On May 9, 2019, the U.S. Financial Crimes Enforcement Network (FinCEN) published new guidance entitled, Application of FinCEN’s Regulations to Certain Business Models Involving Convertible Virtual Currencies. The Guidance, presented as a consolidation of FinCEN regulations and administrative rulings, outlines how the Bank Secrecy Act (31 U.S.C. § 5311, et seq. known as the BSA), and anti-money laundering (AML) regulations apply to business models “involving money transmission denominated in value that substitutes for currency,” including “convertible virtual currencies (CVCs).” CVCs are virtual currencies that have equivalent value as currency or substitute for currency.

The Guidance sets forth examples of how FinCEN money transmission regulations apply to different business models involving CVC transactions. Specifically, the Guidance highlights business model descriptions covered by FinCEN regulations. Although not all-encompassing, the Guidance highlights that FinCEN’s requirements may apply to business models based on facts and circumstances of each product or service.

The Guidance reiterates requirements under the BSA and AML regulations that require money services businesses (MSB) to:

1. Register with FinCEN
2. Maintain written AML programs
3. Designate persons responsible to assure compliance with BSA and AML requirements
4. Provide training for appropriate personnel, such as for the detection of suspicious activates
5. Independently review, monitor, and maintain AML programs; and
6. Comply with applicable recordkeeping, reporting, and transaction-monitoring requirements.

The Guidance also cites examples of business models involving CVC transactions that are not MSBs. For instance, the Guidance specifies that persons involved in ICOs (not banks or otherwise) are not MSBs when “acceptance and transmission of value is only integral to the sale of goods or services different from money transmission.” Money transmission in connection with fundraising by a person otherwise exempt will also fall under this exemption, unless the asset issued is to serve as a value substitute for currency. The Guidance states, however, that “if assets that other regulatory frameworks define as commodities, securities, or futures contracts were to be specifically issued or later repurposed to serve as a currency substitute, then the asset itself could be a type of value that substitutes for currency, the transfer of which could constitute money transmission.”

The Guidance recaps FinCEN’s four-factor test used in determining whether CVC wallet providers and multiple-signature wallet providers (known also as “multi-sig” providers) are required to register as MSBs.

If your business model relates to CVCs or potentially falls under this guidance, you can contact our firm for a detailed analysis and instruction on your regulatory needs.