The government of the United Kingdom said it intends to modify a proposal that would have required crypto firms to collect personal data from individuals holding unhosted wallets that were the recipients of digital asset transfers.

In its Amendments to the Money Laundering, Terrorist Financing and Transfer of Funds updated on Wene, HM Treasury said it will be scaling back its requirements for gathering data from both the senders and recipients of crypto sent to unhosted wallets, unless the transaction poses “an elevated risk of illicit finance.” The U.K. government added that unhosted wallets could be used for a variety of legitimate purposes, including asan additional layer of protection as is sometimes the case for cold wallets.

“There is not good evidence that unhosted wallets present a disproportionate risk of being used in illicit finance,” said the HM Treasury report. “Nevertheless, 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.”

The U.K. government made the change in response to a consultation held between July and October 2021 with “[Anti-Money Laundering] (AML)/[Counter-Terrorism Financing] (CTF) supervisors, industry, civil society, academia and several government departments,” in which many expressed concerns about the “breadth of personal information collected” around transfers to unhosted wallets as well as the time required to enact such policy. According to the Treasury Department, the amendments will have a one-year grace period, taking effect in September 2023 if approved by Parliament.

Related: Enforcement and adoption: What do UK’s recent regulatory aims for crypto mean?

HM Treasury hinted it would implement the changes in accordance with the Financial Action Task Force’s Travel Rule, which sets out recommendations for regulators aimed at having cryptocurrency transactions comply with Combating the Financing of Terrorism and Anti-Money Laundering regulations. The FATF will release a report on how participating countries are implementing their travel rule at the end of June.

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