FinCEN Drops 2020 Proposal Targeting Unhosted Crypto Wallet Transfers

The U.S. Treasury's Financial Crimes Enforcement Network (FinCEN) has scrapped its 2020 plan to impose new reporting and recordkeeping requirements on transactions involving unhosted cryptocurrency wallets, according to a Federal Register notice filed Oct. 5. FinCEN said it will take no further action on the proposal, effectively closing out a five-year effort that never went into force and drew sustained pushback from the crypto sector. The 2020 notice of proposed rulemaking, published Dec. 23, 2020 (RIN 1506AB47), would have required banks and money services businesses (MSBs) to report to FinCEN and verify customer identities for transactions over $10,000, or transactions that aggregated above that level within 24 hours, when digital assets moved to or from unhosted or otherwise covered wallets. For transfers above $3,000, the proposal would have triggered recordkeeping and identity-verification obligations. FinCEN defined an "unhosted wallet" as one where no financial institution is required to process transactions. "Otherwise covered wallets" referred to wallets held at foreign financial institutions outside the Bank Secrecy Act's scope. The draft rule applied to convertible virtual currency and digital assets with legal tender status. FinCEN said the withdrawal aligns with the administration's push to make digital asset regulations "fit-for-purpose." The notice points to a report from the President's Working Group on Digital Asset Markets, created under Executive Order 14178, "Strengthening American Leadership in Digital Financial Technology." Industry critics had argued the proposal would have treated routine self-custody users as financial counterparties and driven activity to less regulated venues. The withdrawal, signed by Deputy Director Jimmy L. Kirby, is scheduled for formal publication Oct. 6. For banks and MSBs, existing anti-money-laundering requirements remain in place, including crypto Travel Rule obligations that require sharing customer information for certain transfers. The rollback removes a specific federal reporting risk tied to self-custody wallet transfers, but it does not change the broader AML compliance framework. Abroad, identity and customer-check requirements continue to expand, including the European Union's 2027 AML rules, which extend customer checks to occasional crypto users and impose caps on cash payments.