The UK government decided to alter the earlier proposal that required crypto firms to collect data from users holding unhosted wallets. The European Union also approved the proposal for a similar measure in March.
The proposal on money laundering was amended, and the HM Treasury addressed that it will not require crypto firms to collect information from the sender and receiver of crypto using unhosted wallets unless there is a chance of a “high risk of illicit finance.” The government also cautioned that unhosted wallets could be utilized for numerous illicit activities.
UK amends the proposal after collective feedback
HM Treasury decided to agree to the move after gathering feedback from respondents, including industry experts and academics. The UK government’s revelation may come as a comfort to the privacy-focused section of the crypto community, which has been vocal in its opposition to the EU’s move.
At the time, Coinbase CEO Brian Armstrong described it as “anti-innovation, anti-privacy, and anti-law enforcement,” referring to the rigorous conditions imposed on individuals.
“There is no good evidence that unhosted wallets present a disproportionate risk of being used in illicit finance.” “Nevertheless, the government is conscious that completely exempting unhosted wallets from the Travel Rule could create an incentive for criminals to use them to evade controls.”
HM Treasury report
Due to the security features, the government also added that many individuals hold crypto assets in unhosted wallets, including cold wallets. Cold wallet storage also reduces the risk of getting hacked, as many platforms have been exploited recently. The unhosted wallets provide users with complete control rather than the unnecessary involvement of a third party.
According to the UK treasury department, the changes will exist for a period of one year and will come to effect in September 2023 once approved by the parliament.