U.S. Treasury withdraws reporting rule proposals for noncustodial wallets and crypto mixing

The U.S. Treasury has withdrawn two cryptocurrency surveillance proposals that had been pending for a long time.

Bitcoin Magazine, a blockchain media outlet, reported on Oct. 6 that the Treasury Department's Financial Crimes Enforcement Network (FinCEN) filed notices withdrawing a 2020 proposal on noncustodial wallets and a 2023 plan to designate foreign cryptocurrency mixing as a transaction of primary money-laundering concern.

The move is being seen by privacy advocacy groups and the digital asset industry as easing regulatory burdens. The two withdrawn items were especially controversial because they could have imposed sweeping reporting requirements on personal wallet users and financial institutions.

The 2020 proposal would have required banks and financial institutions to report certain transactions of $3,000 or more or $10,000 or more if customers stored cryptocurrency in noncustodial wallets. It effectively sought to make transactions involving wallets directly controlled by individuals subject to financial institution reporting.

The 2023 proposal cast a wider net. It defined mixing as conduct that obscures a transaction's origin, destination and amount, and included pooled funds, split transfers, disposable wallets and cross-asset swaps. If implemented, financial institutions would have had to submit wallet addresses, transaction hashes, IP addresses and customer identity information to authorities.