The U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) cancels proposed regul

The U.S. Financial Crimes Enforcement Network withdraws proposal to regulate cryptocurrency hybrids and unmanaged wallets

The U.S. Financial Crimes Enforcement Network (FinCEN) has withdrawn its 2023 proposal for cryptocurrency hybrid services. The agency claims that if implemented, the rule could inadvertently curb legal transactions. At the same time, FinCEN also repealed a proposal made in December 2020 that had required users to conduct strict authentication and record-keeping of unmanaged cryptocurrency wallets.

In a press release, FinCEN said: "We have carefully reviewed the views submitted on these two proposals and have decided to withdraw them. The move is part of the Trump administration's deregulatory agenda to ensure that digital asset regulations are effectively applied." The withdrawal of these two proposals formally ended the legislative process, but since they were never finalized, the regulatory requirements currently facing financial institutions remain unchanged.

Originally planned to list overseas hybrid services as the highest money laundering risk

Although this withdrawal overturns the proposed rules on hybrid services, the agency still believes that malicious actors are using cryptocurrency hybrid services. When the proposal was originally introduced, FinCEN argued that combating such conduct was crucial to undermining illegal financial networks of hostile entities, including terrorist networks such as Hamas and the Palestinian Islamic Jihad.

Andrea Gacki, then-FinCEN director, emphasized at the time that cryptocurrency hybrids provided a lifeline for rogue regimes and hackers, helping them cover up illegal financial flows and provide financial support for future operations.

According to the draft regulations, financial institutions are required to record detailed data about currency mixing activities, including wallet addresses, transaction hashes and IP addresses. The draft also defines "mixed currency" as any method of obscuring transaction details (such as source, recipient, or amount) by combining user funds, splitting payments, using one-time addresses, or introducing staggered processing times to hinder tracking. Primarily, the proposed rules would regard international cryptocurrency mixes as a "primary money laundering concern" under the American Patriot Act.

However, this definition triggered a strong industry backlash. The public believes this will hinder legitimate business activities and place a heavy compliance burden on financial institutions. For example, advocacy group Coin Center recently pointed out that the proposed definition is "too broad" and even covers methods commonly used by cryptocurrency users to maintain privacy. "We believe it is inevitable that risk-averse financial institutions will report purely domestic transactions, which can have serious collateral consequences for innocent users, including account restrictions or closures," the group said.

Community concerns were the main reason for the withdrawal. Despite this, the agency said it will continue to monitor crypto-virtual asset (CVC) mixers for potential illegal financial activity and will take further measures to respond.

Another repealed rule applies to unmanaged transactions

At the same time, another rule that was repealed was a December 2020 proposal introduced at the end of Trump's first term. The proposal basically stipulates that financial companies must verify identity and track relevant data if transactions exceed $3,000 and involve unmanaged wallets or foreign platforms that are not governed by U.S. banking laws.

In addition, financial institutions are required to report to the institution transactions exceeding US$10,000, or multiple transactions cumulatively exceeding US$10,000 within a 24-hour period. Coin Center has also argued that the proposed wallet rules will subject cryptocurrency transactions to different standards.

Peter Van Valkenburgh, executive director of the Coin Center, posted on the X platform: "The 'unmanaged wallet rule' that requires companies such as Coinbase to collect information about people holding their own cryptographic assets is dead."

Multiple digital asset advocacy groups praised FinCEN's decision to abolish heavy reporting obligations on unmanaged wallets and money mixers. The Crypto Council for Innovation welcomed the withdrawal, saying it was "good for the digital asset ecosystem."

Both withdrawals echo the White House's digital assets report released in July 2025, in which a currency mixer notice quoted the report and supported the right of legitimate users to conduct private transactions on the public blockchain.

Signal: Crypto Regulation tends to Be Loose

These withdrawals suggest that the Trump administration appears to be taking a more moderate approach to crypto regulation. Rather than imposing new reporting requirements that affect ordinary crypto users, FinCEN appears to be more focused on cracking down on transactions and related businesses involving the most obvious criminal activities.

For crypto companies, the withdrawal may reduce the uncertainty caused by outstanding compliance obligations. Exchanges and other financial institutions no longer need to prepare for the additional reporting requirements outlined in the two proposals. However, they are still subject to anti-money laundering (AML) and know your customer (KYC) requirements.

This decision is also significant for users, as unmanaged wallets allow individuals to hold and transfer digital assets without relying on a centralized exchange. Privacy advocates have long argued that treating these transactions as inherently suspicious could weaken one of the key characteristics of decentralized cryptocurrencies.

Still, the withdrawal does not mean that FinCEN has abandoned its efforts to combat illegal encryption activities. If the agency identifies emerging risks involving currency mixers, unmanaged wallets or other digital asset services, it can make new proposals or take enforcement measures.