New Travel Rule Allows UK Crypto Businesses to Withhold Transfers to Ensure Compliance and Combat Illicit Activities
Summary:
Cryptoasset businesses in the UK can now withhold certain transfers to comply with the new Travel Rule. The rule requires UK-based virtual asset service providers (VASPs) to collect and share information on crypto-asset transfers. It aims to increase transparency and prevent illicit activities. The Travel Rule applies to transfers both within and outside the UK. Other countries that have implemented the rule include the US, Germany, Japan, and Canada. This development poses challenges in coordinating information exchange between VASPs across borders.
UK Crypto Businesses Can Withhold Certain Crypto Transfers to Comply with New Travel Rule
As of September 1, cryptoasset businesses in the UK have the option to withhold certain crypto transfers in order to comply with the recently implemented Travel Rule. The Financial Conduct Authority (FCA) introduced the rule on August 17, requiring virtual asset service providers (VASPs) in the UK to collect, verify, and share information on crypto-asset transfers. If a payment is received from an overseas jurisdiction that hasn't implemented the Travel Rule, the VASP must conduct a risk-based assessment before making the cryptoassets available to the recipient. The aim of the Travel Rule is to increase transparency in cryptoasset transfers and make it more difficult for criminals to engage in illicit activities using cryptocurrencies.
Brits sending payments outside of the UK will also be subject to the same rule. The Travel Rule, created by the UN agency Financial Action Task Force in June 2019, was adopted by the UK in July 2022 to combat anti-money laundering and counter-terrorist financing activities in the crypto space. Other countries that have implemented the Travel Rule include the US, Germany, Japan, Singapore, Switzerland, Canada, South Africa, the Netherlands, and Estonia, according to Sygna.io.
However, in June 2023, the FATF expressed dissatisfaction with member states for their lack of action in implementing the Travel Rule, as more than half of them had not taken any steps towards its enforcement. A survey conducted by the FATF in March 2022 revealed that only 29 out of 98 jurisdictions had met the requirements of the Travel Rule, and enforcement was limited to a small subset of these jurisdictions. Coordinating the exchange of information between VASPs across borders remains a challenging issue, as highlighted by Ian Andrews, the chief marketing officer of blockchain forensics platform Chanalysis, in April 2022.
For more on this topic, read our magazine article: "Deposit risk: What do crypto exchanges really do with your money?
Published At
9/1/2023 12:37:00 AM
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