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FollowingFinCEN withdraws its 2020 report proposal on extra-custody cryptocurrency wallets
According to a notice filed in the Federal Register on October 5, the U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) has withdrawn one of its 2020 proposals. The proposal originally planned to impose reporting and record-keeping requirements on transactions involving unmanaged cryptocurrency wallets. Regulators said they would take no further action on the proposed rule.
The decision ends a five-year effort to require banks and money services companies (MSBs) to collect identity and transaction data when customers transfer digital assets to or out of self-managed wallets. Although the framework never came into effect, it has been subject to continued criticism from the cryptocurrency industry.
Requirements for the 2020 Proposal
The proposed rule notice (RIN 1506-AB47) was released on December 23, 2020. Under the proposal, banks and MSs must submit reports to FinCEN and verify customer identities for transactions involving unmanaged or other regulated wallets that exceed $10,000, or transactions that exceed this threshold cumulatively over a 24-hour period. In addition, transactions exceeding $3,000 will also trigger record-keeping and authentication obligations.
In the proposal,"unmanaged wallets" refer to wallets that do not require financial institutions to process transactions; while "other regulated wallets" refer to wallets held by foreign financial institutions outside the jurisdiction of the Bank Secrecy Act. The rule covers convertible virtual currencies and digital assets with legal tender status.
Why did FinCEN withdraw its proposal at this time?
FinCEN views the withdrawal as part of the government's push for "practical use" of digital asset regulations. The notice cited a report issued by the President's Digital Asset Markets Working Group established by Executive Order 14178, which aims to "strengthen U.S. leadership in digital financial technology."
The move comes after years of industry criticism that the proposal would treat ordinary self-custodial users as counterparties to financial transactions and push activities to unregulated platforms. The withdrawal document was submitted by Deputy Director Jimmy L. Kirby's signature will be officially announced on October 6.
Impact on self-custody and compliance
Banks and MSs will still have to comply with existing anti-money laundering regulations, including the "Crypto-Travel Rules" that require institutions to share customer information in specific transfers. The withdrawal did not relieve these obligations.
For users using self-managed wallets, this decision eliminates certain federally reported risks, but the broader anti-money laundering environment remains unchanged. Regulators in other regions are still expanding identity requirements for cryptocurrencies, such as the European Union's 2027 Anti-Money Laundering Rules, which extend customer inspections to users who occasionally use cryptocurrencies and place caps on cash payments.
