Started on 1 September 2023, Travel Rule has been enforced in the UK. Referred to the Travel Rule, this new mandate will require crypto businesses to implement a series of measures aimed at enhancing transparency and accountability in crypto asset transfers.
What is a Travel Rule?
The Travel Rule requires virtual asset service providers (VASPs) to share identifying information from senders and recipients of domestic crypto transactions, such as names, addresses, and ID documentation. More specifically, for each transaction, the origin VASP must share data about the sender with the destination VASP and the destination VASP must share data about the receiver with the origin VASP.
In its guidance in 2021, FATF includes additional businesses in its definition of VASPs. Companies providing any of the following services to customers are within the scope of the guidance:
- Exchange between virtual assets and fiat currencies;
- Exchange between one or more forms of virtual assets;
- Transfer of virtual assets; and
- Safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets;
- Participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.
Travel Rule Comes into Effect in the UK
The Travel Rule, a recommendation by the Financial Action Task Force (FATF), seeks to standardize practices within the crypto industry by aligning them with established norms in the broader financial services sector. Under this rule, crypto businesses operating in the UK must collect, verify, and share detailed information related to cryptoasset transfers. This initiative aims to combat illicit financial activities, including money laundering and terrorist financing, which have been associated with cryptocurrencies due to their perceived anonymity.
The FATF’s urging for swift implementation of the Travel Rule underscores its commitment to creating a more secure and regulated environment for the global crypto market. The organization has expressed concerns regarding the delays and disparities in the adoption and enforcement of the Travel Rule across different jurisdictions. As a response to these concerns, the UK has taken proactive steps to ensure the rule’s effective application.
The UK’s approach to the Travel Rule emphasizes collaboration between regulatory bodies and the crypto industry. The authorities have worked closely with crypto asset businesses to offer comprehensive guidance on compliance expectations, fostering a cooperative atmosphere that aims to address challenges before they escalate.
Key Expectations for Crypto Businesses:
- Due Diligence and Compliance: Crypto businesses are required to exercise all due diligence to adhere to the Travel Rule, reflecting their responsibility to promote transparency and accountability in crypto transactions.
- Third-Party Involvement: Even when employing third-party suppliers, crypto firms remain accountable for compliance with the Travel Rule.
- Applicability: The Travel Rule applies when sending or receiving crypto asset transfers involving UK-based firms or jurisdictions that have implemented the rule.
- Adaptation to Jurisdictional Differences: Firms are expected to stay informed about the implementation status of the Travel Rule in other jurisdictions and adapt their processes accordingly.
The introduction of the Travel Rule in the UK marks a significant step towards legitimizing and securing the crypto industry. The UK demonstrates its commitment to fostering a safer blockchain environment, both domestically and globally. The Travel Rule’s implementation showcases the government’s willingness to engage with the crypto community to establish effective regulations that balance innovation and security. As the UK takes this bold step, the world watches closely, anticipating the potential ripple effects on crypto regulations worldwide.
Travel Rule and Scorechain Blockchain AML & Compliance solution
Scorechain helps crypto businesses and enterprises comply with the Travel Rule by tackling key compliance challenges in cryptocurrency transactions. As the Travel Rule requires Virtual Asset Service Providers (VASPs) to share customer data on specific crypto transfers to combat illicit activities, Scorechain simplifies identification, verification, and reporting procedures. This facilitates strong enforcement of anti-money laundering regulations within the cryptocurrency realm, ensuring VASPs’ compliance with the Travel Rule’s requirements while enhancing the transparency and security of cryptocurrency transactions.
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Scorechain provides a blockchain analytics and transaction monitoring platform for crypto assets. As a leader in crypto compliance, the Luxembourgish company has helped over 200 customers in 45 countries since 2015, ranging from cryptocurrency businesses to financial institutions with crypto trading, custody branches, digital assets, customers onboarding, audit and law firms, and some LEAs.
Scorechain’s platform provides identifying data and risk assessment for 30+ blockchains. The platform connects to different sources and block lists to provide risk scoring on crypto assets, transactions, addresses, and entities. The risk assessment methodology applied by Scorechain has been verified and is fully customizable to fit all jurisdictions. Customers can monitor infinite possibilities of risk scenarios with a wide range of parameters provided so businesses under the scope of the crypto regulation can report suspicious activity to authorities with enhanced due diligence.