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Will BSA Expand to Cover Crypto Banking?

Many crypto stock prices are rebounding after the FTX Exchange filed for Chapter-11 bankruptcy on November 11, 2022, but the regulatory repercussions are only now starting to be felt.

FTX’s founder Sam Bankman-Fried is out of jail on a $250 million bond after having been arrested in the Bahamas. He is currently in the U.S. and has been charged with, among other things, wire fraud, securities fraud, and money laundering.

The taint of fraud in Bankman-Fried’s $32 billion crypto empire is spurring many lawmakers and regulators to scrutinize the crypto world more carefully.

On December 14, 2022, Senators Elizabeth Warren (D-MA) and Roger Marshall (R-KS) introduced the Digital Asset Anti-Money Laundering Act.

If passed, the act would recharacterize certain crypto firms as money-services businesses. This recharacterization would subject some crypto firms to anti-money laundering statutes like the Bank Secrecy Act (BSA) and know-your-customer (KYC) requirements.

Warren and Marshall’s legislation would also require FinCEN to implement a proposed rule to amend the BSA definition of “monetary instruments” to include cryptocurrency. In addition, the FinCEN rule would require banks and money-services businesses to report crypto transactions valued at $10,000 and above.

To read the bill for yourself, click here.

“The Bear Is Awake”

Any time new legislation is proposed like Warren and Marshall’s act, observers start adding up the dollars and cents that it might cost industry.

“These proposed changes to the existing federal scheme for the cryptocurrency industry would likely impose significant costs on cryptocurrency entities to create or update anti-money laundering and know-your-customer programs,” according to an article by Troutman Pepper attorneys titled “Bank Secrecy Act’s Crypto Expansion Is on the Horizon.”

You can find the full article here.

Others would love to see crypto companies make changes voluntarily.

And in fact, in recent weeks, some prominent investors have called for crypto companies to get on board with regulation. “[Y]ou got to stay out of the way of Gensler at the SEC and other regulators,” said venture capitalist Kevin O’Leary in a February 20th TV interview.

“Those hombres in Washington are not happy,” O’Leary continued. “FTX poked the bear, the bear is awake, and it is pissed.”

More Supervision Ahead?

On January 3rd, the Federal Reserve, the FDIC, and the OCC made a joint public statement on the risks of crypto assets to banking organizations.

Number one on the list of risks? “[F]raud and scams among crypto-asset sector participants.”

The agencies wrote that they are “supervising banking organizations that may be exposed to risks stemming from the crypto-asset sector and carefully reviewing any proposals from banking organizations to engage in activities that involve crypto-assets.”

That said, the Federal Reserve, FDIC, and OCC made clear that banks are not prohibited— or even discouraged— from providing banking services to customers of any specific class or type that is permitted “by law or regulation.”

Although the joint statement did not outline specific actions, it is a loud-and-clear sign that top regulators have their eyes on the industry.

Crypto-related exposure for banks, the agencies said, is an area they “will continue to closely monitor.”

To read the statement in full, click here.


Are you banking crypto or considering getting started in crypto-banking? RiskScout is here to help ease onboarding and compliance for crypto and other high-risk markets. Get in touch to learn how RiskScout can help your growth.


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