The rules proposed by the US Treasury Department that require users to meet KYC requirements if they want to send their crypto to a private wallet could become ineffective, according to blockchain analytics firm Elliptic.
In its published response to the rule, Elliptic said the rules could “adversely affect” the effectiveness of the existing Anti-Money Laundering and Terrorist Financing (AML / CFT) regulations.
Earlier this month, Treasury released a pre-announcement of the proposed rule creation that would require users of centralized cryptocurrency exchanges who wish to move their holdings to their own private wallet or someone else’s to provide detailed personal information for transactions larger than $ 3,000 . The exchanges would have to report either individual or groups of transactions that also add up to more than $ 10,000.
According to the announcement by the Financial Crimes Enforcement Network (FinCEN), the public has until January 4, 2021 to provide comments or feedback on the rules.
In its response to the rule, Elliptic said that the rules overstate the risks proposed by non-hosted wallets, as transactions in cryptocurrencies can already be tracked by analyzing the associated blockchain ledger.
Such analytics are already used by law enforcement agencies to track down criminal activity. Therefore, according to Elliptic, the new rules would only increase documentation costs for information that can be accessed with existing resources.
The proposed rules were pushed back in concert even before their publication. Regulatory experts have indicated that the regulations could have far-reaching implications, including issues that Decentralized Finance (DeFi) projects could face.
Some of the concerns about the law also have to do with the fact that terms like non-hosted wallets are not clearly defined or whether financial institutions need to collect such information from counterparties.
Data cited by Elliptic in its response indicates that less than 10% of illicit funds remain in non-hosted wallets, and the vast majority of them are “just dormant”. Elliptic noted that since crooked actors are also completely dependent on their ability to withdraw money and convert it into fiat, information about such funds is passed on to FinCEN using Suspicious Activity Reports (SAR), so the new rules just add more documentary work.
In its response, Elliptic also said the Treasury Department’s 15-day comment deadline for this rule was “unduly short” and asked the department to extend the deadline to 90 days.
Elliptic argued that the proposed requirements were disproportionate to physical cash, saying that rules would “impose an unjustified tax on financial innovation.” In its recommendations to FinCEN, the company also argued that the proposed rules on record keeping by counterparties should also be deleted.
