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US President Freezes FinCEN’s Contentious Crypto Wallet Rule

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The US President Joe Biden has frozen all regulatory processes including proposed FinCEN rules for cryptocurrency wallets. This was revealed by Jake Chervinsky, who happens to be a prominent cryptocurrency lawyer. His tweet read,

“President Biden has frozen all agency rulemaking pending further review. This includes former Secretary Mnuchin’s proposal on ‘unhosted wallets’. We fought hard & earned the right to take a breath & reset. Janet Yellen isn’t Steve Mnuchin. I’m optimistic.”

The official announcement was made in a White House memorandum on the 20th of January the Financial Crimes Enforcement Network [FinCEN] including various other heads of executive department and agencies. While the order did not specify the crypto wallet proposal, but places a general freeze after considering postponing the rules’ effective dates for 60 days from the date of this memorandum.

FinCEN firtst sumitted the self-hosted wallet proposal on the 18th of December 2020 under former US Treasury Secretary Mnuchin. The proposed rule in question was severely criticized and was also touted as detrimental to the crypto community by several prominent firgures including Twitter CEO Jack Dorsey.

FinCEN’s proposal essentially requires exchanges to collect personal information, including names and home addresses, from users seeking to transfer cryptocurrencies into their own wallets.

FinCEN Faced Severe Backlash from Community

Many proponents of the crypto industry deemed this proposal as poorly defined and a “shocking invasion of privacy”. Cryptocurrency exchange, Coinbase had also called out FinCEN’s expedited timeline and urged for an extension of the comment period. Following widespread protest from crypto groups and firms, FinCEN extended the comment period earlier this month.

While the latest news brought a sense of relief among several industry players, the comments from Biden’s nominee for treasury secretary Janet Yellen about curtailing the use of Bitcoin and cryptocurrencies did not sit well.

However, Chervinsky was not concerned about the Yellen’s take on cryptocurrencies as he stated,

“First, anyone is better than Secretary Mnuchin, who decided long ago that he hated everything about crypto. Second, although Dr. Yellen may not be a fan now, I expect she’ll be open to learning & listening, & will follow regular order in deciding on new regulations. That’s good.”

FinCEN’s Rule Can Spell The End of Financial Privacy for Users; Argues Advocacy Group

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The crypto wallet proposal by the U.S. Financial Crimes Enforcement Network [FinCEN] has received severe backlash from the community. The Chamber of Digital Commerce advocacy group became the latest to respond to the controversial notice.

The proposed rule in question essentially requires crypto exchanges to collect personal information, including names and home addresses, from users seeking to transfer cryptocurrencies into their own wallets. Many industry players have deemed this proposal as poorly defined which could have widespread repercussions.

Chamber of Digital Commerce, for one, said that giving the government the ability to track every financial transaction made by users make was a “shocking invasion of privacy”. While acknowledging there are good reasons to report certain transactions, especially if suspicious or illegal activity is detected. Enabling such “granular tracking” of individuals’ transactions could be considered lawful, however, monitoring daily financial activities are beyond common principles of government oversight, stated the blockchain trade association.

The Chamber further stressed that FinCEN’s proposed rule could also enable a counterparty to a transaction, who never had an account relationship with the bank or MSB, will have users’ entire wallet history and future transactions exposed to both that financial institution and the government.

“The proposed rule could spell the end of financial privacy for CVC and LTDA users (including CBDCs) [..] Quite simply, this action would open the door to unprecedented personal data collection, individual monitoring, and a tremendous loss of privacy for millions of investors, businesses, and consumers.”

Apart from emphasizing the extraordinary expansion of information provided to third parties about non-customers, the advocacy group also questioned the rushed affair by FinCEN for the comment period. Considering the significant impact of the proposed rule, the Chamber also stated that the NPRM’s 12-day/6 business day comment period was “wholly inadequate” and that it raises serious process concerns under the APA.

Furthermore, it requested a 90-day extension of the comment period to permit the ecosystem to fully address the concerns by FinCEN. SF-based cryptocurrency exchange, Coinbase had previously questioned FinCEN’s expedited timeline and urged for an extension of the comment period.

Besides, Jerry Brito, the executive director of the non-profit crypto policy advocate group Coin Center, had also urged the community members to comment against the agencies’ proposed crypto regulations.

FinCEN’s Proposal: Backlash Continues As Coin Center Urges For Widespread Participation Against Rules

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Several industry players have been quite vocal with respect to the proposal by the US Treasury Department and the Financial Crimes Enforcement Network [FinCEN] which requires crypto operators to abide by regulations used to police conventional financial providers.

In the latest development, Jerry Brito, who happens to be the executive director of the non-profit crypto policy advocate group Coin Center, urged the community to comment against the agencies’ proposed crypto regulations, the deadline of which is January 4. In a series of tweets, Brito notified that Coin Center was working the Congress “to get some letters sent” to Treasury Secretary Steven Mnuchin requesting an extension to the rushed comment period.

His tweet further read,

“Everyone in the cryptocurrency ecosystem should file a comment with FinCEN explaining how this rule would affect them and pointing out the unintended consequences. Filing a comment really does help.”

