Responding to the rise in cryptocurrency and other digital tokens, the leaders of the U.S. Commodity Futures Trading Commission (CFTC), the Financial Crimes Enforcement Network (FinCEN), and U.S. Securities and Exchange Commission (SEC) recently issued a joint statement on activities involving digital assets. The leaders issued the statement to remind those involved in such activities of their anti-money laundering and countering-the-financing-of-terrorism (AML/CFT) obligations under the Bank Secrecy Act (BSA).
The AML/CFT obligations apply to those entities defined as “financial institutions” under the BSA. Examples of such financial institutions include money service businesses (MSBs), futures commission merchants, introducing brokers, and mutual funds and other broker-dealers. The obligations under AML/CFT include establishing and implementing an effective anti-money laundering (AML) program, and recordkeeping and reporting—including reporting suspicious activity. The failure to comply with these obligations can trigger significant penalties and criminal exposure.
The joint statement emphasized that the language used in the market does not determine whether a digital asset qualifies as a security, commodity, or security- or commodity-based item. Rather, whether an asset, activity, or service is subject to the BSA or other laws and whether those involved are “financial institutions” under the BSA is determined from the facts and circumstances surrounding the activity, “including its economic reality and use (whether intended or organically developed and repurposed).” The nature of the activities will determine whether one is subject to regulation by the CFTC, FinCEN, the SEC, the National Futures Association (NFA), or the Financial Industry Regulatory Authority (FINRA).
The statement concludes by stating that AML/CFT obligations apply broadly to financial institutions, without regard to whether a transaction involves a “security” or “commodity” as defined by federal securities law or the CEA.
Additional comments reinforcing the mission and purpose of the agencies and the AML/CFT obligations were included. This joint statement makes it clear that the increased use of digital assets in the marketplace has generated scrutiny from these agencies, who intend to use their regulatory authority to oversee and regulate activities with respect to digital assets.
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