Whether financial services companies are actively engaged in the cryptoeconomy revolution or are watching it develop while planning for the future, there is increased interest in the relevant technologies and the questions of how companies can adapt. One question financial services companies have is how these technologies are and will be regulated, and in particular, what compliance responsibilities will financial services companies have with respect to anti-money laundering.Many banks are reluctant to offer clients services related to cryptocurrency because of well-founded concerns over anti-money laundering risks. According to a September 2019 report from consulting firm EY, this risk stems primarily from “the difficulty of identifying the beneficial owners of cryptocurrencies . . .”, which is essential knowledge in anti-money laundering programs. Banks operating in the United States should be aware, however, of the regulatory environment any cryptocurrency services they implement will exist in.

It’s possible that the United States will issue comprehensive regulations on cryptocurrency in the future, including provisions relevant to financial services companies’ anti-money laundering responsibilities, but at present, activities involving cryptocurrencies are subject to overlapping U.S. regulatory regimes and the U.S. Bank Secrecy Act (“BSA”).

As this 2018 Allen & Overy White Paper explains, the Bank Secrecy Act provides that only persons considered “financial institutions” are subject to AML regulatory obligations. “[T]he definition of “financial institution” depends, inter alia¸ on registration requirements imposed by the Financial Crimes Enforcement Network (“FinCEN”) (with respect to money services businesses”), the Securities and Exchange Commission (“SEC”) (with respect to issuers, brokers, and dealers of securities), and the Commodity Futures Trading Commission (“CFTC”) (with respect to brokers and dealers of commodities and related financial derivatives).” In 2019 FinCEN issued guidance indicating that businesses dealing with Convertible Virtual Currencies (CVCs), a particular type of cryptocurrency, may be subject to the BSA as well. In addition, Allen & Overy note that states also apply their own regulatory requirements, such as the New York State Department of Financial Services “Bitlicense” regulation.

The White Paper notes that, “[w]hether qualifying as an MSB or a broker or dealer in securities or commodities, the BSA requires Financial Institutions to maintain a risk-based AML compliance program, apply a customer identification program (CIP), report suspicious activity and certain other transactions, and maintain certain records.” The confusion created by multiple regulatory schemes, however, has helped deter some financial institutions from directly engaging cryptocurrencies, but these banks are in danger of falling behind. Cryptocurrency will likely only continue to grow in importance, as China and Facebook already realize (both the country and the social media company are looking to develop their own cryptocurrencies).