
President Jack Doh criticized FinCen’s proposal. “We are focused on finding regulatory measures that go far beyond the obligations FinCen imposes on cash transactions,” he said.
The reason he says it is more serious than the regulation on cash transactions is that there is no regulation to collect and report the name or address of the transaction party for cash transactions. Square predicts that if the regulation is passed, cryptocurrency users will flock to other services that are based outside the United States and are free from regulations, affecting the U.S.’s global competitiveness and creating additional challenges for regulators.
Kraken, an American cryptocurrency exchange, also criticized FinCen’s regulation. Like Square, the regulation warned that users would leave the regulated platform. Kraken accused it of saying, “This is an announcement that is clearly set for political purposes and undermines confidence in FinCen.”
Coinbase also commented on the FinCen regulation, saying, “It is vague and ambiguous,” and “it can invade public privacy.”