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For Bank AML Compliance, New Crypto Registration Questions to Consider

Gensler’s comments, particularly his interpretation that securities laws apply to most of the crypto space and therefore the majority of companies have failed in their registration obligations, also put further pressure on banks holding crypto business accounts.

“Of the nearly 10,000 tokens in the crypto market, I think the vast majority are securities,” he said. “Offers and sales of these thousands of crypto security tokens are covered by securities laws.”

“Some tokens may not meet the definition of a secure – what I will call insecure crypto tokens,” he said. “These probably only represent a small number of tokens, although they may represent a significant portion of the overall value of the crypto market.”

This interpretation could embarrass banks.

Banks are the junction point between the worlds of fiat and cryptographic values, the on- and off-ramp for exchanges and transactions to become tangible and real currencies.

What does this mean for financial crime compliance officers in the field?

Although they are not responsible for the customers of their virtual exchange clients, a compliance team may wish to interview connected crypto companies to ask whether they have registered with the SEC or the Commodities Futures Trading Commission ( CFTC).

Such a series of questions is a balancing act as to how much an AML agent wants to harass or alienate a crypto exchange client by asking if they have reviewed their own operations, assessed their similarity to securities firms securities and voluntarily sought registration advice from the SECOND.

The reason: Currently, Congress has not passed a new bill declaring that, yes, crypto companies are securities or, more specifically, that individual companies have been analyzed and deemed to have passed the “test Howey” historic and seminal.

The Howey test refers to the United States Supreme Court case to determine whether a transaction is considered an “investment contract” and would therefore be considered a security and subject to the disclosure and recording requirements in under the Securities Act of 1933 and the Securities Exchange Act of 1934. , according to online definitions.

According to Howey’s test, an investment contract exists if there is an “investment of money in a joint enterprise with a reasonable expectation of profit from the efforts of others”.

Currently, one of the main compliance and registration requirements for crypto exchanges, at least in the United States, is that they must be registered with the Financial Crimes Enforcement Network (FINCEN) of the United States Treasury and are subject to the full range of AML program rights.



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