Treasury Secretary Janet Yellen clarified that US federal regulations do not cover non-custodial entities — “hardware wallet manufacturers, providers of unhosted wallets, software developers, or miners” — for the purpose of requiring transaction reporting.

In her written responses to Senator Pat Toomey, who submitted questions for Yellen ahead of the Senate Banking Committee hearing, the Treasury Secretary said that FinCEN regulation is, in fact, consistent with the recent Financial Action Task Force's (FATF) crypto guidance.

It was regarding one of the questions asked by Toomey about the implications of the FATF’s updated guidance on crypto, which were finalized last month. “Does Treasury believe that noncustodial services should be subject to Money Service Business registration?” read the question.

“The principal aim of the FATF standards and the Updated Guidance for a Risk-based Approach to Virtual Assets and VASPs, which was published last month, is to regulate financial activity and not technology. I agree with standing FinCEN guidance on this topic, and I believe the FATF does, too.”

She further said that the guidance is simply that, guidance to help jurisdictions implement the existing FATF standards for VASPs and is not binding on them.

Yellen also answered Toomey’s questions on stablecoins, which she said can lead to greater efficiency in payments but added that they require proper regulation.

“There are significant risks associated with them, including risks to payment systems and risks related to the concentration of economic power.”

Talking about The President’s Working Group on Financial Markets (PWG) report, she said it specifically recommends guarding against stablecoin runs and legislation for stablecoin issuers to be insured depository institutions.

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