The UK government said it intends to amend a proposal that would have required crypto firms to collect personal data from individuals who have non-hosted wallets and who are the recipients of digital asset transfers.
In its Money Laundering, Terrorist Financing and Funds Transfer Amendments updated Wednesday, Her Majesty’s Treasury said it will reduce its requirements to collect data from both senders and recipients of cryptocurrency to a non-custodial wallet, unless the transaction poses “an elevated risk of illicit funding.” The UK government added that non-hosted wallets could be used for a variety of legitimate purposes, including an extra layer of protection as is sometimes the case with cold wallets.
“There is no compelling evidence that non-hosted wallets present a disproportionate risk of being used in illicit financing,” said the report from Her Majesty’s Treasury. “However, the Government is aware that exempting non-hosted wallets from the travel rule entirely could create an incentive for criminals to use them to circumvent controls.”
The UK government made the change in response to an inquiry between July and October 2021 by “[los supervisores de la lucha contra el blanqueo de capitales] (AML)/[la lucha contra la financiación del terrorismo] (CTF), industry, civil society, academia, and various government departments,” in which many raised concerns about the “breadth of personal information collected” around transfers to non-hosted wallets, as well as the time needed to enact such policy. According to the Treasury Department, the amendments will have a grace period of one year, taking effect in September 2023 if they are approved by Parliament.
The Treasury Department hinted that it would apply the changes in accordance with the Financial Action Task Force’s travel rule, which sets out recommendations for regulators to make cryptocurrency transactions comply with anti-terrorism financing regulations and money laundering. The FATF will publish a report on how participating countries are applying its travel rule at the end of June.
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