USA: FinCEN publishes guidelines – dApps are classified as monetary | BTC-ECHO
The US Financial Crime Authority FinCEN has published an interpretative standard for the classification of cryptographic service providers on 8 May. In it almost the authority together, which crypto-related activities comply with the Bank Secrecy Act and must therefore meet strict requirements. The FinCEN distinguishes whether a person or a company is classified as a money service business (MSB) or not. It is basically about the activities of a (legal) person, not about their status.
Natural persons (P2P dealer)
It is a peculiarity of the jurisprudence of many jurisdictions that companies represent a (legal) person. By contrast, a "natural person" is mentioned when it explicitly concerns people. The following deals with the business of exchanging (crypto) currencies between two natural persons (peer-to-peer, also: P2P). This classify the regulators in principle as MSB.
A natural person acting as a P2P Exchanger offering genuine money or CVC (Convertible Virtual Currency) cash transfer services must comply with BSA rules as a principal who acts as principal.
It does not matter if the exchanger uses an online platform or co-ordinates P2P trading through other channels. This means that anyone making money by swapping cryptocurrencies must register with FinCEN as MSB and meet AML, record and report requirements. This does not apply to natural persons who "perform such an activity (P (P2P trading) in an elegant and non-profitable way.
Crypto-Wallets: Not your keys, not your problem?
For the classification of crypto-wallets the FinCEN presents the following four evaluation criteria. That's how it works
- who owns the value
- where the value is stored,
- whether the owner interacts directly with the cryptocurrency payment system,
- whether the person acting as mediator has completely independent control over the value.
This means that regulators distinguish between custodial and non-custodial wallets. In the case of the custodial (wallet) wallets, the wallet operator (host) manages the cryptocurrencies, that is: controls the private keys. As the host acts as a mediating third party in crypto transactions, he runs an MSB according to the FinCEN.
Free ride for non-custodial wallets
However, things are different with non-custodial wallets. Here, the private keys are in the possession of the Wallet owner, access by third parties or the Wallet operator is excluded. The wording states in the guidelines:
In the case of non-hosted single sign-on wallets, (a) the value is (by definition) the property of the owner and is stored in a wallet, while (b) the owner interacts directly with the payment system and has full, independent control over the payment Has value. To the extent that the person making a transaction through the unposted wallet does so to purchase goods or services in their own name, this is not a transfer of money.
The same is true for multi-sig wallets – but only if the role of the host is limited to creating the wallet. He himself must not have one of the keys or be required to authorize transactions.
The operators of Bitcoin machines basically follow an MSB and have to implement AML processes and the like:
An owner / operator of a (K (crypto-vending machine) who uses an electronic terminal to accept a customer's currency and transfer the equivalent to CVC (or vice versa) qualifies as a payee (…) p>
Distributed applications (dApps) usually work only with crypto-currencies. Therefore FinCEN classifies them as MSB in principle:
The same regulatory design as mechanical agents such as CVC Kiosks (K (crypto-ATMs) is used for dApps that accept and transmit values, regardless of whether they work profitably.) Accordingly, the use of money transfers by dApps is defined by the money transmitter for the dApp, the owner / operator of the dApp or both.
The developers of dApps must also be careful: Of course, it is not forbidden to develop a dApp; However, it becomes problematic when the developer uses her creation to transfer funds:
The developer of a dApp is therefore not the sponsor of the mere act of creating the application, although the purpose of the dApp is to issue a CVC or otherwise facilitate financial activities that run on CVC. However, if the developer of the dApp uses it or In order to carry out a transfer of money, the developer qualifies as a financier within the framework of the BSA.
Privacy Coins and Tumblers / Blenders
Anyone who only uses mint coins such as Monero (XMR) or Zcash to pay for their own personal needs does not operate MSBs according to the FinCEN guideline. However, anyone who offers payment services using privacy coins falls under the BSA and therefore has to register with the FinCEN.
The same applies to providers of services that blur the tracks of transactions. These service providers named Tumbler or Mixer mix transactions so confused that they are difficult to trace back. Unlike the developers of the mixer software, providers of anonymization services are classified as MSB.
Green light for – really – decentralized exchanges (DEX)
FinCEN does not classify decentralized exchanges as payment intermediaries – as long as the users are in possession of the private keys and the exchange does not conduct order matching, which is why traders choose their trading partners themselves.
Mining Pools and Cloud Mining
Mining pools and providers of cloud mining services are only covered by the BSA if they only distribute block rewards.
If the head of the pool, Cloud Miner, or the unregistered organization or software agency acting on behalf of their owner / administrator (K (cryptocurrencies)) transfers the pool members or contract customers to the amount (that is, (by mining) This distribution does not apply as money transfer within the BSA.
However, if mining pool operators also take on a role as trustees, they must register as MSBs:
However, if the leader, the cloud miner, or the software agency combines their management and leasing services with the service of hosting CVC wallets on behalf of the pool members or contract buyers, then the FinCEN definition (f (for) eld submitter is used for the account-based transfer of money.
The FinCEN guidelines reflect why cryptocurrencies and related projects and companies in the United States are still struggling. In particular, the generalization of dApps as a money service business could easily become a drag on the adaptation and further development of crypto currencies and distributed ledger technologies. The problem is not buried in the fact that a payment service provider should comply with regulatory obligations, but in the inflexible classification. The fact that every decentralized program is classified as MSB is not only outrageous and blind to the various use cases. Here, the US regulators have to catch up, if the US does not want to be overtaken by crypto-friendly Jursidiktionen. This not only applies to FinCEN, but also to SEC and CFTC.
How the US Securities and Exchange Commission SEC looks at Bitcoin & Co., you can find out here.
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