UK Government Drops Proposal to Track Private Crypto Wallets

In an apparent win for the UK crypto scene, Her Majesty’s Treasury has backtracked on an earlier proposal to collect identifiable information for all users sending funds above £1,000 to privately-held cryptocurrency wallets. The regulatory authority ruled that such a requirement would only be required if crypto exchanges decided that the transactions might be linked to illicit activities. 

Her Majesty’s Treasury, in a recent clarification, noted:

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

The latest clarification is a significant improvement to a proposal published by the regulatory authority in July 2021. The Treasury had proposed that exchanges collect personal information of both the sender and receiver for transfers to a wallet where a user controlled the private keys (so-called self-hosted wallets). 

For instance, a user transferring funds from Binance to a personal crypto wallet or perhaps to a friend’s self-custodial wallet would need to provide information about the recipient. The move is being championed as part of a broader measure to mitigate the use of cryptocurrency in money laundering and other illicit activities. The rule was part of a set of comprehensive recommendations by the Financial Action Task Force (FATF) to be applied by regulators worldwide.

Notably, such a requirement would undermine the privacy features inherent in cryptocurrencies, mainly as the rule applies to all crypto transactions to a private wallet. It also goes against the ethos of financial sovereignty while creating an additional data burden for crypto exchange operators.

With the latest developments, the UK government appears firmly on track to retain public confidence in its recently announced move to lead the emerging cryptocurrency market. Recent surveys suggest that up to 20% of Brits have invested in cryptocurrency, albeit increased adoption is slowed by unclear regulation.