Nikolas Sargeant
Cryptocurrency exchange Kraken has recently implemented a mandatory requirement for its users in the United Kingdom to verify their self-custodial wallets. The initiation of this verification process, based on "regulations in the UK," has been reported in recent posts.
Verification Measures Unveiled
An excerpt from an email shared by Van Straten outlined the importance of maintaining current client information and account activities related to self-custody wallets. The email stressed that self-custodial wallets are now under scrutiny due to UK regulations.
While specific details about the regulations prompting this action are undisclosed, Kraken Support, responding to inquiries, later confirmed the initiation of requests to its UK-based users for wallet verification.
The communication from Kraken included a request for users to confirm ownership or control over the self-custodial wallets used for sending and receiving cryptocurrencies. Users were also instructed to provide detailed information if they were not the owners or controllers of the specified wallets, including identifying the responsible party and their residential address.
Failure to respond to the verification request by February 23, 2024, will result in Kraken imposing restrictions on the concerned accounts until the requested information is provided, as outlined in the email.
Exchanges Respond to Regulatory Shift
Kraken's recent action aligns with a broader trend observed among cryptocurrency exchanges, as they increasingly demand users to associate external crypto addresses with which they interact. For instance, Bitstamp adopted a similar strategy in early 2021, citing updated regulations from the Dutch government.
Meanwhile, self-custodial wallets, allowing users to manage their private keys, transfer control of the wallet to whoever holds the private keys. Consequently, control is not tied to anyone's identity, presenting a challenge in verifying self-custodial wallets and sparking debates on how regulators approach the issue.
Regulators perceive the ambiguity surrounding self-custodial wallets as concerning. The gradual expansion of know-your-customer (KYC) regulations to cover entities involved with digital assets now includes self-custodial wallets. This shift has led to regulated exchanges conducting due diligence on self-custodial wallets they engage with.
