Banks Urge FinCEN ID Checks for Secondary Stablecoin Markets

The Bank Policy Institute filed a comment letter asking the Financial Crimes Enforcement Network to extend customer identification rules to secondary stablecoin markets. The lobbying group represents large U.S. banks including JPMorgan, Bank of America, Wells Fargo and Citi.

The letter responded to FinCEN’s proposal called the “Permitted Payment Stablecoin Issuer Customer Identification Program.” BPI wrote that exchanges and other platforms that establish account relationships with retail customers to facilitate buying and selling of payment stablecoins should be subject to Customer Identification Program requirements under the Bank Secrecy Act.

BPI argued that a large share of stablecoin trading happens on secondary platforms and that illicit activity tied to stable assets frequently occurs in those markets. The filing asked the proposed rule to clarify the duties of retail and decentralized exchanges so those venues would face the same customer identification obligations intended for issuers.

FinCEN’s proposal notes limits to collecting customer data on secondary markets. The agency wrote that for customers trading directly on blockchains, identities are “often anonymous or pseudonymous” and that “blockchains are by nature decentralized algorithms, so there is often no central collection point at which identifying information is collected.” The proposal also said issuers have a “limited ability to collect customer information on the secondary market” and that expanding information collection would be “practically challenging.”

BPI recommended that regulators include various decentralized market participants in secondary-market oversight when those participants establish account relationships with retail users. If regulators adopt that view, exchanges and other secondary-market platforms would need procedures to verify customer identities and to maintain the records required under the BSA.

The filing follows earlier industry action in May, when BPI and other banking organizations rejected the current version of the Digital Asset Market Clarity Act, citing gaps that could allow distribution of activity-based yield to stablecoin users.

FinCEN and Treasury will consider BPI’s request alongside the technical and practical limits described in the proposal. Extending CIP obligations beyond issuers would add compliance requirements for exchanges and could require decentralized platforms to add identity collection mechanisms, even though regulators have flagged difficulty doing so where blockchain transactions lack a central point for gathering customer information.