FinCEN abandons 2020 unhosted crypto wallet reporting proposal

The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) has officially withdrawn its 2020 proposal aimed at imposing reporting and recordkeeping requirements on transactions involving unhosted cryptocurrency wallets. The decision was announced in a Federal Register notice filed on October 5 and published on October 6.

The proposal, introduced in December 2020, sought to mandate banks and money services businesses (MSBs) to collect identity and transaction data for transfers over $10,000 and perform recordkeeping and identity checks for transactions above $3,000 involving unhosted wallets. Unhosted wallets were defined as those not managed by a financial institution, while ‘otherwise covered wallets’ referred to those held at foreign institutions outside the Bank Secrecy Act’s jurisdiction.

FinCEN’s withdrawal aligns with the administration’s goal to create ‘fit-for-purpose’ digital asset regulations, as outlined in a report by the President’s Working Group on Digital Asset Markets. The move comes after years of industry criticism, which argued that the proposal would unfairly treat self-custody users as financial counterparties and drive activity to unregulated platforms.

While the withdrawal eliminates a specific federal reporting threat for self-custody wallet holders, existing anti-money-laundering (AML) obligations, including the crypto Travel Rule, remain in effect. Regulators in other regions, such as the European Union, continue to tighten compliance and identity requirements, with the EU’s 2027 AML rules extending customer checks to occasional crypto users.