FinCEN has issued a notice that it intends to amend the regulations implementing the Bank Secrecy Act (BSA) regarding reports of foreign financial accounts (FBAR) to include virtual currency as a type of reportable account under 31 CFR 1010.350. Currently, the Report of Foreign Bank and Financial Accounts (FBAR) regulations do not define a foreign account holding virtual currency as a type of reportable account. (See 31 CFR 1010.350(c)). As a result, the notice indicates that “at this time, a foreign account holding virtual currency is not reportable on the FBAR (unless it is a reportable account under 31 C.F.R. 1010.350 because it holds reportable assets besides virtual currency).”
We look forward to seeing the scope of the reporting obligations. A number of options exist for users to hold crypto currency, including hosted wallets and user-controlled (un-hosted) wallets. Hosted wallets are “managed” by an exchange or other financial services entity and the entity holds the private key for those wallets. With user-controlled wallets, the user maintains control of the private keys and a financial institution need not be involved. Most likely the obligations will apply to hosted wallets
This notice is another example of the increased focus on the part of regulators to shine a light on crypto activity. While some crypto purists bemoan crypto regulation, many others believe that increased regulatory clarity and safeguards are necessary for large institutions to get more heavily involved in the space.
The notice did not give a timeline for the proposed amendments or when they would come into affect. We plan to provide updates on this as available.