The United Kingdom no longer demands crypto exchanges collect personal data for transactions to unhosted wallets. In a recent AML/CFTC report, the Treasury announced that the proposed crypto exchanges would not implement Know Your Customer (KYC) data collection.
According to the Treasury, the general feedback from the public after the new move was announced last year influenced its decision to halt the policy.
Using KYC to Track Crypto Assets
In July 2021, the U.K Treasury announced its move to compel crypto firms to collect customers’ data during transactions in a document. The regulator noted that this move is to check illicit transactions and adopt KYC for cryptocurrency transactions.
According to the Treasury, “Crypto firms should comply with the directive and put in place a process for collecting personal information about both transaction parties.” “Crypto service providers must do this appropriately to aid the agency’s drive against questionable dealings.”
Going by the document’s content, crypto-asset firms would have to collect personal data from the sender and beneficiary of a transaction. However, this is only applicable to unhosted wallets.
Meanwhile, in its latest statement, the Treasury disclosed that the U.K government had dropped the proposed regulatory plan. Instead of the previous move to collect data from both parties, the new guidelines require crypto exchanges to only collect information for transactions that may pose a financial risk.
Despite the change in the regulations, the new rule still places the burden of collecting personal details on the crypto exchange under whose platform the transaction is facilitated.
Furthermore, where the crypto exchange firm cannot verify the identity of any party, it can decide to suspend, reject, or permit it.
U.K Attempts to Implement FATF Guidelines
The new rule and its subsequent reversal are due to the U.K.’s drive to impose the Financial Action Taskforce (FATF) regulations.
Part of the FATF guidelines requires digital financial services providers to disclose the identities of the transacting parties. As a result, the U.K is working with the AML/CFT standard to ensure compliance. This is why the Treasury made it compulsory for crypto exchanges to collect customer data.
Due to the change, the Treasury clarified that only crypto exchanges that would facilitate potential illicit transactions should collect personal details from both sides.
The government of the U.K. has been strict on crypto exchanges in recent times. Regulating the crypto industry is challenging for the authorities involved due to the complexity of the digital asset space.
Moreover, widespread criticism followed the now restrained Treasury’s imposed regulation on the crypto space last year. Major industry players within the United Kingdom point to the issue of individual privacy.
Many were convinced that the government only targeted the crypto industry alone instead of the broader financial sector. Similarly, critics compared the rate of illicit financial transactions between crypto and fiat to show the new law’s inadequacies.
It will be interesting to see if the change can provide the Treasury with the means to curtail illicit financial dealings.