Yellen says some non-custodial entities won't be subject to FATF standards

Treasury Secretary Janet Yellen has clarified that U.S. federal regulations are already in line with the Financial Action Task Force's (FATF) crypto guidance, meaning less-than-easily categorized non-custodial entities won't bear the burden of transaction reporting.

Yellen's clarifications came in written responses to Sen. Pat Toomey (R-PA), who submitted questions for the secretary ahead of today's Senate Banking Committee hearing.

Toomey's questions included a section on the implications of the FATF's crypto guidance, which the intergovernmental body finalized last month. Within that guidance, the FATF called on governments to hold those behind decentralized finance (DeFi) protocols accountable for anti-money laundering standards, including collecting and transmitting user information during transactions.

However, the FATF clarified that the body did not recommend software be regulated, but rather that governments should identify the people or businesses that could be held accountable. 

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In light of this, Toomey asked if non-custodial services should be subject to money service business registration. The U.S. Financial Crimes Enforcement Network already has already implemented most of these standards, and like the FATF's guidance, excludes those providing ancillary services — like hardware wallet manufacturers, unhosted wallet providers, software developers and miners — from the definition of "virtual asset service provider" and the ensuing regulatory burdens.

In her responses today, Yellen said she agrees with this treatment.

"I agree with standing FinCEN guidance on this topic, and I believe the FATF does too," she wrote. 

To be clear, non-custodial entities may still bear the reporting burden if they act as a natural or legal person with a business interest. But those providing a tech-based non-custodial service, like securing or participating in a network, are excluded from the requirements. 

About Author

Aislinn Keely is a reporter on The Block's policy team holding down the legal beat. She covers court decisions, bankruptcies, regulatory actions and other key moments in the legal sphere, putting them in context for the wider crypto industry. Before The Block, she lent her voice to the NPR affiliate WFUV and helmed Fordham University's student newspaper. Send tips or thoughts on all things policy and legal to [email protected] or follow her on Twitter for updates @AislinnKeely.