Business & Finance

FinCEN Retracts Crypto Mixing and Self‑Hosted Wallet Rules Amid Concerns Over Legitimate Use

By Zack Abrams

The U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has withdrawn two pending rulemakings. On Monday, FinCEN posted a notice in the Federal Register announcing the withdrawal of its 2023 proposal that would have classified international crypto mixing as a “primary money laundering concern” under Section 311 of the USA PATRIOT Act. The proposal had required banks and other covered institutions to file detailed reports on mixing transactions, including wallet addresses, transaction hashes and IP addresses. FinCEN said the decision was prompted by comments that the rule’s broad definition of mixing could chill legitimate use of mixers for privacy and impose a large reporting burden on financial institutions. The agency noted it still believes illicit actors use mixers to impede law‑enforcement investigations and will continue to monitor activity.

A second notice, also posted Monday, withdrew a 2020 proposal that would have required banks and money‑services businesses to verify the identities of users of self‑hosted wallets and keep records on transactions involving such wallets. The 2020 rule would have applied to transactions above $3,000, or to multiple transactions totaling more than $10,000 within 24 hours, and would have required reporting to FinCEN. The withdrawal is part of the Treasury’s effort to ensure digital‑asset regulations are fit‑for‑purpose, citing a July 2025 report from the President’s Working Group on Digital Asset Markets. FinCEN said it would not take further action on the proposal.

The two withdrawals do not alter any existing obligations for financial institutions, as neither proposal had been finalized. The moves come after the Treasury removed the Ethereum‑based mixer Tornado Cash from its sanctions list in March 2025 and after a Treasury report to Congress highlighted the legitimate privacy uses of mixers. Coin Center, a crypto advocacy group that opposed both proposals, criticized the mixing definition as overly broad and the wallet rule as creating a double standard for cryptocurrency transactions.