The European Union (EU) authorities changed their mind about banning non-custodial wallets but introduced a new concept called “non-custodial addresses.” Now they plan to ban them.
Members of the European Parliament once again discussed amendments to the new draft law on anti-money laundering. Previously, the legislative initiative planned to completely ban the use of “unhosted wallets,” but the position of lawmakers changed as they “do not want an outright ban on non-custodial services.” This is reported by The Block, citing the relevant documents.
What Is a Non-Custodial Wallet?
A non-custodial wallet is a cryptocurrency wallet that gives users full control over their private keys and digital assets. Unlike custodial wallets offered by exchanges or financial institutions, non-custodial solutions allow users to manage funds independently without relying on a third party to hold or access their assets.
However, the European Parliament plans to ban privacy-enhancing crypto-assets and “anonymizing instruments,” including privacy crypto wallets or crypto mixers, under a new anti-money laundering bill. But now it’s clarified that these restrictions shouldn’t apply to “self-hosted wallets.”
Note that “unhosted” and “self-hosted” most likely refer to non-custodial crypto wallets. Meanwhile, European politicians introduce a new term — “self-hosted addresses,” meaning “non-custodial addresses.” With this new term, they plan to control users’ crypto accounts hosted by licensed digital asset service providers without banning non-custodial services in general.
Key Differences Between Custodial and Non-Custodial Wallets
The distinction between custodial and non-custodial wallets has become an important part of crypto regulation because the two models operate differently:
- Custodial wallets are managed by a third party
- Non-custodial wallets give users control of private keys
- Custodial providers can perform identity checks directly
- Non-custodial wallets offer greater user autonomy
- Regulatory oversight is generally easier for custodial services
“With this change, policymakers aim to clarify their objective of preventing non-custodial wallets from existing without being linked to an identified account on a crypto service provider like an exchange,” said Tommaso Astazi, Head of Regulatory Affairs at the lobby group Blockchain for Europe. The previous wording could’ve implied that crypto service providers in the EU would’ve been prohibited from engaging in non-custodial activities at all.
Self-Custody Remains a Key Principle of Crypto
The debate around non-custodial wallets remains central to cryptocurrency regulation worldwide. Supporters argue that self-custody is one of the core principles of digital assets, allowing users to maintain direct control over their funds. Regulators, meanwhile, continue to explore ways to address anti-money laundering concerns without restricting access to self-hosted wallet technologies.
For non-custodial crypto wallets whose users can’t be identified, there would be a transaction limit of €1,000. In July 2022, the European Parliament tentatively approved a draft regulation of crypto-assets. It’s expected that the bill will enter into force in 2025, but so far, a regulatory sandbox for blockchain projects began to work in the European Union.
FAQ About Non-Custodial Wallets
No. As of 2026, non-custodial wallets remain legal in the European Union, although certain AML and reporting requirements may apply to interactions with regulated service providers.
A self-hosted wallet is controlled by the user, while a custodial wallet is managed by a third party such as a crypto exchange.
Because users can transfer funds directly without relying on an intermediary, making compliance and identity verification more challenging.
Yes. Self-custody remains legal, although crypto transactions may be subject to regulatory requirements depending on the service provider involved.
