Cryptocompliance 101: Here Are The Regulators Every Crypto MSB Needs To Know

January 14, 2019

If you’re an entrepreneur in the cryptocurrency space, you need to learn about financial regulation quickly. A great first step is learning about the major financial regulators in the industry.

We’re continuing our series of cryptocurrency compliance 101 posts to help cryptocurrency business owners understand the regulatory landscape, its nuances, and what steps need to be taken to strengthen their compliance. Today we’re looking at the federal financial regulatory groups; who they are, what they do, and what specific rules they hand down to MSBs operating in the crypto space.

Besides the federal agencies we’ll cover, do not forget that each state has its own financial regulatory agencies with unique rules that your business needs to follow if you are doing business in that state.

But if you’re running a cryptocurrency MSB anywhere in the United States, your business definitely falls under the purview of the following groups. Get to know them and keep an eye on their movements in the cryptocurrency space so that you don’t miss important changes in a rapidly changing environment.

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Let’s get started with…

The U.S. Securities And Exchange Commission (SEC) And ICOs

The U.S. Securities and Exchange Commission (or, the SEC) should sound familiar to most; they tend to show up in major news stories about financial crime. They’re most famous for busting Bernie Madoff, and if you stay up to date on financial regulators, you know they’ve taken a keen interest in cryptocurrencies lately.

The SEC is a United States government agency charged with enforcing federal securities laws. The agency has three major goals: to protect investors; enforce and maintain fairness in the free market, and facilitate capital formation.

Their regulatory purview includes the securities industry, U.S. stock and options exchanges, and electronic securities markets. They investigate fraud and market manipulation all the way up to Wall Street.

Like we hinted at above, cryptos have experienced some recent friction with the SEC. For instance, crypto entrepreneurs planning on launching an ICO (Initial Coin Offering) are immediately going to catch the SEC’s attention.

Just in the last year, the SEC has gotten tougher on cryptos, cracking down on ICOs and the startups they fund. Any crypto that conducts an ICO without having registered with the SEC will likely be subject to enforcement actions.


If you’re not launching an ICO, there aren’t any major steps you have to take to avoid potential scrutiny from the SEC, but take it from us — the more popular cryptocurrency becomes, the more the SEC will continue to expand the scope of their involvement in the space. Keep an eye on this agency, they’re only going to get more involved.

The Internal Revenue Service (IRS): A Partner In Regulating Crypto MSBs

The same agency every American becomes reacquainted with come April plays a key regulatory role in the effort to combat money laundering and other financial crimes.

Together with FinCEN (we’ll cover them next), the IRS is the primary regulator of Money Services Businesses (MSBs) in the United States. As we’ve written before, most crypto businesses are considered MSBs or money transmitters by regulators, and are thus required by law to develop the same compliance practices as traditional MSBs.

This means registering with the federal government, developing an anti-money laundering program so that your business isn’t used by financial criminals for illicit gain, reporting suspicious activity, and seeking state-level licensure (or clarification as to whether licensure is required of you) from the state within which you are headquartered.

In its partnership with FinCEN, the IRS’ primary role in anti-money laundering enforcement is examining the AML fitness of MSBs. This means that if you are running a cryptocurrency business, the fitness of your AML program, policies, and practices is ultimately the concern of the IRS.

FinCEN, Financial Crimes Watchdog

The Financial Crimes Enforcement Network (FinCEN) is a United States government agency that collects information about financial transactions in an effort to combat various financial crimes like money laundering and terrorist financing.

Along with the IRS, FinCEN plays a major role in anti-money laundering enforcement.

The agency is uniquely tasked with implementing, administering, and enforcing compliance with the Bank Secrecy Act (BSA), which, as we’ve covered before, is arguably the centerpiece legislation pertaining to financial compliance in the United States. It is what gives us the pillars of BSA/AML compliance, to which every MSB must adhere in order to run a successfully compliant operation.

Many federal and state agencies have not yet issued detailed and specific rules for cryptos. FinCEN is one of the few to have addressed crypto MSBs directly; first and foremost, the agency requires cryptos to register as MSBs with the U.S. Department of Treasury (with limited exception).

FinCEN also requires MSBs in the crypto space to be compliant with all reporting requirements and is uniquely authorized by the Secretary of the Treasury to assess civil penalties.

Bottom line, the agency is tasked with monitoring all financial institutions for money laundering, and this includes cryptocurrencies.

OFAC and International Persons Of Interest

The Office of Foreign Assets Control (OFAC) is in charge of enforcing economic and trade sanctions. They have the authority to monitor and freeze transactions and funds of individuals or operations if they are found to be in violation of domestic policy, or on a watchlist promulgated by the agency. This authority extends to cryptocurrency transactions as well.


Additionally, OFAC has begun adding individual wallet addresses to their blacklist if they are found to be in connection with illegal activity or tied to people of interest. To say that conducting business with those on the list is going to be bad for business is an understatement; in this case, it is absolutely critical to avoid.

OFAC will issue civil penalties, steep fines, and other enforcement actions on you if you are found to be conducting business with anyone on its list. This is why it is strongly urged to practice proper KYC and check customer names against the OFAC list regularly (read: every transaction).

Let me say it again: Everyone a financial institution does business with must be screened through an OFAC search without exception. You need to check your customer’s information against OFAC watchlists and report any matches you find.

Key Takeaways for Crypto MSBs

These are the four main government agencies that you need to understand and be in compliance with if you operate or are thinking about opening an MSB or other crypto-related business.

Though we have given a brief overview of each agency and their policies on cryptocurrency compliance, their regulatory reach into the space will continue to change and expand as the cryptocurrency industry grows. For that reason, you should make every effort to stay up-to-date on any relevant news from these regulators.

Understanding these regulators is vital to operating a successful and compliant business and preventing legal and financial trouble down the road.

If you need help navigating these (and state-level) financial regulators and designing and enforcing policy that is compliant with their rules and guidelines, contact BitAML for a free consultation today:

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