US Abandons Crypto Wallets and Mixers Regulation Proposal

By PAUL O’DONOGHUE, Senior Correspondent

The U.S. government has retracted two proposed regulations that would have imposed limits on transactions involving self-custodied wallets and cryptocurrency mixers.

FinCEN, the anti-money laundering division of the U.S. Treasury, announced that it is discarding these proposals as part of the previous administration’s efforts to reduce regulations.

The proposed regulations included:

• A rule that would have required recordkeeping, identity verification, and reporting for certain transactions involving unhosted wallets with convertible virtual currencies.
• A rule that aimed to establish special requirements for cryptocurrency mixers.

These proposals were previously introduced due to rising concerns about the involvement of cryptocurrencies and digital assets in financial misconduct.

The first regulation concerning unhosted wallets was introduced in December 2020. Unhosted wallets allow users to manage their own private keys instead of depending on a cryptocurrency exchange or service.

If enacted, banks and money services businesses would have been mandated to keep records for transactions exceeding $3,000, documenting information about both the customer and the counterpart. They would also have needed to verify the identity of their clients.

For transactions over $10,000, additional reporting to FinCEN would have been required, including data about the transaction details and the opposite party or wallet involved. Any multiple transactions surpassing $10,000 within a 24-hour window would have been included under this rule.

Opposition to Rules Affecting Crypto Wallets

The initial proposal received over 7,500 public comments, which raised issues regarding costs, individual privacy, and the challenges of identifying users of self-custodied wallets outside traditional financial systems.

The second proposal, introduced in October 2023, focused on cryptocurrency mixing, which obscures the origin and destination of funds by combining contributions from multiple users before redistributing them.

FinCEN suggested implementing recordkeeping and reporting requirements for certain transactions involving cryptocurrency mixing.

As it withdrew these proposals, FinCEN emphasized its commitment to ensuring that regulations surrounding digital assets are appropriate and effective.

For the formal notice regarding the first withdrawal, click [HERE]; for the second withdrawal, click [HERE].