UK Government Backtracks on Unhosted Wallet Data Collection Proposal

The U.K government will not implement its proposed version of a controversial rule requiring all senders of funds to private crypto wallets to collect identification details of recipients, a document published by the Treasury said.

Based on the feedback received, the Treasury does not think it would make sense to create a data collection rule for unhosted, or private, wallets, it said.

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

Under Financial Action Task Force (FATF) standards to prevent money laundering and terror funding, the originator and recipient of funds being transferred need to be identified. In the consultation document published last July, the Treasury said the rule should be applied consistently across the financial services industry, “regardless of the technology being used to facilitate transfers.”

In the July document, the Treasury said: “Cryptoasset firms will need to put in place systems for ensuring that personal information of the originator and beneficiary of a cryptoasset transfer is transmitted and received alongside the transfer, in an appropriate format.”

Had it been implemented as proposed, the rule would have required the sender of any transaction between unhosted wallets to collect know-your-customer data from the receiver. A similar proposal in the U.S. received backlash due to concerns about whether it would even be possible for some entities, like smart contracts with their own wallets, to comply, as well as whether the data would be safe if any random individual had to store it.

The U.K. government still wants to ensure some form of compliance with the FATF’s travel rule, which recommends some amount of data collection to prevent money laundering.