The Financial Crimes Enforcement Network (FinCEN), the U.S. Treasury Department bureau charged with administering the Bank Secrecy Act, has formally withdrawn its 2023 proposal targeting cryptocurrency mixing, saying the rule could have inadvertently stifled legitimate transactions. The agency also scrapped a December 2020 proposal that would have imposed strict identity verification and recordkeeping requirements on transactions involving unhosted crypto wallets.

In a press release, FinCEN wrote, “FinCEN has considered the comments submitted in response to these proposals and is withdrawing them as part of the Trump Administration’s deregulatory agenda and ongoing efforts to ensure digital asset regulations are fit-for-purpose.”

The withdrawals officially put an end to both rulemaking processes. Because neither rule was ever finalized, pulling them off the table leaves current regulatory requirements for financial institutions completely unchanged.

FinCEN had sought to label foreign crypto mixing a top money laundering risk

Monday’s filing throws out the proposed mixing rule, though the agency still believes crypto mixers are being utilized by bad actors. When the measure was originally introduced under the Biden administration in 2023, FinCEN argued the crackdown was vital to disrupt the illicit financial networks of hostile entities, including terrorist networks such as Hamas and Palestinian Islamic Jihad.

FinCEN Director Andrea Gacki emphasized at the time that crypto mixing acts as a lifeline for rogue regimes and hackers, helping them obscure illicit cash flows and bankroll future operations.

The rule would have obliged financial firms to log granular data on mixing activities, including wallet addresses, transaction hashes, and IP addresses. It also defined “mixing” as any method that obfuscated transaction details—such as the source, recipient, or amount—by merging user funds, fragmenting payments, using disposable addresses, or introducing staggered processing times to prevent tracking.

Primarily, the proposed rule would have treated international crypto mixing as a “primary money laundering concern” under the USA PATRIOT Act, a designation that empowers the Treasury Department to impose special measures—such as targeted recordkeeping or reporting obligations—on transactions it deems high risk. That definition invited substantial industry pushback, with commenters arguing it would deter legitimate commerce and saddle financial firms with heavy compliance burdens. Coin Center, an advocacy group, noted that the proposed definition was “extraordinarily broad,” extending to common methods cryptocurrency users rely on to maintain their privacy.

“We argued that risk-averse financial institutions would inevitably report even purely domestic transactions, with potentially severe collateral consequences for innocent users, including account restrictions or closures,” Coin Center said in its statement.

Community concerns contributed significantly to the withdrawal. Nonetheless, the agency said it will keep monitoring convertible virtual currency (CVC) mixers for potential illicit financial activity and would respond with further measures where warranted.

The wallet rule targeted unhosted transactions

The second withdrawn rule was a December 2020 proposal issued at the end of Trump’s first term. It stipulated that when a transaction topped $3,000 and involved an unhosted wallet or a foreign platform not covered by U.S. banking laws, financial companies would have had to verify identities and track the data.

Financial firms would also have had to report transactions over $10,000, or several transactions collectively surpassing that amount within 24 hours, to the agency. Coin Center had likewise contended that the proposed wallet rule would have subjected cryptocurrency transactions to a different standard than other financial activity.

Coin Center’s Executive Director Peter Van Valkenburgh posted on X: “The ‘unhosted wallet rule’ that would have made Coinbase and others collect information on people who are holding their own crypto is dead.”

Multiple digital asset advocacy groups have praised FinCEN’s decision to scrap the heavy reporting mandates on unhosted wallets and mixers. The Crypto Council for Innovation welcomed the withdrawals as “positive for the digital asset ecosystem.”

Both withdrawals also draw on the White House’s July 2025 digital asset report, with the mixer notice quoting its support for lawful users’ ability to transact privately on public blockchains.

A lighter approach to crypto regulation

The withdrawals show that the Trump administration appears to be taking a milder approach to crypto regulation. Rather than imposing new reporting requirements that would affect the everyday crypto user, FinCEN seems to be focusing on strict enforcement of transactions and firms involved in the most obvious criminal activity.

For crypto businesses, the withdrawals could reduce uncertainty about potential compliance obligations that were never finalized. Exchanges and other financial institutions will not have to prepare for the additional reporting requirements outlined in the two proposals. They will still need to comply with anti-money laundering and know-your-customer requirements, however.

For users, the decision is also significant because unhosted wallets allow individuals to hold and transfer digital assets without relying on a centralized exchange. Privacy advocates have long argued that treating these transactions as inherently suspicious could undermine one of the key features of decentralized cryptocurrencies.

Still, the withdrawals do not mean FinCEN is abandoning efforts to combat illicit crypto activity. The agency can introduce new proposals or enforcement measures if it identifies emerging risks involving mixers, unhosted wallets, or other digital asset services. Any renewed rulemaking effort would go through the same notice-and-comment process that drew substantial industry pushback this time around.

Source: Cryptopolitan