The Financial Conduct Authority (“FCA”) has issued guidance on the Travel Rule, which sets out its expectations for UK cryptoasset businesses (“CBs”) to comply with the change in money laundering legislation. From 1 September 2023, CBs in the UK required to collect, verify and share information about cryptoasset transfers.
On 18 May 2023, Gherson’s business crime, investigations and regulatory team wrote a blog about whether the Travel Rule was applicable in UK AML crypto regulation.
In a nutshell, the Travel Rule requires the private sector to obtain and exchange beneficiary and originator information when dealing with virtual asset transfers over a certain threshold. Thus, making it a requirement to obtain information (e.g., name and address) about both parties to a financial transaction. This is a concept derived from the USA where banks have been required to obtain and store customer information relating to transactions of a certain level for a long time.
The international Financial Action Task Force (“FATF”) is driving the impetus for the implementation of the Travel Rule for crypto transactions. This is done by way of the FATF Travel Rule (Recommendation 16). The most recent update came in a FATF publication from June 2022 entitled “Targeted Update on Implementation of the FATF Standards on Virtual Assets and Virtual Asset Service Providers”.
The Publication begins explaining how it had been three years since the FATF extended its anti-money laundering (“AML”) and counter-terrorism financing (“CTF”) standards to financial activities, including Virtual Assets and Virtual Asset Services Providers (“VASPs”). Following two previous FATF guidance updates, this third guidance now focuses on the FATF’s Travel Rule.
According to the FATF, this is a key AML/CTF measure that enables VASPs and financial institutions to both detect suspicious transactions and to carry out effective sanctions screening.
On 22 July 2022, HM Treasury launched a consultation entitled “Amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 Statutory Instrument 2022.”
The consultation covered various topics, including the expansion of requirements to strengthen the regime and information sharing and gathering procedures. Turning to aspects regarding crypto, one of the more controversial parts of the consultation concerns the implementation of the so-called Travel Rule.
On 16 May 2023, the European Union (“EU”) imposed new rules requiring cryptoasset service providers to collect certain information about the sender and beneficiary of the transfer of cryptoassets they operate, and to make these details accessible. This requirement applies irrespective of the amount of cryptoassets being transferred.
The FCA guidance explains that, from 1 September 2023, CBs in the UK will be required to collect, verify and share information about cryptoasset transfers.
The FCA’s expectations for firms include:
When sending a cryptoasset transfer to a jurisdiction without the Travel Rule:
When receiving a cryptoasset transfer from a jurisdiction without the Travel Rule:
In these constantly changing times, firms that deal with cryptoassets, or have exposure to firms involved in cryptoasset transactions, will need to carefully consider all their systems and controls to ensure that they are able to comply with the relevant AML and sanctions regulations. Gherson’s white-collar crime and regulatory team are able to provide advice and assistance with AML and sanctions compliance, including in situations involving cryptoassets.
For further information, please see the following articles written by our team:
For those who would like advice on relevant issues, including those who have had issues with the FCA registration process, our specialist regulatory and compliance team can guide individuals and companies through the process.
Gherson’s solicitors in the criminal litigation, regulatory and investigatory team combine an expert knowledge of criminal and regulatory law underpinned by a firm understanding of digital assets and blockchain technology. As such, the team is able to provide expert strategic advice to anyone facing investigation in relation to any allegation of criminality involving cryptoassets.
If you would like to discuss any of the above with a qualified expert, please contact us or send us an e-mail.
