UK amends proposal to bind only private crypto wallets with high risk of illegal finance.
The government of the United Kingdom has backtracked on a controversial proposal that requires private data collection.
Previously, the rule indicated that fund senders must ID all receiving crypto-asset wallets before completing transactions. However, an amendment on Monday has restricted the proposal to only transactions that pose a risk of illegal finance.
Background on UK’s KYC Proposal
July 2021 saw the UK government pass a proposal to enforce Financial Action Task Force (FATF) standards on crypto wallet transactions. The rule required that all entities funding unhosted crypto wallets must request identification details from the beneficiaries before proceeding.
The proposal was an attempt to curb illicit financial actions such as money laundering and terror funding. The government argued that malicious actors may try to take advantage of crypto anonymity to perpetrate crimes.
Negative Backlash Spur Amendment
However, the rule turned out to be contentious, sparking mostly negative feedback from the crypto community. Consequently, the treasury thinks that collecting personal data from private crypto wallets may not be a good idea.
Finally, on Monday, the UK Government decided not to proceed with the proposal. Rather, the Treasury published an amendment to the rule which will no longer include all crypto transactions. Instead, only suspicious transactions that pose a high risk of illegal activities are subject to the rule.
Cryptoasset businesses will only be expected to collect this information for transactions identified as posing an elevated risk of illicit finance,” the document read.
That is, any business funding unhosted wallets must require the recipient’s identification details before transactions.
Similar Proposal Backlash in the US
A similar data collection plan, proposed in the US earlier, had received the same response. The crypto community weighed whether the rule was applicable to certain entities, for example, smart contracts. The dissenters also brought up the issue of security when exposing such data indiscriminately.
Nevertheless, the UK Treasury office’s release in July indicated that the proposal was for ensuring equality in financial standards. In other words, the Treasury insists that crypto services comply equally with FATF standards just like other economic platforms.