The long-anticipated [or rather dreaded] proposed Financial Crimes Enforcement Network’s [FinCEN’s] rule is finally here. And there is hardly anyone in the community who is happy with it.
The proposal in question aims to extend AML regulations to non-custodial wallets. This ended months of speculations surrounding what the rule would entail that has created severe turmoil among the community members. As expected certain prominent crypto personalities are now planning to challenge it.
One such is Co-founder and CEO of cryptocurrency exchange, Coinbase, Brian Armstrong who revealed this sentiment hours after the FinCEN released stifling wallet regulations for transactions involving cryptocurrency wallets. He further went on to claim that the rule does not follow the correct process.
I was going to do a tweet storm on the proposed rule making from FinCEN and Treasury. But @jchervinsky summed it up really well.
It doesn't follow the correct process, and we'll be challenging it. https://t.co/8lQaDMcz1V
— Brian Armstrong (@brian_armstrong) December 19, 2020
FinCEN’s Rule: A quick primer
Under the new rule, the centralized exchange users, who seek to move their coins to their own private wallet, or to someone else’s, would now have to furnish detailed personal information for transactions more than $3,000. The centralized exchanges, on the other hand, would have to disclose any withdrawals and deposits in excess of $10,000 to the financial crimes watchdog in the form of a full-fledged currency transaction report.
In short, the community was left furious as the FinCEN’s rule undermined the very ethos of the space and the underlying technology as well as the early promise of privacy and self-sovereignty.
The General Counsel of Compound, Jake Chervinsky termed FinCEN’s rule as “awful” and went on to explain how the rule would impose new obligations on virtual asset service providers [VASPs]. While acknowledging that FinCEN does not propose an outright ban on self-custody, however, it does little to accomplish the main goals.
He asserted that if the major problem was illicit activity, the latest rules would not stop the flow of funds to bad actors or help law enforcement do its job. Furthermore, it also does not provide the state investigators with any new information since VASPs already KYC their customers as well as keep records of transactions. Chervinsky also said,
“Second, it infringes on US citizens’ financial privacy rights. Today, law enforcement has to subpoena VASPs to get information about customers. VASPs can, should, & often do challenge these. This rule would force VASPs to hand over that information automatically, every time.”
The lawyer also pointed out the recent FinCEN Files leak and hacks, said that the government has not yet taken appropriate steps to store public information effectively or safely.
“Now isn’t the time to expand the government’s warrantless mass surveillance & data collection operations.”
Calling FinCEN’s proposal as “vague and ambiguous” Chervinsky questioned how the VASPs will be able to collect credentials such as the name and physical address of the owner of a non-custodial wallet and price that they “own” a private key. He also revealed his plans to help the Blockchain Association to evaluate grounds to challenge the rule under the APA.