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The United States is still working towards creating an efficient set of digital asset regulations. In this article, we explain how the current legislative framework functions and how it may change in the future.
US crypto regulations are full of complications. On the one hand, there are several regulators in charge of overseeing crypto companies. On the other hand, the differentiation of responsibilities between them isn’t clear.
There are several federal laws that may deal with cryptocurrency services to some extent. However, depending on the nature of the asset, a different law applies. Moreover, each state can implement its own regulations regarding the usage of digital assets.
At the moment, regulators and politicians are actively working to develop a comprehensive regulatory framework for digital assets. To ensure that your company stays compliant with the regulations in every state, we’ve prepared a guide to the current crypto regulations in the US.
The US has a variety of federal institutions regulating digital assets. The exact institution in charge will depend on whether an asset is a money transmitter, security, or commodity/derivative. The main ones include:
In many cases, it may be difficult to determine the category of the asset the company is working with and, as a result, which agency it should follow. In certain cases, a company may fall under the jurisdiction of several institutions. For example, if a company is a financial institution dealing with futures, it will be overseen by both FinCEN and CFTC.
Regulations in the US highly differ from the rest of the world, since digital assets can fall under the jurisdiction of different regulatory authorities depending on their nature.
AML/CFT obligations apply to entities that the BSA defines as “financial institutions”. This includes, among others:
In 2019, FinCEN issued Guidance, where it considered applying the Bank Secrecy Act (BSA) to common business models involving the transmission of digital assets (convertible virtual currencies in the terms of FinCEN). Therefore, the following business models can be considered regulated under certain circumstances:
In addition, in 2021, the Anti-Money Laundering Act (AMLA) amended the BSA, expanding the definition of “financial institutions” to include “value that substitutes for currency”. Financial institutions therefore now include, inter alia:
Therefore, if an activity involving digital assets falls under any of the above definitions, it will be considered a regulated activity.
Activity involving digital assets (or CVCs) are covered by the following laws:
There are also several initiatives which might have an effect on the industry in the near future. One of them is the Responsible Financial Innovation Act, which aims to create the first comprehensive regulatory framework for digital assets. It introduces a common definition of terms, such as ‘digital assets’, ‘virtual currency’, ‘digital asset intermediary’, etc. The Act also includes innovations in securities, commodities, taxation, customer protection, and many other spheres. It should be noted that the Act is still an ongoing project which has not been approved yet.
Mining crypto is legal in every state of the country. However, individual states may impose certain limits to crypto mining. Recently, individual states have expressed their concern regarding the amount of energy used for crypto mining. New York State’s Environmental Committee, for example, proposed in March 2022 to impose a moratorium on proof-of-work mining. At the end of November, New York became the first state to introduce a two-year moratorium on certain types of crypto mining. The legislation temporarily freezes the issuance and renewal of permits for fossil fuel power plants, which are used by mining companies. It should be noted that individuals still can mine in the state.
Companies working with digital currencies have to comply with the BSA and be registered with FinCEN, SEC, and CFTC, depending on the nature of the assets. In addition, they need to follow state-level regulations.
To stay compliant, regulated businesses have to conduct a risk assessment of their exposure to money laundering activities and, based on the results, implement an AML program.
The AML program has to be proportional to the size and nature of a company and must include at least the following:
In addition to the AML program, such companies should establish recordkeeping and reporting requirements, including a procedure for suspicious activity reports.
Besides that, companies have to implement a Customer Identification Program (CIP), which is a US regulation that requires certain businesses to verify their customers during onboarding and transactions. The CIP went into effect as part of the USA PATRIOT Act in 2003 to confront money laundering and terrorism financing.
Under the Bank Secrecy Act (BSA), financial institutions are required to assist U.S. government agencies in detecting and preventing money laundering, and submit reports about suspicious activity that might signal criminal activity (e.g., money laundering, tax evasion) and some other reports.
In 2012, FinCEN issued a Final Notice requiring the electronic filing of most Bank Secrecy Act (BSA) reports. Specifically, this action mandates the electronic submission of Suspicious Activity Reports (SARs), Currency Transaction Reports (CTRs), Registration of Money Services Business (RMSBs), and Designation of Exempt Person Reports (DOEPs).
FinCEN’s reports have been available for use through the E-Filing System.
As it was stated earlier, each state might have its own regulations and licensing procedures when it comes to digital assets. Importantly, crypto currencies are legal in every state, so individuals, as a rule, can buy and possess them without any problem. The differences mainly affect those who do business with digital assets.
A full list of differences between each state’s regulations and definitions regarding digital assets can be found here.
The US regulatory framework of crypto currencies is complex and, at times, not fully developed. The federal government keeps working on developing a comprehensive law for the industry, perhaps leading to the creation of more efficient regulation in the near future. Therefore, companies working with crypto currencies should stay up to date with the latest developments and be ready to adapt to any rapid changes.
One of the products crypto companies need to comply with the BSA and its amendments—and will most certainly need after the proposed initiatives are implemented—is an efficient verification solution. This will help companies keep track of their customers and minimize illegal activities such as money laundering.
The US has a set of laws and regulations regarding digital assets, and the government is working on drafting and amending legislation for the further integration of crypto. In general, in most jurisdictions, cryptocurrencies and companies providing such services (VASPs) are subject to AML regulation on par with financial institutions. Additionally, registration/licensing requirements are applicable to them.
Yes, crypto currencies are legal in the US. Individuals, as a rule, can buy and possess them without any problem.
Most US banks don’t allow customers to purchase or exchange any type of crypto currency due to their volatility and the lack of a regulatory framework. However, the situation may change if new legislation on crypto is introduced. Even today, several banks promote themselves as crypto-friendly. The banks that allow purchasing and exchange of crypto include USAA, Ally, Bank of America, Wells Fargo, Chase, Chime, and Simple.
Yes. It is regulated by several government agencies on a federal level and by local regulators on a state level. The regulations vary from state to state, while the federal regulators include FinCEN, SEC, and CTFC.In addition, more jurisdictions are implementing the FATF Travel Rule (including Lithuania, the United Kingdom, Switzerland, etc.).
Joe Biden is interested in creating an efficient regulatory framework for crypto in the near future. Earlier in 2022, he signed the document called “Ensuring Responsible Development of Digital Assets,” which should help to create new legislation.
The US government owns 241,000 bitcoins (BTC), which is more than 1% of all issued BTC.
Despite the growing interest in the topic, the US government doesn’t back the usage of crypto currencies in any way.