Digital assets subject to money-laundering, disclosure laws

Firms with registered digital assets have an obligation to follow securities laws

Three US financial regulators on Friday issued a warning to firms with registered digital assets that they have an obligation to follow securities laws prohibiting money laundering and requiring disclosure of suspicious activity.

The notice, from the US Securities and Exchange Commission, Commodity Futures Trading Commission and the Financial Crimes Enforcement Network, seeks to clarify firms’ obligations under anti-money laundering, bank secrecy, and counter terrorist-financing laws when using digital assets such as cryptocurrencies.

Trading and investing in digital assets have fallen into a regulatory gray area as to which existing laws apply. However, on Friday the regulators said they believed laws that aim to prevent the financial system from being used to fund illicit activities broadly applied to digital assets.

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“Bank Secrecy Act obligations that apply to a broker-dealer in securities, mutual fund, futures commission merchant or introducing broker - such as developing an anti-money laundering program or reporting suspicious activity - apply very broadly and without regard to whether the particular transaction at issue involves a ‘security’ or a ‘commodity’ as those terms are defined,” the regulators said.

Over the past two years, the SEC and CFTC have issued guidance to clarify their position on which securities and commodities laws apply to certain digital assets, including cryptocurrencies bitcoin and ether. On Thursday, the new head of the CFTC said the agency regarded either as a commodity.

In July, the SEC issued a notice on broker-dealer custody of digital asset securities amid industry requests for clarity on whether they can hold such assets under federal securities laws.

That notice required that entities seeking to participate in the marketplace for digital asset securities comply with the relevant securities laws, most notably the customer protection rule.

That notice and other regulatory guidance should pave the way for more traditional investors to hold digital asset securities, analysts have said.