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2022-12-16
5 min read

Crypto Regulations in the US – A Complete Guide (2023)

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.

Highlights

  1. Who is affected?
  2. Who are the regulators?
  3. What are the regulations?
  4. How legal is mining in the US?
  5. How to stay compliant
  6. Reporting
  7. What are the differences between states?
  8. Conclusion
  9. FAQ

Who are the regulators?

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.

Who is affected?

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:

  • Money services business 
  • Securities brokers/dealers;
  • Futures commission merchants;
  • An introducing broker in commodities;
  • Mutual funds.

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:

  • P2P exchangers;
  • Hosted wallet providers;
  • Multiple-signature wallet providers (e.g., when a person combines the services of a multiple-signature wallet provider and a hosted wallet provider);
  • Operators of Convertible Virtual Currency (CVC) kiosks that accept and transmit value;
  • DApps performing money transmission;
  • Providers of anonymizing services for CVCs (The regulatory framework that applies to a person participating in anonymity-enhanced CVC transactions depends on the specific role performed by the person. For more details, see the Guidance);
  • Payment Processing Services Involving CVC Money Transmission;
  • CVC Money Transmission Performed by Internet Casinos or any person engaged in the business of gambling that is not covered by the regulatory definition of casino, gambling casino, or card club, but accepts and transmits value denominated in CVC.

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:

  • Businesses “engaged in the exchange of currency, funds, or value that substitutes for currency or funds”
  • A person who “engages as a business in the transmission of currency, funds, or value that substitutes for currency, including any person who engages as a business in an informal money transfer system or any network of people who engage as a business in facilitating the transfer of money domestically or internationally outside of the conventional financial institutions system”.

Therefore, if an activity involving digital assets falls under any of the above definitions, it will be considered a regulated activity.

What are the regulations?

Activity involving digital assets (or CVCs) are covered by the following laws: 

  • The Bank Secrecy Act (BSA) with amendments provided by the US Patriot Act and AMLA. These laws establish a complete anti-money laundering framework. 
  • The Commodity Exchange Act (CEA) and Securities Exchange Act in relation to the registration requirements for assets considered securities and commodities. 

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.

How legal is mining in the US?

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.

How to stay compliant

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:

  • Policies, procedures, and internal controls reasonably designed to achieve compliance with the provisions of the BSA and its implementing regulations; 
  • Independent testing for compliance; 
  • Designation of an individual or individuals responsible for implementing and monitoring the operations and internal controls; 
  • Ongoing training for appropriate persons.

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.

Reporting

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

What are the differences between state regulations?

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.

Conclusion

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. 

FAQ

  • Does the US support crypto?

    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.

  • Is it legal to use crypto in the US?

    Yes, crypto currencies are legal in the US. Individuals, as a rule, can buy and possess them without any problem.

  • Do US banks accept crypto currency?

    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.

  • Is cryptocurrency regulated in the US?

    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.).

  • Why is President Joe Biden regulating crypto?

    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.

  • Does the US government use crypto currency?

    The US government owns 241,000 bitcoins (BTC), which is more than 1% of all issued BTC.

  • Is crypto currency backed by the US government?

    Despite the growing interest in the topic, the US government doesn’t back the usage of crypto currencies in any way.

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