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Proposed Rule on Modifications to the Record Keeping and Travel Rules

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Introduction

On October 23, 2020, the Financial Crimes Enforcement Network (“FinCEN”) and the Federal Reserve Board (“Board”) (the “Agencies”) announced that they were inviting comment and feedback on a proposed rule that would reduce the threshold of the Recording Keeping and Travel Rule regulations under the Bank Secrecy Act. Under the current recordkeeping and travel rule regulations, financial institutions must collect, retain, and transmit information related to funds transfers and transmittals of funds over $3,000.  The proposed rule lowers the applicable threshold from $3,000 to $250 for international transactions.  The threshold for domestic transactions remains unchanged at $3,000.

The proposed rule also further clarifies that those regulations apply to transactions above the applicable threshold involving convertible virtual currencies. The regulations also apply to transactions involving digital assets with legal tender status, by clarifying the meaning of “money” as used in certain defined terms.

This proposed rule is scheduled to be published in the Federal Register on October 27, 2020 and available online at federalregister.gov/d/2020-23756, and on govinfo.gov/.  Written comments on this proposed rule must be submitted on or before 30 days after date of publication in the Federal Register.

Background

On January 3, 1995, the Agencies jointly issued the “Recordkeeping Rule” that requires banks and non-bank financial institutions to collect and retain information related to funds transfers and transmittals of funds in amounts of $3,000 or more. [See 31 CFR § 1020.410(a) (recordkeeping requirements for banks) and 31 CFR 1010.410(e) (recordkeeping requirements for nonbank financial institutions)]. The Recordkeeping Rule is intended to help law enforcement and regulatory authorities detect, investigate, and prosecute money laundering, and other financial crimes by preserving an information trail about persons sending and receiving funds through the funds transfer system.

At the same time, FinCEN issued a separate rule – the “Travel Rule”. Under the Travel Rule, the originator’s bank or transmitter’s financial institution is required to include information, including all information required under the Recordkeeping Rule, in a payment or transmittal order of funds of $3,000 or more sent by the bank or nonbank financial institution to another bank or nonbank financial institution in the payment chain. An intermediary bank or financial institution is also required to transmit this information to other banks or nonbank financial institutions in the payment chain. (See 31 CFR § 1010.410(f)).

Lowering of Threshold from $3,000 to $250 for Funds Transfers and Transmittals of Funds by Financial Institutions That Begin or End Outside the United States

The Agencies are proposing to lower the threshold under the Recordkeeping Rule, and FinCEN is proposing to lower the threshold under the Travel Rule, to $250 for funds transfers and transmittals of funds that begin or end outside the United States.

In proposing these modifications, the Agencies believed their usefulness of transaction information associated with smaller-value cross-border transfers and transmittals of funds in:

•           Criminal, tax, or regulatory investigations or proceedings; and,

•           Intelligence or counterintelligence activities to protect against international terrorism.

Lowering of Threshold from $3,000 to $250 for Funds Transfers and Clarification of the Definition of “Money” as Applicable to the Recordkeeping and Travel Rules

The Agencies are also proposing to clarify the meaning of “money” as used in these regulations to ensure that they apply to domestic and cross-border transactions involving convertible virtual currency (“CVC”), such as cryptocurrency, that either has an equivalent value as currency, or acts as a substitute for currency, but lacks legal tender status. The Agencies further propose to clarify that these rules apply to domestic and cross-border transactions involving digital assets that have legal tender status.

Sia Partners urges all bank and non-bank financial institutions to carefully read and analyze this proposed rule and consider providing feedback to the Agencies during the relatively short – 30 days - comment period.

If you have any questions on this proposed rule or Record Keeping and Travel regulations in general, please contact:

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