The US Treasury has finally disclosed their long-anticipated proposal to begin restricting the use of self-hosted wallets by money services businesses. This announcement had been made on Friday evening and the proposed rules were announced by the Financial Crimes Enforcement Network, known as FinCEN. Under this rule, crypto exchanges will be required to verify the identities of their customers, if a counterparty decides to make a transaction through an unhosted or covered wallet in excess of $3,000. As of now, this rule is currently just a proposal and 15 days have been given by the US Treasury to stakeholders for responding to the proposal with their different comments.
There have been rumors circulating about this proposed rule in the crypto space for months now. The Treasury Secretary, Steve Mnuchin was seen as making this move as a final attack on the crypto space before the new Biden administration takes over. Mnuchin highlighted this rule in the official announcement as a way to address the substantial concerns that have sprung up over national security in the CVC market. Mnuchin said that the aim of this rule was to close the gaps that are used by malicious actors for exploiting the recordkeeping and reporting legislation of the country.
It hadn’t taken long for the proposed rule to see some major resistance, as there was an increasing number of lawmakers who had already expressed their displeasure at it. As a matter of fact, most of the lawmakers consider this new rule to be a direct attack on the primary nature of the peer-to-peer transactions. The real problem is associated with the absence of a formal law, which allows the Treasury to hold a significant amount of rulemaking power in this area. However, it should be noted that the proposal that has been introduced is not as aggressive as or radical, as was feared by some of the more paranoid elements of the crypto community.
Rather than introducing something that would come off as more draconian, they have established a transaction threshold of $3,000, which is in accordance with the current requirements of the Travel Rule. Moreover, it is important to note that the minimum reporting threshold that has been set for transactions between registered organizations are actually three times higher, which means that they are only required to report their transactions if they are in excess of $10,000.
Nevertheless, only time will tell how things turn out with this new rule. It also depends whether the Treasury will be able to actually implement this rule before Mnuchin will step down from his position when the Biden administration takes over. Regardless, it is a given that it is a good step towards better regulations in the crypto space, even though some people are certainly going to be unhappy about it. This is a common reaction when it comes to any regulation that’s introduced in the crypto space. However, this kind of rule just might bring down the risks that people usually associate with this market.