Months before his likely exit from office, Mnuchin dropped a regulatory proposal on the crypto industry. This left many players in the sector furious. The short period for commentary was considered a huge red flag by many proponents of the industry.

If passed, the new law would require the U.S.-based crypto platforms to check users’ identities and wallets on withdrawal of over $3,000 to a self-custodied wallet, or if they transfer over $10,000 to another platform.

Brito went on to explain that Mnuchin wants to get the proposed rule finalized before he leaves office on the 20th of January 2021. However, FinCEN is required by law to consider every comment before finalizing the proposal, Hence, if the agency gets “a lot of substantive comments filed”, they would not be able to finalize the rule before the said date.

FinCEN has to explore every comment filed concerning the proposal in question and work towards having a reasonable solution, hence, widespread participation by the crypto community could essentially delay the entire process and help the push for appropriate regulation by the next administration.

Coinbase Questions FinCEN’s Expedited Timeline; Urges Extension Of Comment Period

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The regulatory climate in the United States with regards to the cryptocurrency industry appeared to be taking a more and more critical stance as opposed to other countries around the world.

The Financial Crimes Enforcement Network [FinCEN], the bureau of the US Department of the Treasury, has been in the news for its contentious proposal for self-hosted wallets. One of the first platforms to have responded to it was Coinbase which has asked the watchdogs to extend the comment period to the traditional 60 days.

In a letter shared with Kenneth Blanco, the Director of FinCEN, Coinbase’s Chief Legal Officer stated that it had asked the public to provide comments in just 15 days, which spans Christmas Eve, Christmas Day, New Year’s Eve, and New Year’s Day, amidst of a global pandemic leaving just a few of actual working days for comments as opposed to the regular period of 60 days.

According to the FinCEN’s proposed rule, the general public will have until the 4th of January 2021, to offer comments and feedback which has been vehemently opposed by Coinbase stating that there was no need for the urgency.

The exec urged FinCEN to reconsider its haste and provide the typical period for such significant proposed rulemaking which entails new and “onerous” reporting and recordkeeping requirements for cryptocurrency transactions.

Blanco further questioned the “rushed effort” by FinCEN in this particular case especially when the agency had asked for comments on 24 separate questions [over three pages of the notice]. After conducting an initial review over the weekend, Coinbase found that responding to those issues will require pursuing detailed technical analyses, extensive cost assessments, and complex balancing of privacy interests for the users who would now have to furnish detailed personal information for transactions.

Blanco also said that FinCEN does not provide any details with regards to the current expedited timeline as to why such a need arose in the middle of a pandemic as well as coincidentally just when the current administration is set to leave the office. He went on to add,

“There is no emergency here; there is only an outgoing administration attempting to bypass the required consultation with the public to finalize a rushed rule before their time in office is done. There is also no justification for treating the cryptocurrency industry so differently from our counterparts in traditional finance.”

This news comes two days after Coinbase’s CEO and Co-founder, Brian Armstrong said that the proposed rule does not follow the correct process and revealed to challenge it.

Coinbase’s Brian Armstrong To Challenge FinCEN’s Proposed Rules

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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.

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.

Former FinCEN Director Joins Libra Association

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The Libra Association has appointed Robert Werner, a former FinCEN director, as its first chief lawyer. Previously, Werner was the head of the Financial Crimes Enforcement Network March to December 2006. During his spell at FinCEN, Werner appointed a new CIO to strengthen the department’s information technology capacity as per FinCEN.

As per the release, Werner has sizable experience in the regulatory space, financial crime compliance and administrative positions, from his past periods in both the public and private sectors. In the private sector, he served management positions at both HSBC and Goldman Sachs, according to today’s announcement.

Libra Association appoints former FinCEN director as General Counsel

Werner served as the Director of the Office of Foreign Assets Control, (OFAC), the Senior Counsel to the Under Secretary of the Treasury, the Assistant General Counsel for Enforcement and Intelligence at the General Counsel’s office, Terrorism and Financial Intelligence.

On 19 May, the Libra Association announced the appointment of Robert Werner as General Counsel for the most latest high-profile employment. In addition, Werner is also the ex-CEO and the founder of GRH Consulting.

Notably, the ex-FinCEN head also previously held roles in the US Justice Department’s Office of Legal Counsel; as the advisor to the Attorney General and White house counsel. In addition, he was also a clerk to U.S Supreme Court judges Justice Anthony M. Kennedy and Justice Lewis F. Powell, Jr.

Libra Association make two high-profile appointments

The hiring of Werner comes amid Facebook Libra’s latest efforts to steer through the regulatory waves by making changes to its whitepaper. Interestingly, two weeks ago on May 6, the Libra Association appointed Stuart Levey, another former HSBc leader; and former undersecretary for terrorism to president Barack Obama, as the initial chief executive.

The two high-profile appointments follow the beginning of Libra Association’s process to navigate through Switzerland’s Financial Market Supervisory Authority (FINMA) payment licensing; and release of the amended whitepaper.