This kind of thing is already well underway. There are protocols such as AOPP to support people KYCing their own wallets. This travesty even gained widespread support from entities which should really know better, like Trezor.
So this means non-custodial wallets will now be KYC-compliant via the use of the AOPP protocol? It doesn't make any sense. Especially if the wallet is open source. What's stopping someone from making a fork without the protocol? This will only work on closed-source wallets.
There's no way governments will be able to enforce regulations on truly-decentralized blockchain networks. It's technically impossible. The only thing they can do is regulate centralized exchanges, services, and wallet providers (custodial). They can also pressure developers to write code that's regulatory-compliant. But the community ultimately decides which changes to approve or reject on a Blockchain network. Lets hope decentralization wins in the long run. :/