Ever since the advent of blockchain and bitcoin, things have looked very different. Initially, most people wrote bitcoin (which was the first cryptocurrency) off. Since its meteoric rise in 2019 as well as the development of more than 2,000 crypto-asset funds, cryptocurrencies have gotten more attention. Mixed reactions trail the use of crypto-asset funds. Their increase in value makes some investors see them as a proper store of value in the long run. Regulations in the crypto space seem to be expanding at an exponential rate and 2021 is no different.
The US government has taken necessary steps in ensuring cryptocurrency regulations. However, it also authorized individual states to introduce their own laws. The US government is positive about blockchain technology and crypto-asset funds. In 2019, the SEC launched a platform where brokers can trade Bitcoin, Etherum, Bitcoin Cash and Ripplecoin.
Despite its support for the use of crypto-asset funds, the US government has concerns over issues of user protection. Below are some of the issues:
- Crypto-asset funds provide users with a very high level of anonymity. This kind of anonymity is what fraudsters and terrorists need to thrive.
- Transactions are also irreversible. This means that users cannot get back funds transferred to a scammer or fraudster.
The National Defense Authorization Act (NDAA)
Despite the issues for concern, the government knows that there has to be some level of compromise from both parties. Late last year, the houses of Congress passed the bipartisan National Defense Authorization Act (NDAA) for Fiscal Year 2021. This act is will help fight against terrorism and ensure fraud prevention. Below are some details of the act that affects the ownership and usage of crypto asset funds as well as other blockchain platforms:
- The Financial Crimes Enforcement Network (FinCEN) is to collect a database of information on cryptocurrency corporations. Corporations that own, operate or transact using cryptocurrencies will have to register with the FinCEN.
- These cryptocurrency regulations and its compliance are not for large firms alone. Smaller companies are now required to disclose beneficial ownership information to FinCEN.
- The act also prohibits individuals from knowingly concealing or making attempt to conceal, falsify or misrepresent a financial institution, the ownership or control of crypto asset funds involved in any monetary transaction of more than $1,000,000.
- The NDAA act also prohibits from falsifying, concealing, misrepresenting or attempting to falsify, misrepresent or conceal information in instances where the owner or the person who controls these crypto asset funds is a senior foreign political figure or any immediate family member or close associate of a senior foreign political figure.
- Whistleblowers can get up to 30% of the money from cases where the penalties are monetary of $1,000,000. However, these whistle blowers must report actionable information about BSA AML/CFT violations.
- Digital and Cryptocurrency providers are to report cases of suspicious activities involving the use of digital and cryptocurrencies.
- The Financial Crimes Enforcement Network (FinCEN) now has the authority to punish firms that do act in line with the current cryptocurrency regulations. Penalties will be in line with the laws overseeing cryptocurrency regulations.
Further Cryptocurrency Regulations
The current NDAA act is seen as merely a start as the legislative arm of government needed to “start from somewhere. There are current talks to amend the current laws regulating the ownership and use of crypto asset funds. This proposed cryptocurrency regulations would see to a strict monitoring of transactions including crypto asset funds.
- Provision of information on transactions above $3,000. This information include but are not limited to: contact information of the customer, type or crypto-asset funds used for transaction, contact information of the recipient of such crypto-asset funds, time of the transaction and other necessary information.
- Banks and other money service businesses will have to report transactions involving more than $10,000 to the FinCEN within 15 days from the date of the transaction.
The FinCEN has announced its intent to amend the BSA’s Foreign Bank and Financial Accounts regulations. In line with this amendment, individuals and entities within the US who have crypto asset funds worth more than $10,000 will now declare it as part of their assets. Reporting assets without including digital asset funds implies violating the FinCEN rule. Considering that the FinCEN now has the authority to punish, it is not in the best interest of companies to go against them.
What Digital Currency Providers Must Do to Stay Complaint
At this point, the laws seem rather endless and excessive. Cryptocurrency regulations focus on ensuring compliance standards are maintained and standards across crypto-asset funds and digital currency providers. Besides the fact that the laws are already too much, most of these laws are against the fundamental principles of blockchain and crypto-asset funds. The idea behind blockchain and cryptocurrency is to empower users with the authority to decide who has access to their information. With the government demanding a database, that purpose may as well be defeated.
There are still many other concerns about cryptocurrency regulations. How does the government regulate platforms whose information the government cannot verify? The report claims that 47% of legislative decision-makers are uncomfortable with the automated authentication procedures of blockchain and cryptocurrencies. A further 21% do not trust the process of automated authentication.
At this point, digital currency providers are in a dilemma. They are currently facing a challenge of whether to act in accordance with the law or stick to the principles of blockchain and cryptocurrency. Here are what digital currency providers must do to stay complaint with the law.
