FinCEN Pulls Back Two Proposed Digital Asset Rules

Key Takeaways

• Two Digital Asset Rules Withdrawn: FinCEN has withdrawn proposed rules covering certain transactions involving unhosted wallets and convertible virtual currency mixing.
• Wallet Requirements Scrapped: One proposal would have imposed recordkeeping, verification and reporting requirements on financial institutions for certain convertible virtual currency transactions involving unhosted wallets.
• Mixing Measure Abandoned: The second proposal would have imposed a special measure concerning convertible virtual currency mixing.
• Deregulatory Agenda Drives Decision: FinCEN said it considered public comments and withdrew the proposals as part of the Trump administration’s deregulatory agenda and efforts to make digital asset regulation fit-for-purpose.
• Proposals Never Became Final Rules: The withdrawals end these particular rulemaking efforts before the contemplated requirements took effect.

Deep Dive

The Financial Crimes Enforcement Network has abandoned two proposed rules that would have tightened federal requirements around certain digital asset transactions, including those involving unhosted wallets and convertible virtual currency mixing.

FinCEN announced the withdrawals on October 5, ending two rulemaking efforts that had sought to bring additional recordkeeping, verification, reporting and other controls to parts of the digital asset market. Neither proposal had reached the point of becoming a final rule.

One would have required financial institutions to keep records, verify information and file reports for certain transactions involving convertible virtual currencies and unhosted wallets. The other would have imposed a special measure concerning convertible virtual currency mixing.

FinCEN gave a short explanation for walking away from both. The agency said it had considered comments submitted in response to the proposals and was withdrawing them as part of the Trump administration’s deregulatory agenda and its continuing effort to ensure that digital asset regulations are “fit-for-purpose.”

That leaves the two proposals where proposed rules ultimately matter most: off the books. FinCEN is not repealing requirements that financial institutions have been operating under. It is withdrawing proposals before they became final rules. The recordkeeping, verification and reporting obligations contemplated for certain transactions involving unhosted wallets will therefore not take effect through that proposal, nor will the special measure contemplated for convertible virtual currency mixing through the second.

There was no replacement framework in FinCEN’s October 5 announcement. Nor did the agency describe how it might approach either subject in a future rulemaking. Its statement was narrower than that. The comments had been considered, the administration was pursuing deregulation, and these two proposals were being withdrawn.

For financial institutions that had been watching the rulemakings, that is the practical consequence. Two prospective layers of digital asset regulation that had remained on FinCEN’s docket will go no further in their present form. The withdrawals also provide a concrete measure of what the administration’s digital asset policy means once it reaches the rulebook. Here, the change is not a softened requirement or an extended compliance date. FinCEN has chosen not to finish writing these two rules at all.

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