- US regulators could learn a thing or two from a recent UK consultation report on the difficulties of reporting crypto data
- The UK Treasury said that asking crypto entities to record information on all transactors presented “practical difficulties”
- The Infrastructure Bill defines crypto miners and stakers as brokers, meaning they must gather such data
US regulators could do with reading a report published yesterday by the UK Treasury which outlines the reasons why the UK is not implementing similar rules to those signed off as part of America’s Infrastructure Bill. The UK treasury yesterday announced that it was not going to implement the kind of crypto wallet surveillance that would necessitate the collection of personal data from anyone who interacted with an exchange or hosted wallet, stating that the data collection process would not just be onerous but, on occasion, impossible, and also that there was “not good evidence” to suggest that transactions concerning unhosted wallets were more likely to be illegal in nature.
Infrastructure Bill Classes Miners as Brokers
The crypto element of the Infrastructure Bill, which passed into law in November last year, was heavily criticised because of the way it treated cryptocurrency miners and those engaged in staking. It declared that they should be treated as brokers, meaning that they would be required to collect personal information on those they were interacting with, a clearly impossible task given the very nature of the process, and one that extended the definition of a broker past its definition.
Were it to be implemented in this way by the Treasury, this could have massive ramifications for the US crypto mining industry, which has taken over from China as the biggest in the world.
UK Says Comprehensive Data Collection Presents “Practical Difficulties”
In contrast, just yesterday the UK government published the results of a year-long consultation on the implementation of the Financial Action Task Force’s (FATF) rule on unhosted wallets. All the signs were that something similar was at play – cryptocurrency exchanges, brokers, and other entities involved in the transfer of digital assets would have to also collect personal information on anyone using their services, including those who were simply sending funds from their own private wallets to users on the platform.
This rule, which as we have outlined in the past is equally as impractical as the U.S. efforts, was adopted by the EU parliament in April and all the suggestions were that the UK would follow suit in its own way. However, in a surprise move, the consultation revealed an unusually astute observation:
To require that the collected information is verified would present practical difficulties for both the users of cryptoassets and cryptoasset businesses. For example, if a beneficiary was
asked to verify information provided on the originator, they could be expected to submit official documents proving the originator’s address, date and place of birth etc. This would, in many cases, not be practical. The government has therefore decided against amending the proposals to require verification.
Clearly there are wiser heads in the UK government than there are in the US, and crypto supporters in the country would do well to point to this report in making their arguments. After all, it’s one thing if crypto insiders are making the point, but if the government of a nation whose financial ombudsman is doing all it can to outlaw crypto can recognise the implausibility of such a measure then this is worth keeping in the back pocket.
Private Crypto Transactions Are Not the Devil
This wasn’t the only thing in the report that could benefit US crypto users: the consultation also revealed an important finding regarding the use of private wallets:
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.
Again, this is something that has been widely known in the crypto space, but to certain senators (*cough* Elizabeth Warren *cough*) the news that not everyone who uses a private wallet to interact is a drug dealer might come as something of a shock.
The fact that the UK government found that there was “not good evidence” of disproportionate criminal activity using private wallet should go some way to assuage the doubts of such individuals who insist that crypto is only used for illicit purposes, but it probably won’t.