The U.S. Treasury's Financial Crimes Enforcement Network (FinCEN) has withdrawn a proposed rule that would have required banks and money services businesses (MSBs) to report certain cryptocurrency transactions involving unhosted wallets—wallets whose private keys are controlled by the user rather than by an exchange or other intermediary. The agency said it will take no further action on the 2020 proposal, which sought reporting, recordkeeping, and identity checks for banks and money services businesses.

The withdrawal follows a review of public comments and forms part of the administration's effort to make digital asset rules "fit-for-purpose," according to a notice filed in the Federal Register.

FinCEN Withdraws 2020 Wallet Reporting Proposal

FinCEN published the original notice on Dec. 23, 2020. The proposal covered convertible virtual currency and digital assets with legal tender status held in unhosted wallets. It also covered wallets hosted by financial institutions in jurisdictions outside the Bank Secrecy Act—the primary U.S. anti-money laundering framework that FinCEN administers—which FinCEN could identify under the proposed definition.

Under the rule, banks and MSBs would have reported certain transactions involving covered wallets when amounts exceeded $10,000. The threshold would also have applied when multiple transactions exceeded $10,000 within 24 hours. Reports would have included information about the customer's transaction and counterparty, and banks and MSBs would have been required to verify the customer's identity.

Records Would Have Covered $3,000 Transactions

The proposal set a lower threshold for recordkeeping. Banks and MSBs would have kept records for transactions exceeding $3,000 involving an unhosted or covered wallet. Those records would have included about the customer's transaction and counterparty, with identity verification also forming part of the proposed requirements.

FinCEN Also Withdraws Crypto Mixing Proposal

In addition to the wallet reporting rule, FinCEN withdrew a separate proposed rule concerning convertible virtual currency mixing. That proposal would have designated mixing as a class of transactions of primary money laundering concern and would have imposed a special measure. Mixing services pool cryptocurrency transactions from multiple users, making it harder to trace the flow of funds.

FinCEN withdrew both proposals as part of the Trump administration's deregulatory agenda. According to the agency, the withdrawals support efforts to ensure digital asset regulations are "fit-for-purpose." FinCEN confirmed it will take no further action on the wallet reporting proposal. Because the rule was never finalized, its reporting and recordkeeping requirements never took effect, and any renewed effort to impose them would require FinCEN to publish a new proposal and open a fresh public comment period.