The Financial Crimes Enforcement Agency drops two controversial crypto regulatory proposals

Reason for abandoning the hybrid proposal

The U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) has abandoned a 2023 proposal that listed cryptocurrency hybrid services as a major money-laundering threat. At the same time, FinCEN also withdrew a 2020 proposal that had required authentication of transactions in self-managed wallets.

The regulator admitted that its definition of currency mixing rules is too broad and could punish users who seek legitimate privacy protections. Since neither proposal has been finalized, this action does not change existing regulatory requirements. Industry associations such as Coin Center praised this and considered it a major victory for digital asset users.

Self-Custody Wallet Verification Proposal

The U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) has withdrawn two major regulatory proposals for cryptocurrency transactions. FinCEN issued a notice of withdrawal in the Federal Register on Monday.

The first proposal was proposed in October 2023 and aims to designate international cryptocurrency mixing operations as a "major money laundering concern." The second proposal originated in December 2020 and originally planned to force financial institutions to authenticate identities related to self-custodial wallet transfers.

According to FinCEN's statement, this withdrawal is in line with the current direction of the Trump administration's push for deregulation. The bureau emphasized its commitment to developing an "applicable and effective" regulatory framework for digital currencies.

Background for abandoning the mixed-currency proposal

The 2023 regulatory framework adopts an extremely broad definition of mixed currency activities, covering the aggregation of funds, the fragmentation of transactions, and the use of one-time wallets to conceal the source or destination of cryptocurrencies. Under the proposed framework, financial institutions would be obligated to record wallet addresses, transaction identifiers and IP addresses associated with such operations.

FinCEN acknowledges that public feedback points to the definition being too broad. The agency recognizes that this regulation may place a significant compliance burden on reporting entities. In addition, FinCEN pointed out that the rule could hinder individuals from using currency mixers for legitimate privacy protections that are not related to criminal conduct.

FinCEN cited a July 2025 analysis report by the President's Digital Asset Markets Working Group. The review concluded that law-abiding users may use currency mixers to maintain the confidentiality of their financial activities on transparent blockchain networks.

Despite this, FinCEN maintains that some malicious actors use currency mixers to evade law enforcement scrutiny. The bureau said it would continue to monitor for signs of illegal behavior in mixed currency transactions.

Details of the self-managed wallet verification proposal

The second regulatory measure that was revoked originated in December 2020, just as Trump's first presidential term was coming to an end. The framework would force financial institutions to authenticate wallet transfers exceeding $3,000. Transactions exceeding $10,00 will trigger mandatory reporting requirements to FinCEN.

FinCEN said the cancellation of the proposal is part of its broader initiative to modernize digital asset regulation. The agency confirmed that any additional enforcement actions related to this rule will not proceed.

Since neither regulatory framework has yet entered the final implementation stage, the existing compliance obligations of banks and cryptocurrency companies remain unchanged.

Coin Center, a cryptocurrency policy advocacy group, commented on the matter in a public statement. The organization believes that the language of the mixed-currency proposal is too broad and could affect the standard privacy techniques used by ordinary digital currency holders. Coin Center further argued that wallet verification rules would establish different standards for cryptocurrency transfers and traditional financial transactions.

The Crypto Council for Innovation also expressed its views. The organization released a message via social media X saying the withdrawal marks a positive development in the field of digital assets.

The announcement comes against the backdrop of other recent regulatory shifts. In March 2025, after a judicial ruling against the Office of Foreign Assets Control, the Treasury Department removed cryptocurrency hybrid service Tornado Cash from the sanctions list. A Treasury analysis presented to Congress in March recognized that currency mixers can achieve effective privacy goals. When contacted by media representatives, Treasury officials declined to provide further comment.