FinCEN Withdraws 2020 Unhosted Crypto Wallet Rule

The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) has withdrawn its 2020 proposal to impose reporting and recordkeeping requirements on transactions involving unhosted cryptocurrency wallets, according to a Federal Register notice filed on October 5. The regulator said it will take no further action on the proposed rule.

The decision ends a five-year push to require banks and money services businesses (MSBs) to collect identity and transaction data whenever customers move digital assets to or from self-custody wallets, a framework that never took effect but drew sustained criticism from the crypto industry.

What the 2020 proposal would have required

Published on December 23, 2020, the notice of proposed rulemaking (RIN 1506-AB47) would have required banks and MSBs to file reports with FinCEN and verify customer identities for transactions greater than $10,000, or aggregating above that threshold within 24 hours, involving unhosted or otherwise covered wallets. Transactions above $3,000 would have triggered recordkeeping and identity-verification duties.

Under the proposal, an “unhosted wallet” described a wallet for which no financial institution is required to process transactions, while “otherwise covered wallets” referred to wallets held at foreign financial institutions outside the Bank Secrecy Act’s reach. The rule covered convertible virtual currency and digital assets with legal tender status.