FinCEN Drops Long-Pending Crypto Rules on Unhosted Wallets and Mixers

The Financial Crimes Enforcement Network (FinCEN) has officially withdrawn two long-standing proposed rules targeting unhosted wallets and cryptocurrency mixing. The agency announced on October 5 that it would no longer pursue the proposals, which had been pending for years and would have imposed additional recordkeeping and reporting obligations on financial institutions.

The first proposal aimed to add new requirements for transactions involving convertible virtual currencies and unhosted wallets. The second focused on cryptocurrency mixing activity, which has been a contentious issue in the crypto industry due to privacy concerns.

FinCEN stated that the withdrawal of these proposals is part of a broader effort to refine digital-asset regulation. However, the move does not eliminate existing anti-money-laundering (AML) and know-your-customer (KYC) rules that already apply to regulated crypto businesses. Financial institutions must continue to comply with these obligations.

The decision to withdraw the proposals comes after significant criticism from industry stakeholders regarding privacy, implementation challenges, and the treatment of self-custodied transactions. While the proposals are now officially off the table, FinCEN or Congress could revisit similar issues through future rulemaking processes.