The UK Treasury has taken a different stance regarding its previous position on unhosted wallets. Formerly, it required all exchanges to collect information about both the sender and receiver of cryptocurrency funds.
According to the Treasury, having a KYC rule for private wallets is not reasonable. The Treasury also added that:
“The state government does not believe private wallets pose any risks. Those who use private wallets do so since they are customizable and secure. There is not enough evidence to show that these kind of wallets pose any danger.”
UK Treasury Changes Stance On Unhosted Wallets
The decision of the Treasury comes after it Meltham with industry players, regulators, and government agencies. They noted that private or unhosted wallets do not pose a risk for money laundering.
The previous call on financial and crypto institutions to store information of users. This includes both the sender and receiver of crypto funds, especially international payments.
Meanwhile, respondents noted that this would lead to added costs in the long run. However, they believe this cost is nothing compared to regulating the asset class.
The Treasury acknowledged the issue of the added cost to the sector. However, it has chosen to ease the rule to benefit both parties.
As per the new rule, crypto and fiat transfers will not have to use a minimum threshold. Also, it will ask for information requirements for unhosted wallets depending on the risk level.
Regulation Of Unhosted Wallets Globally
Besides the United Kingdom, other countries also focus on regulating unhosted wallets. Various watchdogs worldwide have noted that these wallets need supervision.
Recently, the European Union Parliament voted on the regulation of unhosted wallets. The verdict called for the regulation of these crypto wallets. However, the crypto community noted that this would infringe on privacy rights.
According to Coinbase, it would lead to surveillance of exchanges and stifle innovation. Also, it would reveal the details of individuals, exposing them to attack.
Regulation To Affect The DeFi Sector
Meanwhile, the current rules on anonymous wallets will mainly affect the DeFi market. In the past months, several authorities have been calling for regulation of the DeFi industry.
The call for regulation is due to its decentralized nature. Also, several authorities believe it has great financial risks.
According to the IMF (International Monetary Fund), DeFi can lead to great financial instability. As a result, the monetary organization clamors for regulation of issues of stablecoins.
Furthermore, the IMF agrees that it would be difficult to regulate decentralized entities. Therefore, it suggests that authorities should regulate centralized exchanges to an extent.