The US Treasury Department plans to spell out the government perspective on financial access for money services businesses (MSBs), as well as hear concerns from the MSB community, at a roundtable discussion next week.
In response to the announcement of the meeting, the Chamber of Digital Commerce (CDC) has created the Financial Access Task Force and applied to make a presentation highlighting the issues that digital currency businesses face when trying to establish banking relationships.
The CDC, a digital currency advocacy organisation, is preparing industry data and comment that is currently being collected through a survey on the problems digital currency or asset-related businesses have faced opening and maintaining bank accounts – whether or not they are MSBs.
Highlighting banking issues
Forging banking relationships is crucial for businesses dealing with bitcoin and other digital currencies and assets, as well as for the growth of that ecosystem. However, many companies large and small have had difficulty doing so, or have had their bank accounts terminated for their association with digital currency.
The CDC seeks to bring greater attention to this issue at the Treasury meeting, at which industry representatives and members of the government, regulatory community, banking and credit union sectors, and MSB sector have been invited to participate.
“The purpose is to collect some real solid data on what is going on with digital currency companies and to be able to show what’s actually happening in the marketplace,” said Carol Van Cleef, chair of the CDC's Financial Access Task Force.
Van Cleef is also the co-chair of the Global Payments practice group and a member of the Financial Services and Banking practice at law firm Manatt, Phelps & Phillips.
“We’re hoping to encourage a more wholesome dialogue about digital currencies in the banking system. We want to work to get banking organisations more comfortable with the concept of digital currencies so that they’re not regarded as being bad actors.”
Denying financial access
The CDC is taking this action in part a result of FinCEN’s determination that certain types of digital currency companies are considered MSBs.
Van Cleef said:
“We are really at another inflection point in the MSB industry and unfortunately digital currency companies are in the wrong place and at the wrong time, and are getting sucked into what’s going on.”
The passage of the Patriot Act brought increasing pressure on banks in the early 2000s to look more closely at their customers, determine if they were money transmitters or MSBs and make decisions about whether they wanted to keep those customers.
As a result, the banking industry effectively became a de facto regulator for MSBs, loading them with more compliance requirements in just a couple of years than money transmission regulators did over decades.
It also led to many MSBs’ bank accounts being closed for any number of reasons – often that they were unlicensed or that they were unregistered – but in a lot of cases because the institutions didn't have the resources to carry out the due diligence being demanded from them in order to bank new customers.
Now, many banks will simply refuse service to MSBs because companies classified as such aren’t included in their risk profile, Van Cleef said, adding that it isn’t uncommon for banks to treat a business as an MSB without first understanding if it falls under the status of an MSB, or how it differs from a business that does.
“Money transmitters are where the regulated piece of the digital currency business seems to be lumped into," she explained. “They have been a very factionalized industry and they haven’t been able to put forward a strong voice or position on this issue.”
Assistance with compliance
The CDC aims to bring digital currency companies up to speed regarding their obligations for compliance, federal money laundering and criminal statutes, and teach them what anti-money laundering (AML) compliance is and how to manage it correctly.
The initiative, Van Cleef said, is underscored by the recent sentencing of Charlie Shrem for aiding and abetting the operation of an unlicensed money transmitting business.
“Silk Road allowed us to more carefully distinguish between illegal currency and illegal use of something that's very legitimate,” she said. “But that distinction often gets lost on very busy compliance officers.”
Additionally, the reports of continuing growth since the demise of Silk Road of listings for illicit goods and services that can be paid for in bitcoin, she added, doesn’t ease the nerves of bankers or regulators.
But compliance, she continued, is the name of the game. Teaching people what compliance is all about, how to think about it and how to act within its boundaries, will be key to getting businesses, banks and regulators on the same page.
“There’s probably not too many banking institutions that haven’t been tested at some point or another by criminals, and they’ve learned how to cope,” she said. “And that's where AML compliance systems come into play.”
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