ABA: Regulatory clarity can reduce illicit finance risks in digital assets

The illicit finance risks posed by digital assets can be most effectively managed by regulating nonbank cryptocurrency companies while allowing banks to engage more fully in digital asset activities, where they will be subject to comprehensive regulation and Bank Secrecy Act requirements, ABA said today in a letter to the U.S. Treasury Department. The department recently sought public input on efforts to assess and mitigate the risks posed by digital assets, which can range from money laundering to financing terrorist activity.

In its comments, ABA noted there is a lack of regulatory clarity on this issue. “For example, it is not always clear which crypto entities are subject to the BSA, and even where it is, how those requirements should apply,” ABA said. “Providing regulatory clarity and encouraging banks to offer more digital asset products will lead to more focus by bank compliance teams on assessing digital asset risks.”

Many crypto firms are not regulated or only lightly regulated, while banks are among the most heavily regulated industries, the association said. Regulators “require approval before a bank can conduct crypto activities. This has pushed crypto activities out of the heavily regulated banking sphere and into the lightly regulated—or nonregulated—crypto world, which has further exacerbated illicit finance risks.”

Combating illicit finance risks related to cryptocurrencies will require a public-private partnership, ABA said. One way to achieve this is to use the Bank Secrecy Act Advisory Group—or a group like it—as a forum for federal and state regulators and the private sector to communicate freely and coordinate with each other on digital assets issues, the association added.