FinCEN Withdraws 2020 Crypto Wallet Reporting Proposal

The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) has withdrawn a 2020 proposal that aimed to impose reporting, recordkeeping, and customer-verification requirements on certain cryptocurrency transactions involving unhosted wallets. The proposal, which targeted banks and money services businesses, would have required reporting for transactions exceeding $10,000 and recordkeeping for transactions above $3,000 when involving unhosted wallets.

The proposal attracted significant industry attention, with FinCEN receiving over 7,500 comments during the original comment period. The withdrawal of the proposal means it will not move forward in its proposed form, but it does not exempt transactions involving self-hosted wallets from U.S. anti-money-laundering or sanctions requirements.

FinCEN’s decision is part of a broader policy shift toward establishing clearer rules for digital assets while reducing regulatory requirements deemed unsuitable for the technology. This shift can also be seen in the Securities and Exchange Commission’s recent proposal for a crypto custody framework, which allows investment advisers and regulated funds to use self-custody for crypto assets under specified conditions.

The immediate significance of the withdrawal is that the specific reporting and recordkeeping regime envisioned for transfers involving unhosted wallets will not be implemented. The next question is whether U.S. agencies will replace the withdrawn approach with narrower rules aimed at illicit finance risks without treating self-custody as an intermediary activity.