U.S. Treasury Department on Track to Regulate Unhosted Wallets

U.S. Treasury Department on Track to Regulate Unhosted Wallets

As part of Joe Biden’s broader strategy to tackle illicit finance involving digital assets, the U.S. Treasury Department is addressing the anonymity of non-custodial crypto wallets.

Follow two 2020 rules by the Financial Crimes Enforcement Network (FinCEN) that enforce transaction reporting for noncustodial wallet transactions over $10,000, while also mandating banks to collect collections on any transaction involving noncustodial wallets over $3,000 Information on clients and their counterparties, U.S. Treasury Undersecretary Wally Adeyemo affirmed the government agency’s progress.

Adeyemo confirmed at Consensus 2022:

“…we are working to address the unique risks associated with non-custodial wallets…Fundamentally, financial institutions need to know who they are transacting and doing business with to ensure that they are not sending money to criminals, sanctioned entities or others People pay. For non-custodial wallets, we are working hard to provide them with the information they need to avoid facilitating such illegal payments.”


The scrutiny of non-custodial wallets has intensified following the imposition of sanctions by the Russian Federation following its invasion of Ukraine. However, there is little evidence that Russians use cryptocurrencies to circumvent such sanctions.

Treasury: Travel rules won’t invade privacy

Without elaborating, Adeyemo went on to describe the travel rule, which would disclose the true identities of the senders and recipients of cryptocurrency funds to all financial institutions involved in the transaction in order to maintain national security and enforce the Bank Secrecy Act.

To address concerns about privacy violations, Adeyemo said the agency is determined to draft regulations that benefit broader national security goals while allowing innovation in payment technology.

“The international standing and ability of the United States to maintain national security depends in large part on our global financial leadership. Our administration knows that the future of the global financial system is increasingly digital.”

Regulatory push comes from multiple directions

The Treasury Department’s response follows an executive order issued by U.S. President Joe Biden asking multiple government agencies to study cryptocurrencies. These agencies include the Treasury Department, Securities and Exchange Commission and Office of the Comptroller of the Currency.

Section 7 of the executive order addresses the risks associated with cybercrime involving cryptocurrencies and requires the Secretary of the Treasury and six other administration officials to submit supplemental attachments to the President describing their exposure to “digital assets (including cryptocurrencies, stablecoins) “Perceptions of Illicit Financial Risks”, CBDCs and Trends in the Use of Digital Assets by Illicit Actors” within 90 days of being presented to another agency’s National Strategy Conference on Combating Terrorism and Other Illicit Financing.

Within 120 days of submitting a national strategy to combat terrorism and other illicit financing to Congress, the Secretary of the Treasury and others are required to submit a coordinated interagency plan to mitigate the risks of illicit financing.

The Treasury Department joins Sen. Cynthia Loomis (R-Wyo) and Sen. Kirsten Gillibrand (D-NY), who released draft regulations earlier this week. Although recently introduced, the new law won’t actually take effect until at least 2023, with the upcoming midterm elections a priority. In its current form, the bill explains what types of stablecoins are permitted, which cryptocurrencies fall under the CFTC’s jurisdiction, and which fall under the SEC’s purview.

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