The UK Treasury would no longer require the fulfillment of a KYC policy for parties to complete their crypto funds transaction. According to the Treasury, there is little or no sense in implementing a KYC policy for private wallets or unhosted ones.
The Treasury released a new report on the matter, saying, “the authorities aren’t convinced that there is a higher risk involved in unhosted crypto wallet transactions. Most digital asset owners hold them on unhosted wallets for genuine purposes and various reasons.”
It further said, “Customizability and security advantages are the top two reasons they choose unhosted wallets. Cold wallet storage is a security advantage many unhosted wallets offer. Also, we don’t have proof that unhosted wallets are why users hold crypto-assets for illegal purposes.”
Treasury Makes U-Turn After Discussion With Top Industry Players
The Treasury’s decision is the fallout of a discussion it had with top crypto players regarding an update of its anti-money laundering policy. Crypto firms, academicians, government agencies, and regulators held a special discussion on new updates the UK can introduce to its anti-money laundering policy.
A previously proposed update was for crypto exchanges and financial institutions to obtain and save details of every international financial transaction. However, discussants at the meeting agreed that the policy would be impractical and highly restrictive. According to the discussants, this policy would have long-term and short-term disadvantages.
However, some of them remarked that the benefits could outweigh the consequences. The benefits of having a well-regulated crypto sector could outweigh the public outcry over a compulsory KYC policy. Hence, the UK Treasury admitted that the proposed KYC rule would have damning consequences for the industry.
However, it also admitted that the decision would be for the industry’s good. Thus, the Treasury has relaxed the rule of a de minimis threshold for fiat and crypto transactions. Also, it would only require transaction details from unhosted wallets when it deems such transactions as risk-sensitive.
Regulating Transactions On Unhosted Wallets
Besides the UK, other authorities also seek control over transactions on unhosted wallets. Many of them have released their guidelines on this issue.
Recently, the EU parliament voted on the matter. It approved an amendment of the policy regarding unhosted wallets. Following the vote, crypto participants criticized the amendment citing privacy issues.
Coinbase is one of the leading critics of the amendment. The popular exchange noted that the EU policy would lead to a thorough analysis of all transactions at crypto exchanges. Also, it would limit innovation and reduce the security benefits users enjoy from using self-hosted wallets.
The New Rules And DeFi Sector
The DeFi sector would feel the greatest effect of the new policy regarding the unhosted wallets. Authorities have been focusing on the DeFi sector for some time. Authorities want to understand the nature of its decentralization. Also, they want to know the level of financial risks it embodies.
The IMF has alleged that the DeFi sector is a threat to the financial stability of any nation. Also, it suggested that there should be a new regulatory policy for stablecoin issuers. According to the IMF, it isn’t easy to regulate decentralized entities. It adds that authorities exert control over centralized exchanges.
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