FinCEN withdraws proposed crypto mixing rule over ‘legitimate activity’ concerns

The U.S. Treasury's Financial Crimes Enforcement Network announced it is withdrawing two proposed rules that would have tightened enforcement and reporting requirements for crypto-related activity. One proposal, first issued in December 2020, would have required recordkeeping, identity verification and reporting tied to transactions involving so-called unhosted wallets. The other, proposed in October 2023, addressed enforcement around convertible virtual currency mixing services. FinCEN said in a notice that the mixing-related proposal "could have a chilling effect on legitimate activity and place a large reporting burden on covered financial institutions." The agency added that it had reviewed public comments filed in response to both proposals and decided to retract them as part of the Trump administration's deregulatory agenda and efforts to ensure digital asset rules are "fit-for-purpose." The withdrawals come amid a broader push by departments overseeing digital assets to limit new regulatory burdens while clarifying existing authorities. On the same day FinCEN issued its notice, Commodity Futures Trading Commission Chair Michael Selig said the CFTC was using its current statutory powers to put forward two rules defining how crypto firms could operate under the agency's jurisdiction without seeking new authority from Congress. Industry groups welcomed FinCEN's reversal. Advocacy organizations that represent blockchain and crypto interests praised the decision to roll back the mixer and unhosted wallet proposals; the Crypto Council for Innovation called the move "positive for the digital asset ecosystem" in a post on X. FinCEN's action marks a notable shift in the trajectory of U.S. regulatory policymaking for digital assets, though it does not close the door on future rulemaking or enforcement under existing statutes.