Since cryptocurrency and blockchain technology has become mainstream, a lot of industry patterns have changed. Bitcoin’s sudden success in 2019 became the reason for the development of more than 2,000 cryptocurrencies. There is mixed opinion about the trail of digital funds, most governments are hesitant about the use of cryptocurrencies. Digital assets (cryptocurrencies) offer anonymity, so cryptocurrencies can be used for money laundering, terrorist funding, and so on. As the market value and popularity of crypto are growing, investors worldwide are seeing it as a good investment option. Regulations surrounding the crypto industry are also growing at an exponential rate, if some challenges are met with strict regulations, cryptocurrencies can change the current flow of the banking industry.
The U.S government has taken stern measures in ensuring cryptocurrency regulations. Individual states in the U.S and the EU can impose their regulatory laws regarding crypto. The U.S government has shown a positive approach towards cryptocurrencies and blockchain technology. In 2019, the SEC launched a platform where brokers can trade Bitcoin, Ethereum, Bitcoin Cash, Ripple coin, and so on.
Despite the trust in digital currency, the U.S Government has some concerns regarding the protection of the users. Some of the major concerns regarding crypto are:
- Crypto-asset funds provide users with a huge level of anonymity. This level of anonymity works in the favor of fraudsters, money launderers, and those who fund terrorist organizations.
- Digital currency transactions are irreversible. If the funds are transferred to a fraudster or a scammer, there’s no way to get the money back.
National Defense Authorization Act (NDAA)
Even though there are some concerns, the government knows that there has to be some level of compromise for compliance. Last year, the congress passed the National Defense Authorization Act (NDAA) for the fiscal year 2021. The act is for tackling terrorism and preventing fraud. Some rules enlisted in the act will affect the ownership and usage of crypto-asset funds, ownership, and usage of crypto and other blockchain platforms:
- FinCEN is to collect information and create a database of cryptocurrency companies. Organizations that own, operate, or transact using Cryptocurrencies will have to register with FinCEN to keep operating.
- The cryptocurrency regulations are not just for the big operations. Even smaller companies are required to provide UBO information.
- The NDAA act prohibits falsifying, concealing, misrepresenting, or attempting to hide and falsify information.
- Whistleblowers can get up to 30% of the money in cases where the penalties are more than $100,000. Although the information should be about BSA/AML/CFT regulation violations.
- Cryptocurrency companies have to report cases of suspicious activities using digital assets.
- FinCEN (Financial Crimes Enforcement Network) has the authority to punish the firms that don’t comply with current cryptocurrency regulations. The penalties will be based on the violation of the rules.
Additional Cryptocurrency Regulations that Firms Have to Follow
The latest NDAA act can be considered just a start for the regulation of cryptocurrencies. Some rules regarding regulation and ownership of crypto assets can be amended.
- Provision of information on transactions of more than $3,000. This information can include the contact information of the customer, the type of crypto asset funds used, and the time of the transactions. The level of information is not just limited to the above-mentioned factors.
- Banks and other money service businesses will have to report transactions that are of more than $10,000 to FinCEN. The time duration for reporting is within 15 days from the date of the transaction.
FinCEN also announced that they are planning to amend BSA’s Foreign Bank and Financial Account regulations. Individuals and entities that possess crypto for more than $10,000 will declare it as their asset. Reporting assets without including cryptocurrencies is a clear violation of FinCEN policies. Now that FinCEN can punish the organizations, the best step is to punish them.
How Can Companies Stay Compliant?
The list of laws that cryptocurrency firms have to follow seems endless and excessive. But Cryptocurrency regulations are focused on making sure that compliance standards are met across all providers. Some of the laws in the new act are against the fundamental principle of blockchain and crypto-assets. Blockchain and cryptocurrency provide users with the authority of deciding who has access to their data. But with the government asking for a database defeats the purpose.
There are other concerns regarding cryptocurrency regulations. One of the biggest questions is how does the government regulate platforms when the government can’t verify the information? According to a report, 46% of legislative decision-makers don’t like the automated authentication process of blockchain and cryptocurrencies. And a further 21% don’t trust automated authentication at all.
Digital currency providers are facing a huge issue, as they can’t decide whether to comply with the regulations or stick with the fundamentals of cryptocurrencies and blockchain? Here are the things that digital asset providers can do to stay compliant.
- Stay up to date with the latest developments in the cryptocurrency regulations
- Make it a priority to inform stakeholders of minor and major changes in cryptocurrency regulations.
- Use the US dollar as a unit of conversion while providing reports of suspicious activities.
- Implement strong user verification procedures and place restrictions that comply with the law.
- Report any suspicious cases as demanded by the law.