The Financial Crimes Enforcement Network (FinCEN) has proposed new regulations impacting financial institutions and the digital asset industry.

The proposal targets digital asset mixers, services that obscure the source, destination, or amount of transactions.

The definition of mixing now includes simple blockchain transactions like converting one form of digital asset to another.

Concerns raised involve impact on digital asset activities such as centralized exchanges, decentralized exchanges, and non-fungible token marketplaces.

Financial institutions could face disruption due to the high level of proposed monitoring and reporting.

The proposal identifies many activities as potential targets for reporting, including pooling, splitting, using single-use wallets, and facilitating transaction delays.

The proposal could lead to increased regulatory expectations for due diligence, moving beyond just mitigating illicit finance risks.

The use of the special measures authority under Section 311 of the Patriot Act to justify the proposal raises challenges and questions.

Financial institutions may need to de-risk customer categories or make defensive filings to comply with the obligations.

Public comments on the proposal are open until January 22, 2024, with predictions of more aggressive sanctioning towards decentralized finance in 2024.

The industry awaits the outcome of public comments and is preparing to adapt to the changing regulatory landscape.