The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) has withdrawn its 2020 proposal to impose reporting and recordkeeping requirements on transactions involving unhosted cryptocurrency wallets, according to a Federal Register notice filed on October 5. The regulator said it will take no further action on the proposed rule.
The decision ends a five-year push to require banks and money services businesses (MSBs) to collect identity and transaction data whenever customers move digital assets to or from self-custody wallets, a framework that never took effect but drew sustained criticism from the crypto industry.
What the 2020 proposal would have required
Published on December 23, 2020, the notice of proposed rulemaking (RIN 1506-AB47) would have required banks and MSBs to file reports with FinCEN and verify customer identities for transactions greater than $10,000, or aggregating above that threshold within 24 hours, involving unhosted or otherwise covered wallets. Transactions above $3,000 would have triggered recordkeeping and identity-verification duties.
Under the proposal, an “unhosted wallet” described a wallet for which no financial institution is required to process transactions, while “otherwise covered wallets” referred to wallets held at foreign financial institutions outside the Bank Secrecy Act’s reach. The rule covered convertible virtual currency and digital assets with legal tender status.
Why FinCEN is withdrawing it now
FinCEN framed the withdrawal as part of the administration’s effort to make digital asset rules “fit-for-purpose.” The notice cites the report issued by the President’s Working Group on Digital Asset Markets, established under Executive Order 14178, “Strengthening American Leadership in Digital Financial Technology.”
The move follows years of industry criticism that the proposal would have treated ordinary self-custody users as financial counterparties and pushed activity toward unregulated venues. Signed by Deputy Director Jimmy L. Kirby, the withdrawal is set for formal publication on October 6.
What it means for self-custody and compliance
Banks and MSBs remain subject to existing anti-money-laundering rules, including the crypto Travel Rule obligations that require institutions to share customer information on certain transfers. The withdrawal does not unwind those duties.
For holders using self-custody wallets, the decision removes a specific federal reporting threat while leaving the broader AML landscape intact. Regulators elsewhere continue to expand crypto identity requirements, including the European Union’s 2027 AML rules, which extend customer checks to occasional crypto users and cap cash payments.
