FinCEN withdraws crypto wallet reporting proposal

The Financial Crimes Enforcement Network has withdrawn its 2020 proposal to impose reporting, recordkeeping and identity-check requirements on transactions involving unhosted cryptocurrency wallets.

The Treasury bureau announced the decision in a Federal Register notice filed Oct. 5. The agency will take no further action on the proposed rule, which was scheduled for formal publication Oct. 6. Deputy Director Jimmy L. Kirby signed the notice.

The proposal, published Dec. 23, 2020, would have required banks and money services businesses to verify customer identities and file reports with FinCEN for transactions involving certain unhosted wallets that exceeded $10,000. The threshold would have included transactions totaling more than $10,000 within a 24-hour period.

Transactions above $3,000 would have triggered recordkeeping and identity-verification requirements. The proposal applied to convertible virtual currency and digital assets with legal-tender status.

FinCEN defined an unhosted wallet as a cryptocurrency wallet for which no financial institution is required to process transactions. The proposal also covered certain wallets held at foreign financial institutions outside the reach of the Bank Secrecy Act.

FinCEN described the withdrawal as part of the administration’s effort to establish digital-asset rules that are “fit-for-purpose.” The notice cites a report from the President’s Working Group on Digital Asset Markets, created by Executive Order 14178, “Strengthening American Leadership in Digital Financial Technology.”

The proposal faced criticism from the cryptocurrency industry. Opponents argued that it could have treated transfers to a user’s own self-custody wallet as transactions involving a financial counterparty and could have shifted activity to venues outside the regulated financial system.

The withdrawal removes the proposed federal reporting and recordkeeping requirements for transfers involving unhosted wallets. Banks and money services businesses remain subject to existing anti-money-laundering rules, including customer-identification and reporting requirements.

Those institutions must also comply with Travel Rule obligations to share customer information on certain cryptocurrency transfers. The European Union’s anti-money-laundering rules scheduled for 2027 are expected to extend customer checks to some occasional cryptocurrency users and limit cash payments above specified amounts.