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The UK Treasury has backed down on plans to force all senders of cryptocurrency cash to collect information that identifies the funds' recipients. According to the Treasury, creating a know your customer (KYC) data collecting regulation for unhosted, or private, wallets makes little sense.
The UK Treasury stated in the report, “The government does not agree that unhosted wallet transactions should automatically be viewed as higher risk; many persons who hold crypto assets for legitimate purposes use unhosted wallets due to their customizability and potential security advantages (e.g. cold wallet storage), and there is no good evidence that unhosted wallets present a disproportionate risk of being used in illicit finance.”
UK Treasury Decisions Made In Collaboration With Key Stakeholders
The decision was made following the discussions on the topic of revising money laundering legislation with regulators, industry players, academics, and government agencies. Many in the sector viewed the proposed rule as impracticable and burdensome because it required financial institutions and crypto exchanges to collect and maintain information on foreign payments. The Treasury of the United Kingdom has acknowledged that implementing the travel regulation will cost the business money but insists that it will offer overall benefits. It is, however, relaxing the rule such that cash and crypto transfers will no longer be necessary to compute the de minimis level, and information on unhosted wallets will only be required on a risk-sensitive basis.
Unhosted Wallets Are On The Regulatory Radar
The United Kingdom isn't the only country focused on unhosted wallets. Several regulators from throughout the world have published statements on the subject, stating that some type of regulation will be required. The European Parliament has approved an amendment that might have an impact on unhosted wallets. The crypto sector reacted quickly with criticism, claiming that it would have a significant impact on privacy.