- The UK government has backtracked from implementing strict FATF data collection rules on crypto transactions
- The government began consulting on the controversial travel rule last year
- Exchanges will not be asked to collect personal data on individuals who transact with their users
The UK government will not implement its version of the Financial Action Task Force (FATF) Travel Rule that would have entailed the collection of personal details of anyone sending cryptocurrency to a hosted wallet. HM Treasury yesterday published a report following a year-long consultation on the matter, which concluded that only “transactions identified as posing an elevated risk of illicit finance” will have such data collected. The result is a win for British privacy advocates who feared that the same rules recently approved for use within the EU would also apply to them.
All Transactions Over £1,000 Would Have Been Targeted
The UK government began consulting over the application of the Travel Rule last year, saying at the time that the rule should be applied consistently across the entire financial services industry “regardless of the technology being used to facilitate transfers”.
Had the UK adopted it, this would have meant that, among other things, transactions over £1,000 in value involving a hosted wallet, for example from an exchange or a wallet operated by a central body, should be accompanied by information on any unregistered parties in order to identify them.
The EU Commission recently voted in its own implementation of a similar rule, the Transfer of Funds Regulation (TFR), which will force cryptocurrency entities to collect additional details on transactions over €1,000, including personal information on the involved parties.
Only “Higher Risk” Transactions Will be Hit
The UK has backed down from implementing such a strict ruling however, with the consultation revealing a surprisingly forward thinking viewpoint:
The government does not agree that unhosted wallet transactions should automatically be viewed as higher risk; many persons who hold cryptoassets for legitimate purposes use unhosted wallets due to their customisability and potential security advantages (e.g. cold
wallet storage), and there is not good evidence that unhosted wallets present a disproportionate risk of being used in illicit finance.
The timing of the publication of this consultation, and more importantly its message, is interesting – just this week the UK’s Parliamentary Under Secretary of State at the Department for Digital, Culture, Media and Sport, Chris Philp, reinforced the government’s desire for “the United Kingdom and London to be crypto centres”.
While the decision feels a little like your dad trying to be cool by letting you have beer and loud music at a house party, it is nevertheless welcome and shows a refreshing perspective that will allow the UK’s crypto efforts to indeed expand without onerous data gathering.
However, the report states that “the government is conscious that completely exempting unhosted wallets from the Travel Rule could create an incentive for criminals to use them to
evade controls”, which means that some form of reporting could well be implemented down the line.