The FinCen bill on crypto wallets would likely be ineffective, Elliptic says

FinCen bill on crypto wallets would likely be ineffective, says Elliptic - crypto walletRules proposed by the US Department of the Treasury that would require users to comply with KYC requirements when sending digital assets to a private wallet could prove ineffective, according to blockchain analytics firm Elliptic.

In its analysis of FinCEN's new bill, Elliptic said the law could "have a negative impact" on the effectiveness of existing AML / CFT (AML / CFT) legislation.

In early December, the Department of the Treasury released an advance notice of the proposed regulation which stipulated that users of centralized cryptocurrency exchanges who wish to transfer their holdings to their own private wallet, or someone else's, should provide information. detailed personal information for transactions greater than $ 3.000. Exchanges would also be required to report single or group transactions that amount to more than $ 10.000, while now platforms such as Bitcoin Revolution they are not required to do so.

A controversial law

According to the announcement by the Financial Crimes Enforcement Network (FinCEN), the public will have until January 4, 2021 to make comments or feedback on the new bill. In its analysis, Elliptic said the law overestimates the risks posed by non-hosted wallets since transactions involving cryptocurrencies can already be tracked by analyzing the associated blockchain ledger.

Such analyzes are already being used by law enforcement to monitor criminal activity and, therefore, according to Elliptic, the new rules would only add the cost of documentation for information that can be accessed using existing means.

The proposed rules were also accepted by rejections agreed even before their release. Regulatory experts have indicated that the rules could have widespread repercussions, including problems that could arise for decentralized finance (DeFi) projects.

Some of the concerns raised about the law also have to do with how the law does not clearly define terms such as non-hosted wallet or with vague indications as to whether or not financial institutions should collect such information from counterparties.

Elliptic's requests to the Treasury Department

The data that Elliptic cites in its analysis finds that less than 10% of illicit funds remain in non-hosted portfolios and the vast majority of them are "simply dormant".

Elliptic noted that since even bad actors are entirely dependent on their ability to cash in and convert cryptocurrency into fiat, information about those funds is shared with FinCEN using Suspicious Activity Reports (SARs) and thus the new rules would simply add more work. the drafting and filing of documents.

Elliptic also said the 15-day period for commenting on this law imposed by the Treasury is "unjustifiably short" and asks the department to extend the period to 90 days.

Arguing that the proposed requirements are disproportionate to physical cash, Elliptic said the rules "would impose an unjustified tax" on financial innovation. In its recommendations to FinCEN, the firm also argued that the proposed rules for counterparty registration requirements should be removed.