FinCEN Withdraws Proposed Reporting Rules for Unhosted Wallets and Crypto Mixers
The US Treasury has officially scrapped proposed surveillance rules that would have required financial institutions to track and report transactions involving self-custodied wallets and crypto mixing services.
The Financial Crimes Enforcement Network, or FinCEN, has withdrawn two significant regulatory proposals that aimed to expand Bank Secrecy Act obligations to unhosted wallets and crypto mixing services. The move effectively ends a years-long effort to impose new reporting and verification requirements on transactions between regulated financial institutions and self-custodial users.
The first proposal, originally introduced in 2020, sought to force banks and money services businesses to collect data on counterparties using unhosted wallets. Under that plan, transactions exceeding $3,000 would have triggered recordkeeping and verification duties, while transfers over $10,000 would have required direct reporting to the government. The formal withdrawal of this proposal is dated April 12, 2024.
A second proposal, published in October 2023, targeted convertible virtual currency mixing services. These services, which pool and shuffle crypto assets to obscure transaction trails, faced a new reporting framework that will now not move forward.
The 2020 proposal regarding unhosted wallets faced significant pushback, drawing more than 7,500 public comments. Critics highlighted major concerns regarding the feasibility of the rules, noting that financial institutions would be tasked with collecting data from anonymous wallet owners that they have no practical way to obtain. Other feedback focused on the potential for increased costs and privacy risks.
For centralized exchanges and financial institutions, the withdrawal removes the prospect of expanded compliance burdens for interactions with self-custodial wallets. Industry advocates have noted that the decision reduces friction for users moving funds between centralized platforms and personal wallets, keeping the path between these systems open.
While the withdrawal may be viewed as a sign of a more favorable regulatory climate, it does not alter existing Bank Secrecy Act obligations. Regulated businesses remain subject to all current requirements, as the withdrawal only applies to the specific reporting frameworks outlined in the two proposed rules.
