A last-minute attempt to force cryptocurrency exchanges to collect personal data identifying private wallet-holders has been delayed by a freeze on new regulations ordered by President Joe Biden on his first day in office.
Outgoing Treasury Secretary Steve Mnuchin caused an outcry on Dec. 18, when the department’s Financial Crimes Enforcement Network announced the new rule requiring banks, cryptocurrency exchanges, and other money services businesses to collect know-your-customer (KYC) data about anyone who wants to transfer $3,000 or more to or from an “unhosted” wallet.
Aimed at money laundering and national security, Mnuchin said in a press release that the rule was to “increase transparency while minimizing impact on responsible innovation.”
It raised an immediate outcry, with Peter Van Valkenburgh, crypto think tank Coin Center’s director of research slamming the proposal as “midnight rule” being “rushed” out by the “lame duck” Trump Administration. Particularly as it originally had a public comment period of 15 days—including the Christmas and New Year’s holidays—rather than the usual 30 to 60 days.
That said, it was seen as a milder version of the rule than many in the cryptocurrency industry feared.
Regulatory reset
Pointing out that the presidential order’s stymied Mnuchin’s unhosted wallet rule, Compound Finance General Counsel Jake Chervinsky tweeted:
“We fought hard & earned the right to take a breath & reset”
In the Twitter thread that followed, he said he was “optimistic” about the chances of changing the rule.
Incoming Treasury Secretary “Janet Yellen isn’t Steve Mnuchin,” said Chervinsky, who is also co-chair of the Blockchain Association’s DeFi Group. “[A]nyone is better than Secretary Mnuchin, who decided long ago that he hated everything about crypto.”
That despite Yellen’s comments on Jan. 18 that “[c]ryptocurrencies are a particular concern” when it comes to money laundering and other illicit activities.
Speaking to the Senate Finance Committee, she added:
“I think many are used at least in a transaction sense mainly for illicit financing and I think we really need to examine ways in which we can curtail their use and make sure that anti-money laundering doesn’t occur through those channels.”
While “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,” Chervinsky added. “That’s good.”
Pointing out that Yellen is an economist—Mnuchin was an investment banker and film producer whose credits include “The LEGO Batman Movie”—Chervinsky said he expected that her focus would be on monetary and fiscal policy rather than anti-money laundering (AML) and anti-terrorism funding regulations.
In those areas, he said, “she’ll have the benefit of expert advice.”
Chervinsky agreed that her comments “were disappointing for sure,” but added that he’d be wary of taking them too seriously. He said:
“She wasn’t making a specific policy proposal & probably hasn’t thought too deeply about crypto given everything else facing the Treasury Department. We have plenty of time to educate her on the issues.”
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