CFTC, FinCEN, and SEC Issue Warnings to Crypto Firms on Regulatory Compliance

October 12th, 2019

Digital assets firm has often avoided following specific rules riding on the ambiguity of the nature of the assets. The most common among them are bypassing registration as securities.

Nevertheless, the joint statement aims to keep no stone unturned. It explicitly defines the various financial instruments like derivatives, Money Services Businesses (MSB), mutual funds, etc., while directing the firms engaging with them to procure compliance soon.

The joint statement issued by the agencies states that the “financial institutions” must register with the specific agency. It is being done to counter the money laundering and terrorist funding via cryptocurrencies.

The firms must adhere to the Bank Secrecy Act (BSA) which promotes collaboration with the U.S. government in cases of suspected money laundering and fraud. The press release noted,

the AML/CFT activities of a futures commission merchant will be overseen by the CFTC, FinCEN, and the National Futures Association (NFA);

those of an MSB will be overseen by FinCEN;

those of a broker-dealer in securities will be overseen by the SEC, FinCEN and a self-regulatory organization, primarily the Financial Industry Regulatory Authority (FINRA)

Hence, the firms must clearly define their products and seek permission from these regulators. Therefore, a firm or asset sold by a firm meets the definition of “securities” under federal law must comply with federal securities law.

The firms engaging in finance are also “required to report suspicious activity and implement reasonably-designed AML Programs.”

The use of cryptocurrencies in illicit activities and cyber theft is not a surprising occurrence. Hence, the warnings issued by the Government agencies must be adhered to strictly by the firms to avoid security and economic threats to nations. The three regulators have also been considerably inclusive of activities around digital assets. However, their emphasis on the need for compliance was considerable.