Stay Up to Date with the Latest Development in Cryptocurrency Regulations
To be able to comply with the demands of the government and the law, you have to know what the law states first. The laws guarding cryptocurrency regulations are constantly evolving. The legislative arm of government will still make more laws and it will scrap some of the existing laws. You need to stay abreast with the legal proceedings. This involves knowing how they relate to the ownership and usage of crypto asset funds. There are various ways to stay updated about legal proceedings.
One of such is to subscribe to the newsletter of firms that give information about blockchain and cryptocurrency. Instead of having to keep tabs yourself, you get them to deliver the news to you instead. Another means to get information about cryptocurrency legality is join a blockchain or cryptocurrency community or forum. These forums or communities often feature enthusiasts and professionals in issues regarding cryptocurrency. They are one of the fastest means of getting news about cryptocurrency.
Ensure Stakeholders Stay Informed of Changes to Cryptocurrency Regulations
The saying goes that “what is good for the goose is good for the gander”. Knowing about the current cryptocurrency regulations are as important to your customers as they are to you. You should promptly inform them of the latest cryptocurrency development at all time. Giving your members or users prompt information will enable them to adjust faster and far more easily.
One way to inform users of the recent development on cryptocurrency is by sending them newsletters. Many companies into digital currencies often abuse the use of newsletters. They tend to spam the mailboxes of their users. It makes customers to either avoid reading their mails or report them as spam mails. When sending emails, ensure the mails are concise and straightforward. Furthermore, limit the frequency at which you send them mails.
Use the US Dollar as the Conversion Unit When Providing the Authorities with Information
There are many regulations regarding transactions, particularly the amount of money involved in those transactions. Digital currency providers often offer their services globally to a wide range of audiences. They are not limited to individuals in the US alone. This is why most cryptocurrency providers often use the cryptocurrency with which transactions occur as the value for judging the amount of money sent.
This is quite an issue because the US government works with US dollars. Its cryptocurrency regulations and laws talks about transaction limits using US dollars as the currency for measurements. To this effect, companies that provide cryptocurrency and other digital currencies should always calculate and record the value of such digital currency “at the time of the transaction.”
The quote is very important, as cryptocurrencies are very volatile. Quoting the value of transactions at the time of the transactions is the safest approach to cryptocurrency regulations. Making a mistake or ignoring this warning can be detrimental to providers of crypto asset funds and other digital currencies.
Properly Verify Their Users and Placing Restrictions in Line With the Law
With time, the law will strip cryptocurrency users off the level of anonymity they enjoy. Initially, uploading a scanned document was the major form of identity verification. To ensure fraud prevention and individuals with sinister motives do not use crypto asset funds in aiding terrorism, cryptocurrency providers are now required to properly identify users. As a result, users can no longer use scanned documents as a form of identity verification or photo ID verification.
In replacement, cryptocurrency providers will now demand selfie ID verification as a form of photo ID verification. Instead of posting already scanned pictures, users of crypto-asset funds will now have to take live sefies and upload them to the database. This is because selfie ID verifications are more accurate forms of biometric identity checks.
Identity and residential documents will now be scanned directly into the database. It is easier to falsify information when uploading an already scanned copy, compared to when you are scanning a live copy. With information of the personal and residential information collected by cryptocurrency providers, it will be easier to tender them to the FinCEN on demand.
Report Suspicious Cases in Accordance With the Law
There is a lot of outcry from individuals holding various crypto asset funds. Many of them are already calling the actions of the government an invasion of their privacy. It is also important that cryptocurrency providers do not escalate this issue. It is advisable that cryptocurrency providers work within the tenets of the NDAA when classifying suspicious activities.
Cryptocurrency providers may not be whistleblowers but should still work with the FinCEN. At this point in time, suspicious activities involve transactions of more than $1,000,000. Crypto regulations have previously avoided this powerful tool to assist investigators. Although further reforms may see it go below the stated amount. Cryptocurrency providers should report transactions involving cryptocurrencies worth more than $1,000,000 as at the time of the transaction. Prior transactions that were not worth up to $1,000,000 at the time of their transactions but are currently worth $1,000,000 do not fall into this category.
Cryptocurrency providers have obligations to their users. However, they also have to work with the law when serving their users. This is a necessary step in bringing crypto-asset funds into mainstream transactions and trading. Following the directives mentioned above is a good start. The directives above will ensure that crypto-asset funds and other digital currencies providers comply with the dictates of the law while also protecting their customers.
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Headquartered in San Diego, California, IDMERIT provides an ecosystem of identity verification solutions designed to help its customers prevent fraud, meet regulatory compliance and deliver frictionless user experiences. The company is committed to the ongoing development and delivery of offerings that are more cost-effective and comprehensive than other solution providers. IDMERIT was funded by experts who have been sourcing data on personal and business identities across the globe for over a decade. This access to official and trusted data throughout the world has become increasingly important as companies find themselves completing transactions across borders as a standard course of business. www.idmerit.com