FinCEN sets October 6 withdrawal of crypto wallet and mixer proposals

The Financial Crimes Enforcement Network announced Monday that it is ending two unfinished digital-asset rulemakings: a 2020 proposal covering transactions with unhosted wallets and a 2023 proposal targeting convertible-virtual-currency mixing. The move removes two long-pending routes to expanded recordkeeping and reporting, but it does not erase the anti-money-laundering and sanctions duties that already apply under other authorities.

The timing requires a distinction. FinCEN issued its announcement on October 5, and the withdrawal documents were filed for public inspection at 8:45 a.m. Eastern that day. Both notices are scheduled for Federal Register publication on October 6 and say withdrawal occurs as of publication. Coinburn is reporting the announcement on October 5, before that formal effective date.

What the wallet proposal would have required

The older proposal was published on December 23, 2020. It covered certain deposits, withdrawals, exchanges, payments and transfers handled by banks or money services businesses when a counterparty used an unhosted wallet or a wallet at a non-Bank Secrecy Act institution in a foreign jurisdiction identified by FinCEN.

For covered transactions above $10,000, or multiple covered transactions aggregating above $10,000 during a 24-hour period, banks and money services businesses would have filed reports containing information about the customer’s transaction and counterparty and verified the customer’s identity. A separate recordkeeping requirement would have applied above $3,000.

Those figures are proposal thresholds, not measurements of current activity and not rules that took effect. The October 5 withdrawal notice says FinCEN will take no further action on that proposal. It does not create a general exemption for transfers involving self-custody, nor does it restrict financial institutions from applying risk controls required by existing law.

Why the mixing proposal was withdrawn

FinCEN also moved to withdraw its October 23, 2023 finding that international crypto mixing constituted a class of transactions of primary money-laundering concern under Section 311 of the USA PATRIOT Act, along with the proposed special measure attached to that finding.

The proposed measure would have required covered financial institutions to report certain transactions they knew, suspected or had reason to suspect involved mixing within or involving a foreign jurisdiction. Proposed data fields included asset amounts and types, wallet addresses, transaction hashes, dates, internet-protocol addresses and customer-identifying information.

FinCEN said comments persuaded it that the proposal’s expansive mixing definition could chill legitimate activity and impose a large reporting burden. The agency also cited the President’s Working Group on Digital Asset Markets, which recognized that lawful users may employ privacy tools on public blockchains.

That explanation is not a finding that mixers are harmless. FinCEN said illicit actors continue using mixers and other tools to obstruct investigations. It plans to keep monitoring mixer activity and left open the possibility of future steps addressing money laundering, terrorist financing or other illicit finance.

What changes — and what does not

The immediate regulatory consequence is the closure of two proposals before either became a final rule. That is narrower than repealing an existing reporting regime. The withdrawal documents do not cancel suspicious-activity reporting, sanctions compliance or other Bank Secrecy Act requirements that arise independently of these proposals.

The action nonetheless matters for market structure. The wallet proposal would have added transaction-specific duties at the boundary between regulated intermediaries and user-controlled wallets. The mixing proposal would have created a special reporting framework around a broad set of techniques that can obscure transactional links. Removing both proposals avoids those particular compliance layers while leaving FinCEN free to pursue illicit activity under existing authority or through a future rulemaking.

No replacement rule, implementation timetable or new reporting threshold was announced on October 5. The next concrete checkpoint is Federal Register publication scheduled for October 6. Any later initiative would require its own legal basis and public record; this announcement alone does not establish what FinCEN may propose next.