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Banking and Financial Services Update

FinCEN Proposes Tracking and Reporting Virtual Currency Transactions Involving Unhosted Wallets

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On December 18, 2020, the Financial Crimes Enforcement Network (FinCEN) issued a notice of proposed rulemaking (NPR) regarding a proposal to impose on banks1 and money service businesses (MSBs) new recordkeeping, reporting, and identity verification requirements in relation to certain transactions involving convertible virtual currency (CVC) or digital assets with legal tender status (legal tender digital assets or LTDA)2 if the counterparty to the transaction does not have an account with, including a digital asset wallet hosted by, a financial institution regulated under the U.S. Bank Secrecy Act (BSA) or certain foreign financial institutions not located in designated problematic jurisdictions. If adopted, the proposed rule will impose significant new burdens only on banks and MSBs involved in digital asset businesses and undercut the role of U.S. institutions in digital asset economies, including in the growing area of “decentralized finance.” The NPR proposes to exclude broker-dealers, futures commission merchants, and mutual funds, among others that are subject to the BSA from these new reporting requirements, but specifically requests the industry’s comment on whether these types of institutions should also be included within the scope of the rule.

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