Square, is a financial services company that was founded in 2009 to expand economic access for individuals and businesses underserved by the existing financial system. Since that time, we have provided tools to millions of entrepreneurs and individuals that have helped them run their small businesses, manage their finances, and grow in the economy.
One of our core principles is that people should have the ability to participate in financial systems easily and equitably. No one should be left out because the barriers are too high, the cost is too great, or the technology too complex. Because we believe that bitcoin can help deliver on this vision, Square has invested substantially in the health of its ecosystem from a product, leadership, innovation, and legal perspective. This includes initiatives such as Square Crypto, an independent team dedicated to contributing to and improving the open source ecosystem, and the Cryptocurrency Open Patent Alliance (COPA), a non-profit with the purpose of encouraging the adoption and advancement of cryptocurrency technologies and removing patents as a barrier to growth and innovation, and providing the ability for our customers to buy and sell bitcoin through our products.
The recently released Notice of Proposed Rulemaking on Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets (the “Proposal”) would require cryptocurrency service providers like Square to keep records of and report certain cryptocurrency transaction information far beyond what is required for cash transactions today.
With this rulemaking, FinCEN seeks to expand reporting and Know Your Customer (“KYC”) type obligations to parties who are not our customers. Instead of leveraging blockchain tracing with wallet addresses (which to date has proven effective in tracking the unlawful activity cited in the Proposal leading to indictments and convictions), FinCEN proposes a static requirement that would have us collect names and physical addresses from non-customers. To put it plainly — were the Proposal to be implemented as written, Square would be required to collect unreliable data about people who have not opted into our service or signed up as our customers.
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This creates unnecessary friction and perverse incentives for cryptocurrency customers to avoid regulated entities for cryptocurrency transactions, driving them to use non-custodial wallets or services outside the U.S. to transfer their assets more easily (non-custodial, or “unhosted” wallets are a type of software that lets individuals store and use cryptocurrency, instead of relying on a third party). By adding hurdles that push more transactions away from regulated entities like Square into non-custodial wallets and foreign jurisdictions, FinCEN will actually have less visibility into the universe of cryptocurrency transactions than it has today.
The impact of the Proposal would not only hamstring law enforcement capabilities, but also limit American innovation by hindering our ability to create a competitive service that allows customers to seamlessly transfer and transact in cryptocurrency the way the technology was designed. The burdensome information collection and reporting requirements deprive U.S. companies like Square of the chance to compete on a level playing field to enable cryptocurrency as a tool of economic empowerment.
This is a critical moment in the development of cryptocurrencies and the associated regulations that govern their use. Delays in modernizing old regulations, or issuance of new regulations that are not risk-based and where the implementation fails to account for the incentives created, creates a drag on innovation, economic growth, and American competitiveness. FinCEN has an opportunity to lead at this moment with regulations that support American-grown innovation and the technologies that drive it. This Proposal, especially given the lack of proper time for meaningful review, falls short. Ultimately this will not only harm the economic empowerment of individuals and payments innovation more broadly, but also diminish FinCEN’s fundamental responsibility to protect the financial system — a goal which we strongly share.
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