United States-based cryptocurrency firms are expressing growing outrage over a rule proposed by the United States Treasury Department’s Financial Crimes Enforcement Network, or FinCEN that would require them to gather and report personal data from private cryptocurrency wallets.
Major United States-based crypto exchanges Coinbase and Kraken, Twitter founder Jack Dorsey’s fintech Square, and financial services giant Fidelity are among the firms that recently filed comments with FinCEN strongly opposing the proposed new rules.
As Modern Consensus reported in late December, the regulator proposed establishing a reporting requirement—among other things—for the personal data of the owner of any privately held wallet that receives at least $3,000 from a virtual asset service provider (VASP), including exchanges.
Functionally, the rule means the know-your-customer (KYC) and anti-money-laundering (AML) rules for exchange-hosted wallets would now apply to anyone who wants to redeem fiat or put their crypto into cold storage.
In its statement to FinCEN, leading venture capital firm Andreessen Horowitz (a16z) made clear that it objected to both the rule and the haste with which it is being rushed through.
As for the substance, it wrote:
“The new rule, ostensibly aimed at fighting financial crime, would require various cryptocurrency entities to collect and report detailed personal identifiable information of their customers’ counterparties, a standard applied to no other sector of the financial industry today.”
What’s more, Katie Haun, a former federal prosecutor and partner at a16z took to Twitter to blast Treasury Secretary Steven Mnuchin for “trying to squeeze regulatory changes into the tail end of an administration w[ith] no process,” calling it “a terrible idea.”
Haun promised that the company would challenge the rule in court if imposed, calling it “procedurally defective” as well as “overbroad” and “vaguely written.”
The “procedurally defective” part comes from the fact that FinCEN announced the proposed rule on Dec. 18, just before the congressional winter break.
Even more outrage was reserved for the public comment period set for the rule, just 15 days including the Christmas and New Year’s holidays, as opposed to the standard minimum of 30 days.
That led Coin Center Director of Research Peter Van Valkenburgh to call the proposal a “midnight rule” by a “lame duck” administration on its way out the door.
Beyond the objectionable content and unfair process, a 12-page comment submitted by attorney Benjamin Naftalis of Latham & Watkinson behalf of VC firms Ribbit Capital, Paradigm, and Union Square Ventures said the rule’s reporting and recordkeeping requirements would actually be counterproductive. He wrote:
“Some of those requirements are not only unlikely to meaningfully improve law enforcement’s ability to safeguard our financial system from illicit use or promote our national security, but also could make it materially more difficult for them to do so.”
This argument is based on the assumption that instead of preventing crime, this rule would just push crypto activity to unregulated overseas firms that do not have to report any data. This would not only hurt U.S. innovation, it means that instead of getting more data, the regulation would reduce the amount of information available to U.S. law enforcement agencies.