Due to privacy concerns, the U.K. Treasury has decided to revoke its mandate for crypto companies to collect personal information from self-custodied wallet users.
Unhosted Wallets for “Legitimate Purposes”
The Treasury acknowledged in its June report that “many persons who hold cryptoassets for legitimate purposes use unhosted wallets” and that there is no “good evidence” that such wallets are being used disproportionately for criminal activity. As a result, it will only require cryptocurrency companies to collect personal information for “transactions identified as posing an elevated risk of illicit finance.”
The Treasury made the decision based on feedback from its consultation with regulators, industry leaders, academia, civil society, and government agencies on the subject of revising money-laundering legislation.
The Treasury previously stated that crypto transfers would be subject to Financial Action Task Force (FATF) standards, requiring crypto firms to identify both the originator and the recipient of transferred funds.
The plan was dropped due to concerns over privacy, feasibility, and short- and long-term costs. Some of those consulted advised employing Zero-Knowledge Proof technology to “demonstrate customer due diligence checks had been performed” while avoiding the disclosing of personal information.
Following parliamentary approval, the recommendations in the Treasury report will be implemented in September 2022.
Anti-anonymity laws have been passed in multiple legislative bodies this year, with the European Parliament voting in March to prohibit anonymous crypto transactions. Lithuania’s government has also recently banned “anonymous wallets.”