On June 20, 2022, the UK just announced that Crypto businesses would not be required to provide data of all transfers between all non-custodial wallets. This was set in place by the UK treasury as they concluded this was the best step moving forward with their plans for becoming a new Crypto hub.
Reasoning
Realized that people hold Crypto Assets for “legitimate purposes” in unhosted wallets and that there was “no good evidence” to suggest that they increase the risk of “illicit finance” (Tran, 2022).
The issue people and businesses had with completing Know Your Customer/Client (KYC) was an intrusion of privacy. The nature and purpose of having an unhosted wallet are being anonymous and untied with your identity and track deposits and withdrawals to and from the desired wallets.
Another help was that Crypto firms might not have the funding to be able to implement KYC as it is costly: more staff are required to oversee verification (calls, authenticators), and the time taken to verify can give a competitive edge to more significant firms, high-quality videos/photos for video/photo verification KYC are expensive to implement (DQIndia Online, 2020).
The aim is to ease the pressure off Crypto firms having to commit large amounts of resources to follow regulations. This has slowed growth and made investors more hesitant, which is why there is still little interest from big money/institutions.
Small or Big step?
This regulation change will have a lag effect like most changes. The gravity in which it will help Crypto firms is still unclear. The benefits will decrease operations costs for firms and bring more traffic to companies that use unhosted wallet integration. Users now have the safety that the service won’t turn around and force KYC to keep using the service.
Some indirect benefits would be increased interest from investors due to the weaker constraints.
An increased growth rate in the space can be observed now that conditions are weaker to enter the market. Both would be a big step for the industry and, more importantly, the Crypto hub plans the UK has in place.
It is subjective to say this action is a small step because there is still much that needs to be done to get firms in the place the UK wants, which is being able to experiment freely with a stable infrastructure beneath them.
Compensation, banking/transactional integration, and education are still barely surfacing. On the other hand, this can be seen as a big step because this is the first big regulation lifted that has been pressuring firms, showing the start of what can be a snowball effect of cooperation and compliance between governing bodies and Crypto businesses.
