Digital Asset Trading Platforms and Money Transmitter Requirements Under the Bank Secrecy Act
The Bank Secrecy Act (BSA), a cornerstone of U.S. financial regulations, carries significant implications for certain financial institutions, including cryptocurrency trading platforms. So what constitutes a "money transmitter" and how are they regulated under the BSA and its implementing regulations.
Overview: What is the Bank Secrecy Act?
The BSA is codified in both 31 U.S.C. and 12 U.S.C. These statutes are designed to prevent money laundering and other financial crimes. The regulations implementing the BSA can be found in 31 C.F.R. Chapter X.
The Financial Crimes Enforcement Network (FinCEN), an agency of the U.S. Department of the Treasury, is tasked with enforcing and ensuring compliance with the BSA. The Director of FinCEN wields the authority to impose civil penalties for any violations.
Cryptocurrency Trading Platforms and Money Services Businesses
A cryptocurrency trading platform that operates as a convertible virtual currency (CVC) trading platform—meaning it allows trading of CVCs but also facilitates the storage and transfer of cryptocurrencies—may be deemed to be a money services business (MSB) under the BSA.
What Exactly is a Money Services Business (MSB)?
As per 31 C.F.R. §1010.100(ff), an MSB can belong to several categories, including but not limited to:
- Dealers in foreign exchange
- Check cashers
- Issuers or sellers of traveler’s checks or money orders
- Providers of prepaid access
- Money transmitters
- U.S. Postal Service
- Sellers of prepaid access
Unraveling the Definition of "Money Transmitter"
A money transmitter is a person that provides "money transmission services" or is engaged in the transfer of funds. These "money transmission services" are described as the acceptance of currency, funds, or other value substituting for currency from one individual, and transmitting those to another person or location.
In simpler terms, if an entity is involved in transferring value from one party to another, irrespective of the medium (be it traditional currency, virtual currency, or other), it can be classified as a money transmitter.
Potential Regulatory Requirements for Money Transmitters
MSBs, including money transmitters, are obligated to adhere to specific regulations to ensure they do not become conduits for financial crimes. Primarily, they are required to establish, implement, and maintain a robust Anti-Money Laundering (AML) program. This program should be adept at thwarting attempts to use the platform for money laundering or financing terrorist activities.
A money transmitting business deemed to be a MSB must implement an AML program. A BSA compliant AML program should:
1. Be documented in writing.
2. Incorporate policies and procedures designed to ensure BSA compliance.
3. Designate a responsible individual to oversee day-to-day compliance.
4. Provide training for appropriate personnel to detect suspicious transactions.
5. Ensure independent review mechanisms to keep the program adequate and up-to-date.
By understanding the BSA, its requirements, and its implications for money transmitters, entities can better navigate the complex terrain of financial regulations, ensuring compliance and avoiding potential legal pitfalls.