The Financial Crimes Enforcement Network (FinCEN) and the Federal Reserve Board have asked for comments on a proposed rule that would amend the recordkeeping and travel rule regulations under the Bank Secrecy Act. FinCEN and the Board, pursuant to their shared authority, are proposing amendments to the recordkeeping rule jointly, while FinCEN, pursuant to its sole authority, is proposing amendments to the travel rule.
Under the current recordkeeping and travel rule regulations, financial institutions must collect, retain, and transmit certain information related to funds transfers and transmittals of funds over $3,000.
The proposed rule lowers the applicable threshold from $3,000 to $250 for international transactions. The threshold for domestic transactions remains unchanged at $3,000.
The proposed rule also further clarifies that those regulations apply to transactions above the applicable threshold involving convertible virtual currencies, as well as transactions involving digital assets with legal tender status, by clarifying the meaning of “money” as used in certain defined terms.
From the Section-by-Section Analysis:
Recordkeeping Rule and Travel Rule Thresholds
This proposed rule would lower the Recordkeeping Rule and Travel Rule thresholds set forth in 31 CFR 1020.410 and 31 CFR 1010.410(e) and (f) for financial institutions. The thresholds would be lowered from $3,000 to $250, but only with respect to funds transfers and transmittals of funds that begin or end outside the United States. As set forth in the proposed revised sections below, a funds transfer or transmittal of funds would be considered to begin or end outside the United States if the financial institution knows or has reason to know that the transmittor, transmittor’s financial institution, recipient, or recipient’s financial institution is located in, is ordinarily resident in, or is organized under the laws of a jurisdiction other than the United States or a jurisdiction within the United States.
For this purpose, a financial institution would have “reason to know” that a transaction begins or ends outside the United States only to the extent such information could be determined based on the information the financial institution receives in the transmittal order, collects from the transmittor to effectuate the transmittal of funds, or otherwise collects from the transmittor or recipient to comply with regulations implementing the BSA.
Financial institutions are already required to retain the address of the transmittor and recipient under the Recordkeeping Rule for transactions subject to the current threshold, and may, as a matter of their own business practices, retain the addresses of other participants in a funds transfer or transmittal of funds. This proposed rule would not impose any new requirements to retain address information, other than those resulting from a change to the applicable thresholds.
Definition of “Money”
This proposed rule also would revise the definitions of payment order and transmittal order set forth in the BSA regulations so that the Recordkeeping Rule and Travel Rule would explicitly apply to domestic and cross-border transactions in CVC and digital assets having legal tender status.
Both the Recordkeeping Rule and Travel Rule refer to a “payment order” (in the case of banks) and a “transmittal order” (in the case of financial institutions other than banks). These terms, in turn, use the term “money.” This proposed rule would clarify the meaning of money in 31 CFR 1010.100(ll) (payment order) and 1010.100(eee) (transmittal order), explaining that money includes (1) a medium of exchange currently authorized or adopted by a domestic or foreign government, including any digital asset that has legal tender status in any jurisdiction47 and (2) CVC. The proposed rule would define CVC as a medium of exchange (such as cryptocurrency) that either has an equivalent value as currency, or acts as a substitute for currency, but lacks legal tender status.
The agencies seek feedback on the following questions:
(1) To what extent would the proposed rule impose a burden on financial institutions,
including with respect to information technology implementation costs? To what extent would the burden be different for thresholds such as $0, $500, or $1,000 for funds transfers and transmittals of funds that begin or end outside the United States? What would be the impact on the burden if the proposed threshold change were extended to all transactions, including domestic transactions?
(2) To what extent would the burden of the proposed rule on financial institutions and the public be mitigated were the Agencies to select a threshold of $250 but not require nonbank financial institutions to collect a social security number or employer identification number (“EIN”) for non-established customers engaging in transmittals of funds between $250 and $3,000 that begin or end outside the United States?
(3) To what extent would the burden of the proposed rule be reduced if the Agencies issued specific guidance about appropriate forms of identification to be used in conjunction with identity verification, including in regards to whether there are circumstances in which verification may be done remotely and what documents are acceptable as proof?
(4) To what extent would the burden of the proposed rule on financial institutions and the public be mitigated if the Agencies were to include in the regulation the standard described in Section IV.A for determining when an institution would be subject to the $250 threshold for cross-border transfers, i.e., that “reason to know” that a transaction begins or ends outside the United States exists when such information could be determined based on the information the financial institution receives in the transmittal order, collects from the transmittor to effectuate the transmittal of funds, or otherwise collects from the transmittor or recipient to comply with regulations implementing the BSA?
They are also asking for comments from law enforcement on the effectiveness of the proposed change.
Comments will be accepted for 30 days after publication in the Federal Register. Instructions for replying are contained in the Joint Notice of Proposed Rulemaking.
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