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UK Backtracks On KYC For Unhosted Wallets

UK Backtracks On KYC For Unhosted Wallets

The United Kingdom government has announced that it will not implement the controversial plan that made it compulsory to collect the identification details of all private crypto wallets. 

No More KYC For Private Wallets

Due to the intense pushback it received, the UK government has backtracked on its proposal demanding KYC documentation for unhosted crypto wallets. Under this proposal, before sending crypto to private wallets, all senders would have had to collect the identification details of fund recipients. However, based on the concerns raised in the feedback, the Treasury deemed that it would be counterintuitive to insist on data collection for unhosted or private wallets. 

An excerpt from the statement released by the Treasury in its June report reads, 

“If a beneficiary was asked to verify information provided on the originator, they could be expected to submit official documents proving the originator’s address, date and place of birth, etc. This would, in many cases, not be practical. The government has therefore decided against amending the proposals to require verification.”

The FATF Standards

The proposal was brought forth under the Financial Action Task Force (FATF) standards to prevent money laundering and terror funding. Therefore initially, the requirement was complete identification collection of both the sender and the recipient of the funds. The Treasury had added to this requirement by deeming it compulsory across the financial services industry, regardless of the technology supporting these transactions. Thereby, crypto transactions would have fallen under this rule bracket as well. 

Feedback Raised Concerns

However, the feedback on these reform proposals raised concerns over privacy, feasibility, and budget. Therefore the Treasury has decided not to go ahead with implementing the measure. Instead, there have been suggestions of using Zero-Knowledge Proof technology to determine the customer’s validity without sharing private information.  

The report stated, 

"Instead of requiring the collection of beneficiary and originator information for all unhosted wallet transfers, cryptoasset businesses will only be expected to collect this information for transactions identified as posing an elevated risk of illicit finance." 

UK’s Back And Forth On Crypto

The UK authorities have been presenting a rather conflicting front towards cryptocurrencies. On the one hand, certain parliament members, like former health secretary Matt Hancock, have been voicing their support for digital assets. The British government has also indicated that it wants the UK to be the next crypto hub. On the other hand, the Bank of England has announced that in light of the recent TUSD stablecoin crash, it will be keeping a closer eye on stablecoins and intervene if it feels necessary. 

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.