FinCEN Withdraws Regulations on Wallets and Mixers, CFTC Proposes Leverage Oversight

[Mexico City = Shim Young-jae, Correspondent] The regulatory framework for digital assets (virtual assets) in the United States is being restructured. The Financial Crimes Enforcement Network (FinCEN), under the Department of the Treasury, has withdrawn proposed reporting regulations aimed at non-custodial wallets and digital asset (virtual asset) mixers. In contrast, the Commodity Futures Trading Commission (CFTC) has proposed two rules to federally oversee digital asset (virtual asset) trading that involves leverage, margin, and finance, as well as the platforms that provide these services.

According to CoinGape and CoinDesk, both FinCEN and CFTC announced regulatory measures related to digital assets on the 5th (local time). FinCEN has withdrawn the proposal to expand reporting obligations for non-custodial wallets and overseas digital asset mixers. The CFTC is pushing to supervise transactions involving leverage and margin through the 'Digital Asset Trading Regulation (Regulation CTX)' and 'Digital Asset Market Regulation (Regulation CAM)' and to create a new registration system for trading platforms.

FinCEN Withdraws Regulations on Non-Custodial Wallets and Mixers

According to CoinGape, FinCEN announced through two separate notices that it is withdrawing the proposed regulations targeting non-custodial wallets and digital asset mixers.

The regulations concerning non-custodial wallets were first proposed in 2020. The proposal required financial institutions, such as banks, to report additional information if transactions exceeding a certain threshold occurred involving digital assets held in non-custodial wallets.

CoinGape reported that specific transaction thresholds of $3,000 and $10,000 were presented as reporting criteria.

FinCEN stated that this withdrawal is part of the ongoing efforts by the Trump administration to design digital asset regulations appropriately.

The proposed regulations on digital asset mixers have also been withdrawn. This regulation required financial institutions to report transactions related to digital asset mixers located outside the United States.

FinCEN explained that concerns raised during the public comment process influenced the decision to withdraw.

FinCEN noted that there were opinions that the definition of 'convertible digital asset mixing' in the proposed regulations was overly broad and could stifle legitimate activities. There were also concerns that it could impose significant reporting burdens on regulated financial institutions.

However, FinCEN stated that it will continue to monitor the potential for money laundering or other illegal activities through mixers.

Coin Center, which opposed the regulations, evaluated the withdrawal as a "significant victory for financial privacy," according to CoinGape.

CFTC Proposes CTX and CAM Regulations... Federal Oversight of Leverage Trading

On the same day, the CFTC proposed a new regulatory framework applicable to digital asset trading. According to CoinDesk, the CFTC is pushing two interconnected rules to regulate digital asset trading involving leverage, margin, or finance, and the firms providing these services.

CFTC officials described this as a "comprehensive regulatory framework."

The first is Regulation CTX, which regulates the trading itself. The second is Regulation CAM, which regulates the platforms providing that trading.

With the introduction of CAM, a new registration type called 'Crypto Asset Markets (CAMs)' will be created.

According to CoinDesk, digital asset trading that combines leverage, margin, or finance, such as transactions that expand investment positions using borrowed funds, will fall under the CFTC's oversight.

CFTC Commissioner Mike Selig stated during a speech at Fordham Law School's annual blockchain regulatory symposium that "the CFTC is playing a role in providing clear rules for the digital asset market through the proposals for Regulation CTX and Regulation CAM."

Commissioner Selig explained that these rules would formalize a path for digital asset exchanges to operate under the unified federal oversight of the CFTC. He also mentioned that the previous administration used the same legal authority for "regulation through enforcement."

CAM registration is designed as an optional regulatory status similar to selecting a license suited for specific businesses in the banking sector.

However, registered businesses will be subject to standards similar to those of existing CFTC-registered entities.

According to CoinDesk, listings of products vulnerable to manipulation will be prohibited, and exchanges that hold customer assets in pooled accounts will be subject to proof-of-reserves requirements.

Transactions subject to Regulation CTX must involve a futures commission merchant (FCM) as an intermediary. Consequently, anti-money laundering provisions under the Bank Secrecy Act (BSA) will also apply.

Under the CFTC's 'actual delivery' exception rule, transactions where actual assets are transferred within 28 days may be exempt from regulatory application.

Commissioner Selig stated that they are also considering policies to protect developers who create software but do not directly solicit or receive customer orders or hold customer funds. He said, "No one should have to register as an introducing broker just because they distributed code."

Gaps in Spot Market Oversight Remain... Legislative Delays in Congress Amid SEC and CFTC Rule Proposals

Even if the CFTC's new rules are implemented, gaps in the oversight of the spot market for digital assets in the U.S. will remain.

According to CoinDesk, the CFTC does not have comprehensive authority to oversee the spot market where digital assets are bought and sold directly at current market prices without leverage or margin. A significant number of transactions involving Bitcoin (BTC) and Ethereum (ETH) fall under this category.

However, the CFTC does have enforcement authority over fraud and market manipulation occurring in the spot market.

The new rules will not replace state-level regulations related to money transfers applicable to spot transactions.

CFTC officials explained that companies seeking to offer more complex products will use customized platforms overseen by the CFTC.

It remains difficult to assess how much trading will remain in the spot market. The CFTC will accept public comments on this proposal for 60 days.

According to CoinDesk, several major platforms, including Coinbase, Crypto.com, and Bitnomial, as well as prediction markets Kalshi and Polymarket, are already registered as designated contract markets (DCM).

The new CAM registration type has a narrower scope than DCM. Companies wishing to offer futures, swaps, and options will need DCM registration.

Addressing the gap in oversight of the spot market was one of the key points of the Digital Asset Market Clarity Act, which was promoted in the U.S. Congress.

According to CoinDesk, this bill stalled in the U.S. Senate last month.

With the delay in enacting a new market structure law, the CFTC and the Securities and Exchange Commission (SEC) are each working to clarify digital asset rules using their existing authorities.

The SEC proposed related rules before the CFTC. According to CoinDesk, the SEC proposed regulations addressing the custody of digital assets by investment companies last week and also implemented exemptions to enable security tokenization.

The two agencies jointly established a token classification system earlier this year to clarify which agency, SEC or CFTC, would have jurisdiction over digital assets.

The CFTC's current proposal is based on the retail trading provisions of the Commodity Exchange Act established by the Dodd-Frank Act of 2010.

The current composition of the CFTC and SEC is also limited. According to CoinDesk, the SEC has only Chair Gary Gensler and Commissioner Mark Uyeda serving. The CFTC has Mike Selig as the only commissioner for about a year.

President Donald Trump has not yet nominated additional candidates to fill the five-member commissions of the two agencies, according to CoinDesk.

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