The Treasury has
released its long-awaited proposal to restrict money services
businesses, including U.S.-registered crypto exchanges, from dealing
with self-hosted wallets.

In a Friday evening announcement,
the Treasury's Financial Crimes Enforcement Network, or FinCEN,
announced proposed rules requiring registered crypto exchanges to verify
the "identity of their customers, if a counterparty uses an unhosted or
otherwise covered wallet and the transaction is greater than $3,000." 

The rule is currently just a proposal. The Treasury has given stakeholders 15 days to respond with comments. 

Rumors of the proposed rules have been circulating for the past month.
With Treasury Secretary Steven Mnuchin on his way out the door as a new
administration comes in, they have been viewed as a parting shot at
crypto. Of the announcement, he said: 

“This rule
addresses substantial national security concerns in the CVC market, and
aims to close the gaps that malign actors seek to exploit in the
recordkeeping and reporting regime.”

A number of leading lawmakers have already come out in opposition
to the proposed rule, which many see as an assault on the nature of
peer-to-peer transactions. However, in the absence of a formal law, the
Treasury has considerable rulemaking power in this area.

That
said, the current proposal is not as radical as some feared. It would,
rather, apply existing requirements to keep reports on transactions —
the $3,000 threshold of the Travel Rule
— to registered entities interacting with self-hosted wallets. Among
registered entities, that threshold would instead be $10,000. 

This story is breaking and will be subject to updates.