Winners and Losers of the FinCEN’s New Guidance for Cryptocurrencies

  • Winners: Non-custodial wallet providers, open finance platform, blockchain developers, anonymizing software providers, & most traders
  • Losers: peer-to-peer traders & arbitrageurs, ICO, & crypto ATM providers
  • Winner & Losers both: DApps & DApp developers
  • Neither Winners nor Losers: Lightning node operators

The Financial Crimes Enforcement Network (FinCEN) of the US issued new guidance documents addressing cryptocurrencies. The thirty-page detailed guidance on how the anti-money laundering laws apply to the crypto industry summarizes the legal analysis the department has published over the years.

The guidance clarifies about which crypto market participants are subject to AML laws. Amidst this is the critical issue whether individual and businesses are “money transmitters” which is a type of regulated money service business under the Bank Secrecy Act.

Money transmitters are those that accept currency from one person and transmit to another that are required to register with FinCEN and maintain AML compliance programs including a dedicated compliance officer, customer due diligence, internal controls, and others. And failure to comply can be a civil or criminal offense.

Now, yet again, Jake Chervinsky, a securities litigator shared his insights with the crypto community regarding what does all this mean for cryptocurrencies. Chervinsky in his Twitter thread clarifies the guidance isn’t law just a useful guide.

The Winners

Talking about the winners and losers, non-custodial wallet providers like hardware wallets are clear winners. FinCEN declares them not money transmitters because they don’t accept or transmit funds on the wallet user’s behalf and the user has “‘total independent control” over his/her funds at all times.”

Open finance platforms like decentralized exchanges (DEX) and lenders don’t come under the money transmitters category either.

“If a company doesn't touch a user's funds, it doesn't accept or transmit them for purposes of the money transmitter rule,” Chervinsky explains FinCEN’s logic.

Good news is for blockchain developers as coders aren't regulated based on code and anonymizing software providers like trustless mixers aren’t either.

Not all but most traders are also the winners here as they buy and sell digital assets for their own accounts as investors only.

The Losers

Peer-to-peer traders and arbitrageurs are those traders that are subject to the rules. These P2P exchanges, as Chervinsky says “obviously directed at LocalBitcoins traders” are persons engaged in the business of buying and selling crypto, hence money transmitters.

Though he did question “If traders who buy & sell for their own accounts are mere investors, why can't LocalBitcoins arbitrageurs be investors too?” while reminding that government has gone after LocalBitcoins traders before.

ICOs that sells non-security tokens and retain the ability to issue and redeem those tokens, and crypto ATM providers that accept crypto in exchange for fiat or vice versa also falls under the money transmitter category.

Both Winners & Losers

DApps & DApp developers lose and win both because Chervinsky says it is a type of technology that regulators don’t “seem to fully grasp”.

“When DApps perform money transmission, the definition of money transmitter will apply to the DApp, the owners/operators of the DApp, or both,” states FinCEN.

Neither Winners nor Losers

Lightning node operators aren’t either because the guidance doesn’t say anything about Lightning, not a single word.

As Chervinsky points out, things could have been worse because if the government wanted to kill crypto, aside from Congress FinCEN would likely have been the best option to do so. What’s remains to be seen is the FinCEN’s enforcement efforts.

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