FinCEN said Monday it is withdrawing its proposed reporting rule for crypto mixing, along with a 2023 finding that international mixing is a class of transactions of primary money laundering concern. The notice, scheduled for Federal Register publication on Oct. 6, takes effect immediately upon publication. The retreat follows a wave of comments warning that the rule's expansive definition of mixing could snare legitimate activity and pile on reporting costs.
What FinCEN actually killed
The withdrawal covers two pieces: the 2023 finding and the proposed recordkeeping and reporting rule that would have required domestic financial institutions to report transactions they knew, suspected, or had reason to suspect involved mixing outside the U.S. The definition was broad. It applied regardless of the protocol or service used, and examples included pooling funds, coordinating transactions with code, splitting transfers, routing through single-use wallets, swapping between crypto assets, and even user-initiated delays. Certain internal bank, broker-dealer, and money services business processes were excluded, provided they kept source and destination records and handed them over when legally required.
The privacy exposure that spooked commenters
For wallet users, the risk came through institutions' reports. Those would have included wallet addresses, transaction hashes, IP addresses, and customer identity information the institution held. Financial institutions would also have had to document their compliance. Commenters argued the definition was so wide it could chill ordinary self-custody activity and create a paperwork burden far out of proportion to any illicit finance it might catch. FinCEN listened, at least for now.
Nothing changes for registered money transmitters
The withdrawal doesn't lighten existing obligations. Under current FinCEN guidance, covered crypto money transmitters still must register, run risk-based anti-money-laundering programs, perform applicable customer checks, keep records, and file suspicious activity reports. Qualifying transfers remain subject to the Funds Travel Rule. The guidance also draws a line between an anonymizing service that accepts and retransmits value and a supplier of anonymizing software. Selling a tool alone doesn't make someone a money transmitter, though operating a transmission business can. An unhosted-wallet user paying for goods or services on their own behalf isn't a money transmitter on that basis.
The unhosted-wallet rule is officially dead
The announcement also covers the separate unhosted-wallet proposal from December 2020. That rule was already listed as withdrawn on April 12, 2024, in the Spring 2024 regulatory agenda. The new notice says the agency will take no further action on it. FinCEN added that it will keep monitoring crypto mixing for money laundering, terrorist financing, and other illicit activity, and may take further steps down the road. Existing obligations for financial institutions remain relevant when they assess privacy-related transactions.
For now, the immediate effect is procedural: the rule is gone, and the comment record that killed it is public. The agency hasn't said what, if anything, it might propose instead.
