UK Government Reverses Stance on Data Collection of Self-Custody Crypto Wallets

The United Kingdoms finance ministry is issuing new guidance on when crypto businesses can collect identifying information relating to self-custody wallets.

After extensive consultation, the UK Treasury says crypto businesses will now be required to collect self-custody wallets identifying information only for transactions suspected of illegal activities.

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

The respondents in the consultation exercise included supervisors from the UKs anti-money laundering and counter-terrorist financing groups, members of the crypto asset industry, civil society, academia, as well as various other government departments.

According to the UK government, a forthcoming piece of legislation will provide guidelines for crypto businesses will go about determining suspicious transactions. The new guidance will go into effect in September upon parliamentary approval.

Previously, the UK government required crypto businesses to obtain information about the recipient of the funds sent from all self-custody wallets.

The UK government says the decision to relax the guidance is driven by legitimate reasons for crypto asset holders to choose self-custody wallets.

The government does not agree that unhosted wallet transactions should automatically be viewed as a 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 not good evidence that unhosted wallets present a disproportionate risk of being used in illicit finance.

Earlier this year, a report indicated that the UK government would release more crypto-friendly regulations after consultations with crypto firms and trade groups.

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