The U.S. Treasury Department has withdrawn a Trump-era rulemaking proposal that would have required banks and money service businesses (MSBs) to collect and report identifying information on counterparties to cryptocurrency transactions involving unhosted, or self-hosted, wallets, according to Coinpedia Fintech News, which characterized the move as a "major self-custody shift."

The proposed rule, published on December 18, 2020 by the Financial Crimes Enforcement Network (FinCEN) under then-Treasury Secretary Steven Mnuchin, had drawn intense industry and civil-liberties opposition during an extended comment period. Treasury's withdrawal effectively closes the rulemaking docket on the proposed reporting regime and removes the most concrete federal reporting obligation that the U.S. crypto industry has confronted to date.

What would the rule have required?

Under the original proposal, banks and MSBs would have been required to:

• File Currency Transaction Reports for transactions exceeding $3,000 involving unhosted wallets, with aggregation triggers at $10,000
• Maintain records for transactions exceeding $10,000 involving hosted wallets in jurisdictions FinCEN identified as having anti-money laundering deficiencies
• Collect counterparty names and physical addresses for unhosted wallet counterparties, plus the wallet owner's identifying information
• Apply the obligations to both the originator and beneficiary of covered transactions

FinCEN framed the rule as an effort to close loopholes in the Bank Secrecy Act (BSA) framework that the agency said allowed illicit actors to move funds through wallets without intermediaries.

Why did the proposal attract opposition?

Industry groups, including the Blockchain Association and the Chamber of Digital Commerce, argued the rule's definition of "unhosted" wallet was overbroad and that the $3,000 reporting threshold was operationally untenable. Critics said the requirement would effectively cut off large segments of the digital asset economy from the U.S. banking system, since exchanges routinely route customer withdrawals to self-hosted wallets.

Civil-liberties organizations, including the Electronic Frontier Foundation, warned that the rule would push users toward non-compliant offshore venues and create privacy risks. The original 15-day comment period was extended into early 2021 amid the volume of submissions, and Treasury never moved to finalize the measure.

What does the withdrawal change operationally?

For U.S. crypto businesses that maintain regular withdrawal and deposit flows to and from customer-controlled addresses, the removal of the proposed rule eliminates the most acute regulatory threat to those relationships. Banks had warned they would terminate crypto exchange clients rather than implement the proposed reporting infrastructure, a prospect that hung over venues including Coinbase and Kraken throughout 2021.

The withdrawal does not affect the broader Bank Secrecy Act obligations of MSBs, who remain subject to existing suspicious activity reporting and AML program requirements. Travel Rule obligations for hosted transfers — codified by FinCEN in 2019 guidance — also remain in force.

What comes next?

FinCEN has signaled that any future oversight of unhosted wallet transactions will proceed through a new rulemaking process with revised requirements. Treasury has not announced a timeline or replacement framework, leaving the regulatory perimeter around self-custody unresolved for the medium term.

The shift is likely to inform how Treasury approaches crypto oversight under the Biden administration's broader digital asset policy review, including implementation of the executive order on digital assets signed in March 2022. Any successor rulemaking will face a fresh comment cycle and tighter coordination with Securities and Exchange Commission and Commodity Futures Trading Commission jurisdiction questions.