Virtual currency isn’t just there, it’s hot. The asset class seems to have no boundaries; a recent rise has pushed the market value of bitcoin alone to $ 1 trillion. It’s no longer a fad, the new era of digital currency sees payment companies, asset management funds, financial institutions, luxury goods and industrial companies propelling it into the mainstream by trading, by investing and issuing virtual currency, and transferring liquidity to virtual currency around the world. Governments are not far behind, with dozens of central banks around the world exploring the idea of issuing and using digital versions of their country’s fiat currency.
But regulatory concerns about virtual currency are also real – despite the benefits virtual currency offers, including traceability. Speaking recently on bitcoin at a virtual conference, Treasury Secretary Janet Yellen noted, “As far as it is used, I am concerned that it is often for illicit financing purposes. It’s an extremely inefficient way to conduct transactions, and the amount of energy consumed to process these transactions is staggering. “
Federal Perspectives on Cryptocurrency
Even before President Biden took office, regulators were targeting fintech and cryptocurrency. A rule proposed by the Financial Crimes Enforcement Network (FinCEN) of December 2020 requiring banks and cryptocurrency trading platforms to keep records of a client’s cryptocurrency transactions and counterparties, including the Verification of customer identities, for any transaction exceeding $ 3,000 has been slowed down by the Biden administration, but still enjoys the support of many members of the government. The proposed rule would also require banks and trading venues to report to FinCEN within 15 days all cryptocurrency transactions that involve “non-hosted” wallets and exceed $ 10,000. Non-hosted wallets allow the owner of a unique digital key to store cryptocurrencies and transact with others directly without resorting to a financial institution.
The proposal originally provided for a shortened 15-day comment period and received over 7,500 responses. On January 26, FinCEN announced another 60-day comment period on crypto rules, reflecting the Treasury Department’s intention to seek further comment and further examine the proposed rule. Opponents of the proposed rule argued that it may not be effective in limiting illicit activity, while also highlighting concerns about the practical challenges associated with collecting and managing information on non-portfolio counterparties. hosted and the potential of the proposed requirements to inhibit innovation.
The future of FinTech
President Biden’s appointment of Janet Yellen as Secretary of the Treasury, Gary Gensler as Head of the Securities and Exchange Commission (SEC), and the widely reported probable appointment of Chris Brummer as Chairman of the Commodity Futures Trading Commission ( CFTC) means that these organizations will have leaders who understand the benefits and challenges of cryptocurrency. During Secretary Yellen’s recent committee appointment and hearing process, she committed to a thorough review of the cryptocurrency markets in collaboration with other banking and financial regulators, with the aim of establish rules that limit “malicious and illegal activity” while supporting fintech innovations. based on blockchain technologies.
The Biden administration will also need to weigh calls for increased scrutiny and regulation both of the fintech industry and of big tech companies looking to make a splash in financial services. Many expect the Biden administration to support fintech companies, as they develop innovative products and services for consumers. However, entities of all stripes should expect increased regulatory scrutiny, with an emphasis on consumer protection regulation and enforcement priorities. They should also anticipate a closer look at how these FinTech companies are helping serve unbanked or underbanked communities.
At a recent roundtable on innovation in the financial sector, Secretary Yellen noted that FinTech could not only help expand access to banking services and reduce inequalities, but also help fight crime. financial by stemming the flow of black money from organized crime and helping to combat hackers. During the COVID-19 pandemic, hackers have unleashed a growing number of sophisticated cyber attacks targeting essential services like hospitals, schools, banks and governments. According to Secretary Yellen, the passage of the anti-money laundering law in December 2020 allows the Treasury Department to rework a framework for combating illicit financing, which has remained largely unchanged over the past 51 years. She noted: “Innovation shouldn’t just be a shield to protect against bad actors. Innovation must also be a ladder to help more people access a better quality of life. “
Financial services companies, both traditional banks and fintech companies, can anticipate increased regulatory scrutiny and potential new regulatory obligations in the years to come. Now is the time for organizations to take stock of their compliance programs, identify vulnerabilities and address them – this could help address regulatory concerns of the future.