SEC Regulations vs. FinCEN
SEC Regulations vs. FinCEN
First and foremost, the U.S. Securities and Exchange Commission (hereinafter “SEC”) works with the Financial Crime Enforcement Network (hereinafter “FinCEN”) and not against it. There is a delicate interplay occurring between federal legislative branches and departments which fosters an important dynamic for enforcement of regulations under various statutory requirements at the Federal level.
FinCEN is actually a bureau within the United States Department of Treasury that gathers and evaluates information about transactions which are financial in nature for the purpose of combatting domestic and international financial crimes such as money laundering and terrorist financing.
The SEC is an independent agency of the United States federal government and is largely responsible for enforcing federal securities laws, regulating securities, and proposing new securities rules and regulations. The Security Exchange Act of 1934 created the SEC and assigned the enforcement responsibility to the SEC for the enforcement of the Securities Act of 1933. See:https://www.sec.gov/fast-answers/answersregis33htm.html.
FinCEN released guidance on the “Application of FinCEN’s Regualations to Persons Administering, Exchanging, or Using Virtual Currencies” on March 18, 2013.[1]The guidance clarifies the requirements for businesses and individuals making use of virtual currency in regards to MSB registration with FinCEN. This clarification is of significant importance due to the booming expansion of Virtual Worlds like Second Life, Entropia Universe, and others. Many users login to these virtual world grids and purchase in game currency without giving much thought to state or federal regulations regarding the purchase of said currency. Last year, there were many discussions circulating the web about who would need to register as an MSB according to FinCEN’s March 18, 2013 Guidance on Virtual Currencies.
Much confusion has ensued following the March 2013 Guidance on the Application of FinCEN’s Regulations to Persons Administering, Exchanging, or Using Virtual Currencies.
See: https://www.fincen.gov/sites/default/files/shared/FIN-2013-G001.pdf
The SEC had released various statements in 2017 indicating that it would soon regulate Cryptocurrency/Virtual Currency. However, this action was aimed at protecting investors from a newly developed Initial Coin Offering (hereinafter “ICO”), which was being used by many Companies to rollout their cryptocurrency services. Regardless of whether or not a Company offers cryptocurrency services or other services unrelated to cryptocurrency, federal regulations regarding investor funds and activities must still must be followed closely. Companies are not able to disguise and IPO as an ICO to skirt around registration requirements. Therefore, although cryptocurrency is not seen as a “security” in most cases (there are always exceptions); the investors placing money into companies in return for coin or shares must be protected. Therefore, leaders of the CFTC, FinCEN, and SEC finally issued a “Joint Statement on Activities Involving Digital Assets” on October 11, 2019 to aid in clarifying the role each governmental body plays in Digital Asset/Cryptocurrency/Virtual Currency regulation. See https://www.sec.gov/news/public-statement/cftc-fincen-secjointstatementdigitalassets
The Joint Statement clarified that all activities involving digital assets have responsibilities under the Bank Secrecy Act (BSA) to maintain legally sufficient anti-money laundering policies and procedures as well as countering the financing of terrorism. Further, the SEC, FinCEN, and the CTFC work together to coordinate efforts to prevent criminal financial activity. The laws are complex and intertwined in such a way that any Company desiring to engage in activity involving Digital Assets would be well advised to seek legal counsel to ensure compliance with all applicable federal laws and regulations as well as varying state laws which often narrow the scope of regulation.
