FinCEN Pulls Back Proposed Rules Targeting Unhosted Wallets and Crypto Mixers

FinCEN is scrapping two proposed rules that would have tightened oversight of noncustodial wallets and cryptocurrency mixing, citing concerns that the measures could burden compliant firms and discourage lawful use cases. In a notice issued Monday, the Treasury Department's Financial Crimes Enforcement Network said it will withdraw a proposal first introduced in December 2020 that would have added "recordkeeping, verification, and reporting requirements" for certain cryptocurrency transactions involving unhosted wallets. The agency also said it is withdrawing a separate proposal focused on "convertible virtual currency mixing." That rule, initially proposed in October 2023, was flagged by FinCEN as potentially creating a chilling effect on legitimate activity while imposing significant reporting obligations on covered financial institutions. FinCEN said it reviewed public comments and decided to rescind both proposals as part of the Trump administration's deregulatory agenda, aiming to better align digital-asset regulation with real-world usage. The decision adds to a recent string of U.S. regulatory actions tied to the administration's crypto policy push. Earlier Monday, CFTC Chairman Michael Selig said the agency will rely on its "existing statutory authority" to propose two rules intended to clarify how crypto firms can operate within the CFTC's remit without further congressional action. Crypto and blockchain advocacy groups largely applauded FinCEN's shift. The Crypto Council for Innovation wrote on X that the move is "positive for the digital assets ecosystem." Related reading: Advocacy group opposes banks' lawsuit against the Office of the Comptroller of the Currency (OCC) over licensing issues.