TL; DR Breakdown
The U.K.’s Treasury Department has decided to remove its demand that crypto firms gather personal information from self-custodied wallet users, citing privacy concerns.
In its June report, the Treasury acknowledged that “many individuals who own crypto assets for upright purposes utilize unhosted wallets,” and that no “good evidence” suggests such wallets are used disproportionately for criminal activity. As a result, it will only demand crypto firms to collect personal information for “transactions identified as posing an elevated risk of money laundering or terrorist financing.”
This is a significant victory for crypto advocates who have long argued that KYC requirements are an infringement on privacy and stifle innovation. The U.K.’s Financial Conduct Authority had proposed similar rules in 2019 but was met with strong opposition from the crypto community.
The Treasury’s change of heart is a sign that the government is starting to listen to the concerns of the crypto industry. It’s a positive development for the UK’s blossoming crypto ecosystem and will help make the country more attractive to blockchain businesses and investors.
After hearing grievances from its consultations with regulators, industry leaders, academics, civil society, and government authorities on the subject of modernizing money-laundering laws, the Treasury made this decision.
The new rules will still require firms to carry out customer due diligence (CDD) on their clients, but they will no longer need to collect personal information from those using unhosted wallets.
This is a big step in the right direction for the UK’s crypto industry, and it will hopefully pave the way for other jurisdictions to follow suit.
The treasury’s proposal that crypto transactions be subject to the Financial Action Task Force (FATF) standards was discontinued due to privacy, feasibility, and short- and long-term costs. According to some of those consulted, using Zero-Knowledge Proof technology to “demonstrate customer due diligence checks had been performed” without revealing personal information was a solution many favored.
The European Commission is also watching the U.K.’s developments on this issue closely, as it looks to revamp its own anti-money laundering directive. The U.K.’s decision not to implement KYC on unhosted wallets will likely have an impact on the EU’s deliberations.
It’s still early days for the crypto industry, and there are many regulatory hurdles to overcome before it can reach its full potential. But the U.K.’s decision on KYC is a step in the right direction that should be celebrated by the crypto community.
The government’s implementation of the UK Treasury report is intended to bring the laws in line with those of the European Union (EU), which have been modified to include virtual currencies. In this respect, the UK has long been regarded as a leader in Europe when it comes to regulating cryptocurrencies. After receiving formal approval from the government, it will go into effect.
The new rules will also allow the UK to catch up with other jurisdictions, such as Japan and Singapore, which have already implemented similar regulations.
This is a huge win for privacy advocates and a big step forward for the crypto industry. It shows that the UK government is willing to listen to the concerns of the crypto community and adapt its regulations accordingly. This is a positive development for the UK’s blossoming crypto ecosystem and will help make the country more attractive to blockchain businesses and investors.
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