United Kingdom Will Not Require KYC for Unhosted Wallets
It’s a rare win for privacy advocates on the European continent.
- The U.K. is backtracking on its blanket requirement for crypto firms to submit personal information on all transfers made to unhosted wallets.
- The Treasury report acknowledged industry concerns over privacy.
- The U.K.’s stance differs from the E.U., which decided in March to outlaw transfers to anonymous wallets.
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The U.K. Treasury has decided to rescind its requirement for crypto companies to compile the personal information of self-custodied wallet users, citing privacy concerns.
Unhosted Wallets for “Legitimate Purposes”
The United Kingdom’s government won’t be requiring crypto businesses to collect personal data for all transfers to non-custodial wallets.
In its June report, the Treasury acknowledged that “many persons who hold cryptoassets for legitimate purposes use unhosted wallets” and that no “good evidence” shows such wallets being used disproportionately for criminal activity. It will therefore only expect crypto businesses to collect personal information for “transactions identified as posing an elevated risk of illicit finance.”
The decision was made based on the feedback the Treasury received from its consultation with regulators, industry leaders, academia, civil society, and government bodies on the subject of updating money-laundering regulations.
The Treasury had previously indicated crypto transfers would fall under Financial Action Task Force (FATF) standards, meaning that both originator and recipient of transferred funds would need to be identified by crypto firms.
The measure was dropped due to concerns over privacy, feasibility, and short- and long-term costs. Some of those consulted suggested using Zero-Knowledge Proof technology to “demonstrate customer due diligence checks had been performed” while avoiding the sharing of personal information.
The recommendations in the Treasury’s report will be implemented in September 2022 following parliamentary approval.
Anti-anonymity laws have been passed in multiple legislative bodies this year, with the European Parliament having voted on outlawing anonymous crypto transactions in March. Lithuania’s government also recently imposed a blanket ban on “anonymous wallets.”
Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.