On Friday, three federal agencies tasked with regulating the digital asset industry took another step towards clarifying how digital assets and activities involving them fit within the existing regulatory landscape. In a published joint statement (“Statement”), the leaders of the SEC, the CFTC and the Financial Crimes Enforcement Network (“FinCEN”) (collectively, the “Leaders”) reminded “persons engaged in activities involving digital assets of their anti-money laundering and countering the financing of terrorism (AML/CFT) obligations under the Bank Secrecy Act (BSA).” Although not formal guidance, these statements offer helpful insight into how financial regulators will approach determinations relating to digital assets and activities involving them.
In the Statement, the Leaders noted that under the BSA, these AML and CFT obligations apply to “financial institutions” which the BSA defines to include mutual funds, broker-dealers, and other entities such as money services businesses (“MSBs”). Financial institutions subject to the BSA are reminded of their “requirement to establish and implement an effective anti-money laundering program (AML Program) and recordkeeping and reporting requirements, including suspicious activity reporting (SAR) requirements.”
The Leaders warned persons, in determining whether a product is a “digital asset” and whether persons involved would be “financial institutions,” not to rely on labels and terminology due to the lack of uniformity across the industry. Expanding on this, they noted that “the label or terminology used to describe a digital asset or a person engaging in or providing financial activities or services involving a digital asset, however, may not necessarily align with how that asset, activity or service is defined under the BSA, or under the laws and rules administered by the CFTC and the SEC.” Rather, they went on to say, “it is the facts and circumstances underlying an asset, activity or service, including its economic reality and use (whether intended or organically, developed or repurposed), that determines the general categorization of an asset, the specific regulatory treatment of the activity involving the asset, and whether the persons involved are ‘financial institutions’ for purposes of the BSA.”
While FinCEN is the administrator and lead regulator under the BSA, financial institutions registered with the SEC or CFTC are reminded that they must comply with the BSA’s obligations for the development of AML and SAR programs, as well as any requirements imposed by SEC or CFTC rules. Both Kenneth Blanco and Jay Clayton cautioned persons registered with the CFTC and SEC that these requirements to implement AML and SAR programs apply regardless of whether the activities involve digital assets that are “commodities” or “securities.”
FinCEN published guidance earlier this year addressing BSA regulations applicable to business models involving convertible virtual currencies. However, a joint statement coming from three of the most important financial regulators is a rarity, and highlights the government’s expectation that persons engaging in activities involving digital assets adhere to the anti-money laundering requirements.
 See 31 C.F.R. § 1022.320 (MSBs); 31 C.F.R. § 1023.320 (brokers or dealers in securities); 31 C.F.R. § 1024.320 (mutual funds); 31 C.F.R. § 1026.320 (futures commission merchants and introducing brokers in commodities).
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