Federal regulators have withdrawn plans that would have expanded reporting requirements around cryptocurrency transactions.
The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) and Federal Reserve Board of Governors announced Friday (Nov. 6) that they were rescinding the proposed “Travel Rule,” and “Recordkeeping Rule,” which would have required financial institutions to collect information on transactions of $250 or more, down from an earlier threshold of $3,000.
The Recordkeeping Rule requires banks and nonbank financial institutions to collect and retain information on funds transfers and transmittals of funds that begin or end outside the U.S., while the Travel Rule requires those entitles to transmit information on those transactions.
In its filing, FinCEN noted the range of objections it had received since the proposed rules were first floated in 2020.
“Many comments argued that a threshold of $250 would impose a significant regulatory burden on financial institutions, particularly smaller financial institutions,” the filing said, adding that it could also “disrupt the ability of consumers to send remittances overseas (and could potentially drive consumers into less regulated marketplaces).”
Commenters also argued the rule would “increase the liability exposure of financial institutions required to maintain personally identifiable information,” the filing said.
In addition, many comments noted that some potentially illicit transactions below the $3,000 threshold were already being reported to FinCEN through Suspicious Activity Reports.
Meanwhile, the Bank Policy Institute (BPI) on Friday published a letter to the banking sector calling on them to strengthen their anti-money laundering (AML) and countering the financing of terrorism (CFT), writing that modernization of these areas has “left material gaps in illicit-finance coverage in the digital asset ecosystem.”
The BPI letter also notes the changes around the travel rule, arguing that the Treasury has not shown how it “intends to directly impose obligations on digital asset intermediaries to obtain the information the proposals were intended to capture as well as additional information that could assist law enforcement.”
Those intermediates hold relevant customer records, wallet information and transaction details banks can’t access, the BPI said. That means the Treasury should assess what existing reporting provides, what additional information authorities require, which entities are best suited to provide it and how to effectively gather it.
The Treasury’s decision was praised by the crypto-focused nonprofit Coin Center, which said that while it does not focus on bank regulation, it is “particularly concerned when financial surveillance requirements reach beyond intermediaries and burden an individual’s ability to self-custody assets directly.”
The news comes on the heels of a recent, record-setting heist involving the crypto exchange Binance, which caused federal banking regulators to ask financial institutions to check into whether they had seen unusual activity or interruptions of their own.
As covered here, Binance’s own account of the $6.3 billion hack said attackers had spent months getting into its systems before taking control of wallets linked to the internet.
“A bank’s own systems could remain available while a service it uses to move money is down, which remains among the risks as lenders begin to use stablecoins issued by other institutions,” PYMNTS wrote last week.
“An issuer handles redemption, a custodian safeguards assets and a platform gives the bank a way to submit payment instructions. Depending on how these jobs are divided, an interruption at one provider could affect a bank’s ability to send a payment, confirm where it went or turn the tokens back into dollars.”
