How do you ban "private self hosted wallets"???!!
Do you ban any piece of software that encrypts and signs packets?... oh, like your browser?
Would a "wallet" that ran in a browser be considered "private"?
These people do know that the bitcoin is not actually stored in the wallet?
My guess is they would prohibit exchanges from transfering to self hosted wallets, without first kycing them, and then also wouldn't able to accept transfers in from self hosted wallets without first kycing them... you are right that they can't ban them persay, so they would focus on the choke points.