The cryptocurrency industry doesn’t have to worry about an overly burdensome U.S. regulation on unhosted, or private, wallets just yet.
“Nothing’s been decided” on the Financial Crimes Enforcement Network’s (FinCEN) proposed rule to collect counterparty data for transactions to unhosted wallets and require currency transaction reports (CTRs) for transactions over $10,000, the acting head of the regulatory agency said Thursday.
FinCEN continues to engage with the cryptocurrency industry about the controversial proposed rule, which critics claim would make it difficult – if not impossible – to use certain smart contracts and otherwise impose a heavy compliance burden on exchanges, said Acting Director Michael Mosier in a pre-recorded interview with Jill Carlson at CoinDesk’s Consensus 2021 conference.
The rule was proposed at the end of 2020 with support from former Treasury Secretary Steven Mnuchin. An originally brief public comment period on the proposal was extended in January, before a second extension gave industry participants 90 days to respond.
“There was a point where there was a really strong sense of urgency among political leadership in the last administration for a variety of factors on timing and what the risks and concerns were to address this,” Mosier said Thursday. “And I think what you saw was the moment we were given the ability to extend that comment period we did, and continued on with our engagement with industry on that.”
Mosier is one of a number of regulators reviewing the last presidential administration’s actions. The Office of the Comptroller of the Currency announced last week that it was reviewing actions undertaken in 2020 by its former head – Acting Comptroller Brian Brooks – as well.
Mosier became the acting head of the domestic financial law enforcement agency this year, succeeding Kenneth Blanco who abruptly stepped down. While he’s been a longtime public servant – working as a state and federal prosecutor prior to his roles at FinCEN – Mosier has also spent time in the private sector, first as an attorney in the technology practice of a law firm, and later as chief technical counsel at crypto analytics firm Chainalysis.
He told Carlson his view of his role stems from his interest in personal sovereignty and innovation, and protecting individuals from financial abuse or having their privacy invaded.
“I sort of went into the path of public service doing pro bono work for victims of domestic violence, to help them get protective orders,” he said. “And that really sort of put me more in the personal sovereignty space.”
Many individuals were abused financially, Mosier said, and so privacy and personal sovereignty may be two tools to help protect individuals.
“Money is a great enabler of a lot of opportunity, but it’s also an enabler and a driver of a lot of exploitation,” Mosier said. “How do you balance that transparency, that’s going to allow people to have faith in the system that they’re dealing with and that they’re not going to be exploited in it … versus having this sort of mix of privacy but also that’s not unaccountable anonymity?”
Part of FinCEN’s mandate as a Financial Intelligence Unit (FIU) is to look for trends or risks by analyzing data, Mosier said.
The agency can also be tasked with studying specific incidents. Mosier referred to the riots that occurred at the U.S. Capitol on Jan. 6 as one issue that FinCEN could study. A blogger sent just over 28 BTC to 22 wallets linked to far-right individuals and entities ahead of the riot.
“There was cryptocurrency involved … [about] $500,000, which actually is more than enough to fund something like [the riot],” he said. “And that’s the sort of thing that activates Congress.”
It turned out the crypto landed in hosted wallets (wallets linked to exchanges), but Mosier said Congress may ask how he is watching for other potential domestic terrorist attacks and the possible use of crypto.
Ransomware attacks on critical infrastructure like hospitals is another similar issue that FinCEN must watch for, he said, indicating that if FinCEN can proactively spot and address these concerns, it could prevent overly burdensome regulations from being implemented.
“When Congress acts, it’s very difficult to undo anything they do or modulate it, whereas if we can say, ‘Well, actually, we’re making a lot of progress,’ which doesn’t necessarily mean a rulemaking at all, it just means that we’re coming up with solutions. That’s the place where you want to be,” he said.
FinCEN’s proposed rulemaking drew a “very strong outpouring” of criticism after the agency introduced it, Carlson noted, asking how the crypto industry can better engage with policymakers who are designing regulations around the 12-year-old industry.
“It’s important to understand that not everybody in government is inherently suspicious of crypto,” Mosier said. “There’s a lot of people that are very interested in it and feel like it has incredible potential, including on the financial inclusion side, but also just the technical solution to a lot of policy issues.”
Industry participants should engage with those policymakers who are either pro-crypto or at least curious about the technology “in a non-negative way” to help them understand what the technical solutions to certain policy questions would look like.
They should also acknowledge the risks in these conversations, Mosier’s said, joking:
“Twitter might not be as conducive to that.”
Some of these government employees have been looking at crypto since 2011, he said.
“Don’t just send us your lawyers,” he said. “Send in the technical experts, the core developers.”