- White House freezes the multiple regulatory proposals of previous administration
- Regulation of unhosted crypto wallet transaction was first announced in December 18, 2020
- Crypto industry warns users may move away from regulated crypto exchangesa
On the first day of his presidency, President Joe Biden halted multiple regulatory proposals of Donal Trump’s administration including the proposal on crypto wallet regulations. The rules will be frozen until the new administration reviews them.
The White House shared a memo Regulatory Freeze Pending Review for the heads of executive departments and agencies right after the inauguration ceremony on Wednesday, January 21.
The document stated that all proposed rules should be halted (excluding the ones for the emergency situations) and those already sent to the Office of the Federal Register (OFR) should be withdrawn.
The controversial proposal
The last-minute rules on self-hosted cryptocurrency wallets were proposed by the Financial Crimes Enforcement Network (FinCEN) and supported by former Treasury Secretary Steven Mnuchin back in December, 2020.
The proposal aimed to regulate transactions to private digital asset wallets. In other words, the rule required registered cryptocurrency exchanges to verify their customers’ identities anytime when they transfer funds into unhosted crypto wallets or when transactions surpass $3,000.
Unhosted cryptocurrency wallets do not rely on a third-party financial system, allow storing and using cryptocurrency and provide anonymity for their users.
Under proposed rules, any user who wants to transfer his holdings from the exchange to a private cryptocurrency wallet has to provide personal information. Cryptocurrency exchanges will also be obliged to inform FinCEN of any transaction over $10,000.
On the flipside
- FinCEN claimed that requirements for cryptocurrency transaction reports are identical to the ones applied for any currency transactions.
- The department of Treasury also stated that unhosted wallets create the ability for terrorists and other malicious actors to transfer funds unnoticed.
Crypto industry criticized
Multiple cryptocurrency companies fiercely criticized the proposal saying that it threatened the privacy rights of the persons or companies involved in transactions.
Accordingly, they claimed that new rules are technically impossible as smart contracts do not hold private information like user name or address. The crypto industry leaders including Jack Dorsey stated that private identity information is not required for cash operations, thus it can’t be mandatory for cryptocurrency transactions as well.
The CEO of Twitter and Square warned that the proposed regulations will force users to move away from the regulated cryptocurrency exchanges to the unregulated ones and thus prevent the innovations of the industry.
The industry had a 15-day public comment period after the proposal was first announced in December, a month before the US Administration change. The period is three times shorter compared with the usual 60 days. However, it was later extended for another 15 days.