In a recent development, the Financial Crimes Enforcement Network [FinCEN] published a thirty-page document guiding financial institutions to comply with current regulations while interacting with digital assets, and further analyzed activities and entities that come under their jurisdiction.
The latest “interpretive guidance” released by FinCEN noted that the guidance did not entail any new regulatory establishment. Instead, it “consolidates” existing FinCEN regulations and administrative rulings issued in 2011.
The guidance document stated that current and emerging business models, specifically involving money transmission in “convertible virtual currencies” or CVCs, would fall under the current obligations of the Bank Secrecy Act [BSA].
The overall guidance is structured in six sections. Section 1 to 5 entails key concepts, consolidation and summarizing the existing FinCEN regulations under BSA involving money transmission involving CVC activities, a summary of development and content of FinCEN’s 2013 guidance and regulatory approach. Section 6 lists all the resources for the purpose of further explanation covered in the guidance.
Software or non-custodial wallet providers and multi-sig providers without the ability to transact are not regulated as money transmitters.
The comprehensive document also highlighted decentralized applications or DApps in the same section, stating,
“The same regulatory interpretation that applies to mechanical agencies such as CVC kiosks applies to DApps that accept and transmit value, regardless of whether they operate for profit. Accordingly, when DApps perform money transmission, the definition of money transmitter will apply to the DApp, the owners/operators of the DApp, or both.”
Drawing a significant difference, FinCEN further noted that DApp developers did not qualify under the money transmitter definition only for creating the DApp. They will qualify as money transmitters under the BSA only when the DApp created is put to actual use for the purpose of money transmission.
The FinCEN document is similar to the recent framework published by the US Securities and Exchange Commission on the regulations applicable while engaging in the offer, sale, or distribution of digital assets.
The co-founder of @bloxrouteLabs, Emin Gun Sirer, tweeted,
“It is remarkable what the document does not do: it does not ban the tech. It does not ban any aspect of the technology that actually makes FINCEN’s job harder. It leaves anonymity providers exempt, for instance.”
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ErisX goes all hands on deck to launch a Bitcoin Futures market
ErisX’s CSO, Matt Trudeau, detailed the company’s four important plans for the future, which includes launching a spot market, to secure a Bit License, DCO, and to launch a futures market.
ErisX currently has a DCM contract, which is a Derivative Contract Market that allows ErisX to run a CFTC-regulated futures exchange. However, ErisX aims to get a DCO [Derivatives Organization], which will effectively allow it to run a CFTC-regulated clearinghouse. A clearinghouse would mean that ErisX can take control of the custody of the assets and clear and settled trades.
The CSO explained the benefit of this, stating,
“There is some efficiency for firms like producers [like mining companies]; if they need to hedge their inventory or need liquidity on a spot market, they could do that conveniently on a single platform. “
Trudeau added that from the “post-trade standpoint” and “the collateral management standpoint,” ErisX would have cash, crypto, and the futures, all stored in their clearinghouse. This would boost efficiency since it would be available for all customers under a single platform. The CSO added,
“… so there is some efficiency in terms of managing collateral, if you don’t have assets on multiple platforms, it can all be in our clearinghouse.”
Apart from the aforementioned plans, Trudeau added that the crypto-industry needs to mature more and that ErisX plans to make a significant contribution to that. He added,
“The market is professionalizing and we think that in terms of what institutions are expecting from a trading/custody experience, we will bring some of the solutions to the market and that’s really the foundational pieces that they are looking in order to build their businesses on top of us.”
Apart from ErisX, LedgerX has also received a go-sign from the CFTC to settle Bitcoin Futures in Bitcoins. Other exchanges include Intercontinental Exchange’s Bakkt and Seed CX.
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