Treasury and the Federal Reserve are withdrawing another long-pending rulemaking that would have expanded financial surveillance of cryptocurrency users.
In October 2020, FinCEN and the Federal Reserve jointly proposed lowering from $3,000 to $250 the threshold at which financial institutions must collect, retain, and transmit information about certain funds transfers that begin or end outside the United States. The proposal also would have clarified that the existing Recordkeeping and Travel Rules apply to transactions involving convertible virtual currency and digital assets with legal tender status.
Coin Center commented on the proposal at the time, warning that lowering the threshold would subject vastly more ordinary transactions to warrantless financial surveillance while the agencies had failed to seriously consider the resulting costs to individual privacy.
Although Coin Center generally does not focus on the regulation of financial institutions themselves, we are particularly concerned when financial surveillance requirements reach beyond intermediaries and burden an individual’s ability to self-custody assets directly.
As we wrote then, regulatory analysis should account not merely for compliance costs imposed on regulated firms, but also for the costs imposed on individuals whose sensitive financial information the government requires those firms to collect and retain. The proposal contained no meaningful assessment of those privacy costs despite dramatically expanding the universe of transactions subject to these requirements.
The agencies are now withdrawing the proposal rather than moving forward with that expansion. The agencies also made clear that any similar future proposal would require a new opportunity for public comment.
This follows Treasury’s withdrawal last month of the proposed “unhosted wallet” and cryptocurrency mixing rules, both of which Coin Center had also opposed. Taken together, these withdrawals close the books on several long-pending proposals that would have expanded the Bank Secrecy Act’s already extensive financial surveillance regime. We are pleased to see them formally abandoned.