FinCEN Says Some Dapps Are Subject to US Money Transmitter Rules

The Financial Crimes Enforcement Network published a new guidance sheet Thursday, outlining when and how different companies, individuals and platforms in the crypto space may be money transmitters under the Bank Secrecy Act and other relevant laws.

Being designated a money transmitter means a firm or person must obtain licenses in the states where they do business and follow federal AML and know-your-customer regulations.

If a dapp "Accept[s] and transmit[s] value," it qualifies as a money transmitter under the same regulatory interpretation applied to crypto-dispensing vending machines, FinCEN said.

"Accordingly, when dapps perform money transmission, the definition of money transmitter will apply to the dapp, the owners/operators of the dapp, or both."

The developers behind a dapp - even a dapp specifically designed to issue cryptocurrencies or at least facilitate financial services in crypto - do not qualify as money transmitters until the dapp is put into use.

Non-hosted wallets, meaning those where users control their funds, are exempted from possible money transmitter classifications but hosted online wallets are not.

There are some other exemptions as well: any person who provides support services to a money transmitter, acts as a payment processor for a good or service or acts as an intermediary between BSA-regulated institutions does not qualify as money transmitters.

If they only match buyers with sellers but do not touch any cryptocurrency during the transaction, would also be exempted from a money transmitter designation.

That's because traditional processors only work with financial institutions that are regulated under the BSA. Such institutions "Have greater visibility into the complete pattern of activities" of the buyer and the seller, FinCEN said, but when a payment processor is using crypto rails, "This visibility simply does not exist unless the [crypto] payment processor complies with the reporting obligations of a money transmitter."

In addition to state licensing requirements, individuals, platforms and companies that do not fall under an exemption are required to register with FinCEN as a money services business, develop anti-money laundering programs and report currency transactions, as well as any suspicious activity.