FinCEN withdraws unhosted-wallet and crypto-mixing rule proposals

FinCEN has withdrawn two proposed cryptocurrency rules: a 2020 plan for transactions involving unhosted wallets and a 2023 plan for reporting on international crypto mixing. The agency announced the withdrawals October 5, closing two rulemaking proceedings that had drawn objections over privacy and compliance costs.

Neither proposal had become a final rule. The withdrawals therefore remove proposed requirements, rather than lifting reporting duties already imposed by those proposals. Financial institutions still have their existing anti-money-laundering obligations.

The wallet proposal

The 2020 proposal concerned banks and money services businesses handling convertible virtual currency or certain digital assets. It would have required customer verification and records for qualifying transactions above $3,000 involving unhosted or other covered wallets. Reporting would have applied above $10,000, including qualifying transactions aggregated over 24 hours.

Those figures describe the withdrawn proposal. They should not be read as new limits on using a personal wallet. FinCEN's withdrawal notice says the agency will take no further action on that notice of proposed rulemaking.

The mixing proposal

The second withdrawal ends a 2023 proceeding under Section 311 of the USA PATRIOT Act. FinCEN had proposed treating international convertible virtual currency mixing as a class of transactions of primary money-laundering concern, with additional reporting and recordkeeping for covered institutions.

The withdrawal notice addresses concerns that the proposal's broad definition could capture legitimate activity and impose substantial compliance burdens. The proposed reports would have included transaction details and information identifying customers involved in covered activity.

FinCEN continues to say illicit actors use mixing to make financial investigations harder. It says it will monitor the activity and consider future steps. Ending this proceeding does not amount to an agency finding that every mixing service or transaction is lawful.

What changed

The practical change is the removal of these two proposed reporting frameworks. The Block independently reported the withdrawals and the distinction between abandoned proposals and existing obligations. Coin Center, an advocacy group that opposed both plans, welcomed the decision and emphasized the privacy concerns it had raised.

For wallet developers, privacy projects and compliance teams, the next policy question is whether FinCEN returns with narrower proposals. The current notices close these proceedings; they do not announce a replacement framework.