The leaders of the US Commodity Futures Trading Commission, the Financial Crimes Enforcement Network, and the US Securities and Exchange Commission have issued a joint statement to remind persons engaged in activities involving digital assets of their anti-money laundering and countering the financing of terrorism (AML/CFT) obligations under the Bank Secrecy Act (BSA).
AML/CFT obligations apply to entities that the BSA defines as financial institutions, such as futures commission merchants and introducing brokers obligated to register with the CFTC, money services businesses (MSBs) as defined by FinCEN, and broker-dealers and mutual funds obligated to register with the SEC. Among those AML/CFT obligations are the requirement to establish and implement an effective AML programme and record keeping and reporting requirements, including suspicious activity reporting (SAR) requirements.
For the purpose of this joint statement, digital assets include instruments that may qualify under applicable US laws as securities, commodities, and security- or commodity-based instruments such as futures or swaps. The statement acknowledges that market participants refer to digital assets using many different labels. The label or terminology used to describe a digital asset or a person engaging in or providing financial activities or services involving a digital asset, however, may not necessarily align with how that asset, activity or service is defined under the BSA, or under the laws and rules administered by the CFTC and the SEC. For example, something referred to as an 'exchange' in a market for digital assets may or may not also qualify as an 'exchange' as that term is used under the federal securities laws. As such, regardless of the label or terminology that market participants may use, or the level or type of technology employed, it is the facts and circumstances underlying an asset, activity or service, including its economic reality and use (whether intended or organically developed or repurposed),that determines the general categorisation of an asset, the specific regulatory treatment of the activity involving the asset, and whether the persons involved are 'financial institutions' for purposes of the BSA.
The nature of the digital asset-related activities a person engages in is a key factor in determining whether and how that person must register with the CFTC, FinCEN, or the SEC. For example, certain commodity-related activities may trigger registration and other obligations under the Commodity Exchange Act (CEA), while certain activities involving a security may trigger registration and other obligations under the federal securities laws. If a person falls under the definition of a financial institution, its AML/CFT activities will be overseen for BSA purposes by one or more of the Agencies (and potentially others). For example, the AML/CFT activities of a futures commission merchant will be overseen by the CFTC, FinCEN, and the National Futures Association (NFA); those of an MSB will be overseen by FinCEN; and those of a broker-dealer in securities will be overseen by the SEC, FinCEN and a self-regulatory organisation, primarily the Financial Industry Regulatory Authority (FINRA).
Certain BSA obligations that apply to a broker-dealer in securities, mutual fund, futures commission merchant, or introducing broker, such as developing an AML programme or reporting suspicious activity, apply very broadly and without regard to whether the particular transaction at issue involves a security or a commodity, as those terms are defined under the federal securities laws or the CEA.
Like this item? Get our Weekly Update newsletter. Subscribe today