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Treasury proposes rule to monitor crypto going to self-hosted wallets

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The Treasury has released its long-awaited proposal to restrict money services businesses, including U.S.-registered crypto exchanges, from dealing with self-hosted wallets.

In a Friday evening announcement, the Treasury’s Financial Crimes Enforcement Network, or FinCEN, announced proposed rules requiring registered crypto exchanges to verify the “identity of their customers, if a counterparty uses an unhosted or otherwise covered wallet and the transaction is greater than $3,000.” 

The rule is currently just a proposal. The Treasury has given stakeholders 15 days to respond with comments. 

Rumors of the proposed rules have been circulating for the past month. With Treasury Secretary Steven Mnuchin on his way out the door as a new administration comes in, they have been viewed as a parting shot at crypto. Of the announcement, he said: 

“This rule addresses substantial national security concerns in the CVC market, and aims to close the gaps that malign actors seek to exploit in the recordkeeping and reporting regime.”

A number of leading lawmakers have already come out in opposition to the proposed rule, which many see as an assault on the nature of peer-to-peer transactions. However, in the absence of a formal law, the Treasury has considerable rulemaking power in this area.

That said, the current proposal is not as radical as some feared. It would, rather, apply existing requirements to keep reports on transactions — the $3,000 threshold of the Travel Rule — to registered entities interacting with self-hosted wallets. Among registered entities, that threshold would instead be $10,000. 

This story is breaking and will be subject to updates. 



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Regulation

New York authorizes first Yen stablecoin operator in the US

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New York has given the first authorization to a stablecoin backed by the Japanese Yen to operate in the U.S.

Per a Dec. 29 announcement, the New York Department of Financial Services has granted Japanese firm GMO-Z.com a charter to handle U.S.D. and Yen-backed stablecoins in New York. 

Given New York’s status as a global center, the NYDFS is the most prominent state financial regulator in the U.S. It is also one of the most aggressive. A pass to operate in New York often opens up the rest of the country. 

GMO’s charter is as a limited liability trust company rather than a full bank, the principle difference being in authorization to handle deposits. While a stablecoin operator typically needs the ability to hold reserves of the pegged asset, GMO’s charter limits its rights to hold other kinds of deposits not central to its ability “to issue, administer, and redeem” its stablecoins. 

The right to issue such non-depository charters has been a bone of contention between state regulators like the NYDFS and national banking regulators in the U.S. 

GMO president and CEO Ken Nakamura said: “We’re breaking ground with our move to issue the first regulated JPY-pegged stablecoin, which many see as a safe haven asset.” 

The NYDFS recently made changes to its famous BitLicense, including a conditional format that buddies up newly licensed firms with existing licensees. The first conditional BitLicense went to PayPal, facilitating the launch of its new crypto services earlier this fall with the help of longstanding licensee Paxos.