ErisX Submits Response to FinCEN proposed NPRM
ErisX submitted a letter in response to the Department of the Treasury, Financial Crimes Enforcement Network’s (“FinCEN”) Notice of Proposed Rulemaking regarding “Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets” (the “NPRM”). We also support the comment letter submitted by the Chamber of Digital Commerce.
In summary, ErisX supports the important goals of FinCEN in combating money laundering, terrorist financing, and other illicit acts. As evidenced by our voluntary and early adoption of the Commodity Futures Trading Commission’s (CFTC) Core Principles to our spot market (including market and trade practice surveillance) in addition to full implementation of the CFTC Core Principles to our futures market and clearing infrastructure — as required by law. We believe that detecting and preventing bad actors from utilizing blockchain and distributed ledger technology is both the right thing to do and essential to the long-term growth and success of the industry.
While ErisX is a hosted wallet provider, we believe unhosted wallets are an important innovation and part of the value proposition for digital assets. We have several concerns with the NPRM’s proposal to create a bifurcation in the digital currency industry and treat unhosted wallets as hostile:
- Reliance on self-reporting of ownership information is likely to result in deliberately inaccurate ownership information reported for unhosted wallets that are used for legitimate purposes and are reported accurately.
- The NPRM, if implemented as drafted, will result in multiple sources (Banks and MSBs) reporting a treasure trove of information (with low reporting thresholds) to a single destination, where it is susceptible to cyber attack, leakage, or digital intrusion or hacking.
- The costs associated with compliance with the NPRM are likely to be significant, especially for small entities that make up a majority of this developing industry; including software development costs for proprietary software; increased storage costs; increased vendor costs for updated software, alerts, storage, reporting; and overall costs for unanticipated fines.
- If the approach undertaken in the NPRM is not adopted internationally, participants in this global industry will utilize markets in less intrusive jurisdictions and innovative entities will also establish in less restrictive jurisdictions to avoid the increased costs of compliance and stifling regulation.
In conclusion, blockchain technology, on which all hosted and unhosted wallets operate, already provide surveillance, tracking, and transaction reconstruction tools that are well-beyond tools available for fiat currencies. We therefore encourage development of a more tailored and risk-based solution.