Understanding the Travel Rule's role in crypto

Region: Europe
Aug 2, 2023, 2:47:28 PM Published By Wirex Legal
  • Understand the Travel Rule's role in crypto

  • Learn how Wirex ensures compliance with upcoming regulations

  • Discover the impact of Travel Rule implementation in the UK and EU

What’s the Travel rule?

The name "Travel Rule" originates from the fact that the personal data of the transacting parties "travels" with the transfers, making it easier to monitor and regulate these transactions. The term "Travel Rule" refers to FATF Recommendation 16, a set of measures aimed at combating money laundering and terrorism financing (ML/TF). It requires financial institutions engaged in virtual asset (“VA”) transfers and crypto companies—collectively referred to as virtual asset service providers (“VASPs”)—to obtain “required and accurate originator information and required beneficiary information” and share it with counterparty VASPs or financial institutions during or before the transaction. Because the personal data of the transacting parties ‘travels’ with their transfers, the regulation was dubbed the “Travel Rule”.

According to the FATF's recommendations, countries should adopt a de minimis threshold of 1,000 USD/EUR for VA transfers. Transactions below this threshold would have fewer requirements compared to those exceeding it.

For VA transfers under the de minimis threshold, VASPs must collect:

  • The names of the originator (sender) and beneficiary (recipient).
  • The Virtual Asset (VA) wallet address for each transaction or a unique transaction reference number.
  • Verification of this information is not necessary unless there are suspicious circumstances related to money laundering or terrorism financing, in which case customer information should be verified.

For transfers exceeding the de minimis threshold, VASPs must collect more extensive information, including:

  • Originator's name.
  • Originator's account number used to process the transaction (e.g., wallet address).
  • Originator's physical (geographical) address, national identity number, customer identification number (not a transaction number) that uniquely identifies the originator to the ordering institution, or date and place of birth.
  • Beneficiary's name.
  • Beneficiary's account number used to process the transaction (e.g., wallet address).

By adhering to these guidelines, VASPs can contribute to a safer and more transparent virtual asset ecosystem while complying with international regulations on anti-money laundering and countering the financing of terrorism.

Travel Rule implementation in the United Kingdom

The regulation of the virtual asset industry in the United Kingdom is set to undergo a significant change on September 1, 2023. This is due to the introduction of the Travel Rule under Part 7A of the Money Laundering Regulations 2017. This new regulation is designed to combat money laundering and terrorist financing within the virtual asset industry. The Travel Rule will extend the existing information-sharing requirements for wire transfers to include virtual asset transfers.

The UK’s HM Treasury has tailored the provisions of the revised Wire Transfer Regulations to suit the virtual asset sector, highlighting the UK government’s commitment to fostering a secure and transparent financial ecosystem while also showing their intention to help the virtual asset industry thrive.

The Travel Rule itself stems from the updated version of the Financial Action Task Force’s recommendation on information-sharing requirements for wire transfers. By applying these recommendations to virtual asset transfers, the UK hopes to reduce the risk of illicit activities in the sector significantly.

The Travel Rule represents a significant step forward in the regulation of the virtual asset industry in the UK. Through the extension of the information-sharing requirements and enhancing control over virtual asset firms, the government aims to foster a more secure and transparent ecosystem. The UK is poised to be a leading figure in setting a global standard for responsible and accountable transfers.

Travel Rule implementation in the European Union

The Travel Rule for virtual assets will come into effect on December 30, 2024, precisely 18 months after the Transfer of Funds Regulation was enforced. As for a grace period to comply with the Travel Rule for virtual assets, the recent proposal for crypto regulations did not mention any grace period.

As for information requirements, there are no distinctions between cross-border transfers and transfers within the EU. The revised Transfer of Funds regulation treats all virtual asset transfers as cross-border, reflecting the inherent borderless nature and global reach of virtual asset transfers and services.

For transactions exceeding 1,000 EUR with self-hosted wallets, European CASPs must collect the required originator and beneficiary information and fulfil additional wallet verification obligations.

How is Wirex working on complying with the upcoming regulations while maintaining a seamless customer experience?

Wirex is demonstrating its strong commitment to compliance with these regulations by proactively forging partnerships with solution providers and actively engaging in industry working groups. This collaborative approach ensures that Wirex stays at the forefront of best practices and innovative solutions, enabling them to create a secure and transparent environment for their users while fostering trust and confidence in the cryptocurrency ecosystem and maintaining a seamless customer experience.

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