The UK Treasury has given up on its plan to make all people who send payments in cryptocurrency collect information about the people who are getting the money.
The Treasury said that it doesn’t make much sense to require unhosted or private wallets to collect “know your customer” (KYC) information.
In the report, the Treasury said, “The government does not agree that unhosted wallet transactions should always be seen as higher risk. Many people who hold cryptoassets for legitimate reasons use unhosted wallets because they can be customized and may offer security benefits (like cold wallet storage), and there is no evidence that unhosted wallets are more likely to be used for illegal finance.”
Treasury decisions are made with the help of important parties.
The decision was made after regulators, people in the industry, academics, and government agencies talked about changing the rules on money laundering.
The proposed law said that financial institutions and cryptocurrency exchanges had to collect and keep information on overseas transfers. Many people in the business thought this was impossible and a lot of work.
Respondents said that there would be both short-term and long-term costs, but others said that the benefits of a better-regulated asset class might make up for some of the costs.
The U.K. Treasury admits that adopting the trip regulation would cost the business money, but it says that the business will be better off in the long run.
But the law is being changed so that cash and cryptocurrency transactions won’t be needed to figure out the de minimis level and information requirements for wallets that aren’t hosted will only be needed when there is a high risk.
Unhosted wallets are a top priority for regulators
The United Kingdom isn’t the only country that is focused on wallets that are not hosted by a bank. Authorities from all over the world have said in public comments that they will need some kind of rules.
Recently, the EU parliament passed a change that will affect wallets that are not hosted by a third party. The crypto industry quickly responded with criticism, saying that it would hurt privacy in a big way.
Critics, including Coinbase, said that it would “unleash a comprehensive monitoring regime on exchanges, slow down innovation, and hurt the self-hosted wallets that users use to store their digital assets safely.”
DeFi will change because of new rules.
The decentralized finance (DeFi) sector will be most affected by the laws about wallets that are not hosted by a third party. Authorities have been keeping an eye on DeFi for a while now because of how it’s set up: it’s not centralized and there are rumors that it could cause financial problems.
The International Monetary Fund has said that DeFi is a threat to financial stability and has asked that stablecoin issuers be regulated. It says that centralized exchanges should have some limits because it’s hard to control decentralized companies.
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