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Merging Market Topic and Definition Update

What is Cryptocurrency?

Cryptocurrency (or “crypto”) is a digital currency that can be used to buy goods and services. It uses an online ledger with strong cryptography to secure online transactions. Much of the interest in these unregulated currencies is to trade for profit, with speculators at times driving prices skyward. 

Transactional cryptocurrencies serve as a way to store and exchange value. Examples include bitcoin and litecoin. Cryptocurrency platforms create an infrastructure to build a new blockchain application. Ethereum is an example of a cryptocurrency platform that uses blockchain technology to create and run decentralized digital applications.

Important Regulatory Topic Updates

FinCen Proposed New Reporting / Recordkeeping Requirements for Crypto Transactions 

This proposed rule complements existing BSA requirements applicable to banks and MSBs by proposing to add reporting requirements for CVC (Convertible Virtual Currency) and LTDA (Digital Assets with Legal Tender Status) transactions exceeding $10,000 in value. 

Pursuant to the proposed rule, banks and MSBs will have 15 days from the date on which a reportable transaction occurs to file a report with FinCEN. Further, this proposed rule would require banks and MSBs to keep records of a customer’s CVC or LTDA transactions and counterparties, including verifying the identity of their customers, if a counterparty determines to use an un-hosted or otherwise covered wallet and the transaction is greater than $3,000. 

FDIC Proposed Change to Modify SAR Reporting 

The FDIC is proposing a rule change that would modify the requirements for FDIC Supervised Institutions to file SARs (Suspicious Activity Reports). The proposed rule would amend the FDIC’s SAR regulation to allow the FDIC to issue exemptions for SAR requirements. The proposed rule would make it possible for the FDIC to grant relief to FDIC supervised institutions that develop innovative solutions to meet Bank Secrecy Act (BSA) requirements more efficiently and effectively. 

The policy objective of the proposed rule is to allow the FDIC to grant SAR filing exemptions, in conjunction with the Financial Crimes Enforcement Network of the Department of the Treasury (FinCEN). The FDIC supervised institutions can then leverage existing or future technologies to report information concerning suspicious activities in a different manner, time frame, or to share SAR related information. 

Call Report Proposed Changes 

The proposed changes are related to the fact that certain sweep deposits will no longer be reported as “brokered deposits” under two recent final rules. Under the proposal, several new data items would be added to Schedule RC-E (Deposit Liabilities) that are intended to do the following: 

  • Stability – help evaluate the funding stability of sweep deposits over time for purposes of applicable liquidity regulations. 

  • Risk – assess the risk factors associated with sweep deposits for determining their deposit insurance assessment implications, if any. 

Schedule RC-E 

The following new items would be added: to Schedule RC-E in all versions of the Call Report: 

  • Fully Insured, Affiliate Sweep Deposits [New Memo Item 1(h)(1)] 

  • Not Fully Insured, Affiliate Sweep Deposits [New Memo Item 1(h)(2)] 

  • Fully Insured, Non-Affiliate Sweep Deposits [New Memo Item 1(h)(3)] 

  • Not Fully Insured, Non-Affiliate Sweep Deposits [New Memo Item 1(h)(4)] 

  • “Designated Exception” Sweep Deposits [New Memo Item 1(i)] – total sweep deposits that are not brokered due to a primary purpose exception. 

These new items would be reported quarterly on the FFIEC 031 and FFIEC 041 report forms, and semiannually on the FFIEC 051 form. 

Comments are due by April 6, 2021 

For further information, please use the reference below. 

Reference: Federal Register; February 5, 2021; pp. 8480-8486. 

Regulatory Question and Answer


What is the difference between compliance audit and compliance monitoring? 


Compliance auditing represents an evaluation of compliance activities completed independent of the process on a periodic basis. An example of this; your periodic internal and external audits of the compliance process. 

Compliance monitoring represents the evaluation of activities completed that are not necessarily independent of the process but are on a routine or continuous basis. 

Within your compliance management system (CMS), it is not only important but expected that your financial institution will have both audit and monitoring in place. This helps provide for a more complete verification and confirmation of your CMS and will be relied on by the regulators.