FinCEN Withdraws Its Never-Finalized Unhosted Wallet and Mixing Rules

The Financial Crimes Enforcement Network (FinCEN) announced that it is withdrawing two proposed rules, the December 2020 unhosted wallet proposal and the October 2023 convertible virtual currency (CVC) mixing proposal. FinCEN said it is withdrawing them "as part of the Trump Administration's deregulatory agenda and ongoing efforts to ensure digital asset regulations are fit-for-purpose."

FinCEN said commenters' concerns about the expansive definition of CVC mixing informed the withdrawal, because the broad mixing definition "could have a chilling effect on legitimate activity and place a large reporting burden on covered financial institutions." Both withdrawal notices now appear in the Federal Register.

What FinCEN Pulled

The unhosted wallet proposal covered customer verification and recordkeeping on unhosted wallet transactions. The CVC mixing proposal covered Section 311 mixing reporting by covered financial institutions. The 2020 wallet proposal would have required reports on transactions above $10,000 and records above $3,000.

FinCEN said it considered the comments submitted in response to these proposals before withdrawing them, Cointelegraph reported. Neither the December 2020 unhosted wallet proposal nor the October 2023 CVC mixing proposal was ever finalized.

What Stays in Force

Because neither proposal was ever finalized, the withdrawals do not change financial institutions' existing obligations. Existing Bank Secrecy Act and anti-money laundering (AML) obligations on exchanges remain in force, and Office of Foreign Assets Control (OFAC) sanctions authority remains in place.

FinCEN still believes illicit actors use mixers to hinder law enforcement investigations, and it will continue to monitor activity involving CVC mixers. Withdrawing the mixer proposal does not mean mixers are now legal in the US.

Withdrawn, Not Buried

Withdrawal with no further action is not a permanent bar on re-proposal. A future administration, a major mixing-linked theft or a new statutory trigger from Congress could open a replacement docket for the unhosted wallet or CVC mixing proposals.

Until then, FinCEN will continue to monitor activity involving CVC mixers.

Why It Matters

FinCEN withdrew the unhosted wallet and CVC mixing proposals, but because neither proposal was ever finalized, Bank Secrecy Act and AML obligations on exchanges remain in force and OFAC sanctions authority remains in place, so we see this as a narrow withdrawal. A future administration could open a replacement docket, which means the privacy of Bitcoin users who keep coins in unhosted wallets still rides on policy that FinCEN can revive. Self-custody in an unhosted wallet is the protection that no FinCEN withdrawal grants and no future administration can easily revoke, so keep your own keys.