2021-03-09 10:39:45

The Biden Administration, Cryptocurrency, And FinTech – Technology

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Cryptocurrency Landscape

Virtual currency is not just here, it’s hot. The asset class
seems to have no boundaries; a recent rise has pushed the market
value of bitcoin alone to $1 trillion. No longer a fad,
the new age of digital currency is seeing payment companies, asset
management funds, financial institutions, luxury products, and
industrial companies pushing it into the mainstream by trading in,
investing in, and issuing virtual currency, and shifting cash into
virtual currency around the globe. Governments are not far behind,
with dozens of central banks around the world exploring the idea of
issuing and using digital versions of their nations’ fiat

But regulatory concern about virtual currency is also real
– despite the benefits virtual currency provides, including
traceability. Speaking recently about bitcoin at a virtual conference, Treasury Secretary Janet
Yellen noted: “To the extent it is used, I fear it’s often
for illicit finance. It’s an extremely inefficient way of
conducting transactions, and the amount of energy that’s
consumed in processing those transactions is staggering.”

Federal Perspectives on Cryptocurrency

Even before President Biden took office, regulators had their
sights on fintech and cryptocurrency. A December 2020 Financial Crimes Enforcement
Network (FinCEN) 
proposed rule
 to require banks and cryptocurrency trading
platforms to keep records of a customer’s cryptocurrency
transactions and counterparties, including verification of the
customers’ identities, for any transactions exceeding $3,000
has been slowed by the Biden administration, but still has support
from many in government. The proposed rule also would require banks
and trading platforms to report to FinCEN within 15 days any
cryptocurrency transactions that involve “unhosted”
wallets and exceed $10,000. Unhosted wallets allow the owner of a
unique digital key to store cryptocurrencies and transact with
others directly without using a financial institution. 

The proposal originally provided an abbreviated 15-day comment
period and received more than 7,500 responses. On 26 January,
FinCEN announced another 60-day comment period regarding the crypto
rules, reflecting Treasury Department’s intent to seek more
input and further scrutinize the proposed rule. Opponents of the
proposed rule argued that it may not be effective in constraining
illicit activity, while also highlighting concerns about the
practical challenges associated with collecting and managing
information about unhosted-wallet counterparties and the potential
for the proposed requirements to inhibit innovation.

FinTech’s Future

President Biden’s appointment of Janet Yellen as Treasury
Secretary, Gary Gensler to head the Securities and Exchange
Commission (SEC), and the widely reported likely appointment of
Chris Brummer to chair the Commodity Futures Trading Commission
(CFTC) means these organizations will have leaders who understand
the benefits and challenges of cryptocurrency. During Secretary
Yellen’s recent nomination and committee hearing
, she committed to a deep review of cryptocurrency
markets in collaboration with other banking and finance regulators,
with the goal of establishing rules that limit “malign and
illegal activities” while at the same time supporting fintech
innovations based on blockchain technologies.

The Biden administration will also have to weigh the calls for added scrutiny and
regulation both of the fintech sector and of larger technology
companies seeking to make a splash in the financial services space.
Many expect that the Biden administration will support fintech companies, as they
develop innovative products and services for consumers. However,
entities of all stripes should anticipate heightened regulatory
scrutiny with a focus on consumer protection regulation and
enforcement priorities. They should also anticipate a closer look
at how these fintech firms are helping to serve unbanked or
underbanked communities. 

At a recent financial sector innovation round
, Secretary Yellen noted that financial technologies could
not only help expand access to banking and reduce inequality, but
also help fight financial crime by stemming the flow of dark money
from organized crime and helping fight back against hackers. During
the COVID-19 pandemic, hackers have triggered an increasing number
of sophisticated cyberattacks aimed at essential services like
hospitals, schools, banks, and governments. According to Secretary
Yellen, the passage of the Anti-Money Laundering Act in December
2020 allows the Treasury Department to rework a framework for
combating illicit finance, which has been largely unchanged over
the last 51 years. She noted, “Innovation should not just be a
shield to protect against bad actors. Innovation should also be a
ladder to help more people climb to a higher quality of

Financial services companies—both traditional banks and
fintech firms—can anticipate enhanced regulatory scrutiny and
potential new regulatory obligations in the years to come. Now is
the time for organizations to take stock of their compliance
programs, identify vulnerabilities, and address them—doing so
could help address the regulatory concerns of the future. 

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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