FinCEN drops crypto mixing proposal as backlash kills rule

Technical Highlights

The proposed definition of crypto mixing would have applied regardless of the protocol or service used, covering examples such as pooling funds, coordinating transactions with code, and routing funds through a series of single-use wallets. The definition also excluded certain internal processes used to execute transactions at banks, broker-dealers, and money services businesses, provided they retained source and destination records and supplied them when legally required.

Market & Token Impact

The withdrawal of the proposal means that financial institutions will not have to report information about covered transactions and their customers, alleviating concerns over privacy exposure for wallet users. Existing transmitter and suspicious-activity rules remain in place, ensuring that covered crypto money transmitters continue to be subject to registration, risk-based anti-money-laundering programs, and recordkeeping and suspicious activity reporting.

Short Term Implications

The FinCEN announcement also covers the separate unhosted-wallet proposal published in December 2020, which was already listed as withdrawn on April 12, 2024. The agency will continue monitoring crypto mixing for money laundering, terrorist financing, and other illicit activity, and may take further steps. Financial institutions' existing obligations remain relevant when assessing privacy-related transactions.

Regulatory & Legal Outlook

The withdrawal of the crypto mixing proposal demonstrates FinCEN's willingness to reconsider and adapt to the evolving nature of the crypto market. It also highlights the importance of balancing anti-money laundering regulations with the need to protect legitimate activity and promote innovation. As the crypto market continues to grow and evolve, it is likely that FinCEN will continue to monitor and adapt its regulations to ensure that they remain effective and proportionate.