Top regulators like FinCEN and FATF have introduced several mandatory rules of reporting transactions taking place through unhosted wallets. Reportedly, such transactions have links to money laundering and terror financing and hence greater scrutiny over them is essential.As the crypto market matures, the debate between hosted and unhosted wallets is catching up with the heat. Hosted wallets also called custodial wallets often involve an intermediary. This intermediary takes care of services like receiving, storing, and transmitting digital assets. There are several custodial services providers with many exchanges also offering the hosted wallet services. Alternatively, there are unhosted wallets that now have attracted the attention of the regulators like FATF and FinCEN.This is nothing but the software installed on laptops or phones. One can also refer to them as self-hosted or non-custodial. The funds in such non-custodial wallets are absolutely controlled by an individual without any intermediary required. Besides, they can also directly interact with other digital currency systems without involving any other financial system. The Stance of FinCEN and FATF Toward Ungosted WalletsHowever, since unhosted wallets involve peer-to-peer interaction, they become more difficult to trace. Many regulators believe that unhosted wallets are a key source of money laundering and terror financing. As a result, they have started attracting larger scrutiny from regulatory authorities. The Financial Crimes Enforcement Network (FinCEN) of the US has recently raised concerns with the illicit use of unhosted wallets. Besides, the Financial Action Task Force (FATF), has also voiced similar concerns.Last year in 2020, FinCEN issued a proposal dubbed “Requirements for Certain Transactions Involving Convertible Virtual Currency or Digital Assets”. The aim was to address the illicit finance threat coming from unhosted or self-hosted wallets. FinCEN wanted to apply the rules of traditional fund transfers to unhosted wallets. Meaning the wallets will have to follow the reporting and record-keeping requirements.These new requirements will keep a check on the unhosted wallets for any transactional activities including deposits, withdrawals, exchanges.The Reporting Requirements of FinCENThe FinCEN mandated that the transfer of digital assets and virtual digital currencies with legal tender status via banks or other money service businesses (MSBs) needs to be reported. Thus, if the transactions exceed $10,000, then in a 24-hour period, the bank of MSB has to file a report with the FinCEN.The report should include some information relating to the transaction, the counterparty along the customer identity verification. For any transactions exceeding $3000, banks and MSBs have to keep records.Recently in March 2021, the FATF also issued draft guidance following a risk-based approach towards virtual assets and service providers (VASPs). The FATF mandated that VASPs should treat transfers from unhosted wallets as high-risk transactions. Such transactions shall be subjected to additional scrutiny.The FATF also recommended that individual countries should see how peer-to-peer transactions happen at their end. In case the risks are unacceptably high, countries should consider limiting such transactions.Basically, it is clear that regulatory bodies are looking to get more details of global transactions especially if their nature is peer-to-peer. Apart from the US, European countries like the Netherlands and Switzerland have also introduced stricter rules.Read other crypto-related news on Coinspeaker. next Altcoin News, Bitcoin News, Cryptocurrency news, News Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills. Thank you!You have successfully joined our subscriber list.