R.I.P. Unhosted Wallet Rule

The 2020 FinCEN unhosted wallet proposal has arguably been dead for years, but now it's official.

The Treasury Department has officially withdrawn a 2020 proposal that would have imposed know-your-customer requirements on unhosted wallets, effectively putting the matter to rest.

The proposal, put forth by the Financial Crimes Enforcement Network (FinCEN), a bureau of the Treasury Department, was met with widespread backlash from the crypto industry and lawmakers. The rule would have required anyone maintaining their own crypto wallet to collect and report the personal information of the senders and receivers of transactions.

The industry argued that the proposal was technically impossible to comply with for most wallets, given they aren’t companies or entities and don’t normally record that type of personal data. At the time, the proposal drew a huge amount of backlash. Lawmakers (including from the then-president’s own party), company leaders and lobbyist groups all pushed back against the proposal.

The rule kind of popped its head up here and there, but was never seriously considered again. Finally on Aug. 19, 2024, the entire proposal was officially withdrawn.

Another proposal from FinCEN – also from the tail end of 2020 – remains alive. This proposal would implement the Travel Rule, a Financial Action Task Force regime that looks to take on money laundering via crypto by having financial institutions report personal information for the senders and receivers of transactions over a certain limit.

The original 2020 proposal set the limit at $250, well below the $3,000 threshold currently set for similar financial reporting, but this week’s notice did not mention any adjustment to the threshold.