What Is the Travel Rule? All a Crypto Firm Needs to Know to Avoid Staying out of Business

New regulations can have deep impacts on financial institution’s operations, and virtual asset service providers (VASPs) are no exception. With the mainstream adoption of cryptocurrencies, awareness becomes key to avoid the costs of neglecting compliance.

A new, highly challenging regulation for VASPs is the Travel Rule for virtual assets. This new recommendation from the Financial Action Task Force on Money Laundering (FATF) is an anti-money-laundering (AML) and know-your-customer (KYC) measure that mandates companies transacting virtual assets to obtain, store and exchange information about the people involved (originators and beneficiaries) on the performed transactions.

More specifically, the Travel Rule is what Recommendation 16 of the FATF Standards is called after the updates applying it to virtual assets and virtual asset service providers in 2019.

What is the objective of the Travel Rule for virtual assets?

The purpose of the Travel Rule is to prevent criminals from being financed and moving their funds in anonymity. This is achieved by tracing transfers and allowing information on the involved people to be available for authorities and financial institutions. The tracing is executed through the exchange of personal data between VASPs, which enables them to store, analyze and communicate suspicious activities to authorities combating financial crimes.

Who must comply with the Travel Rule?

Currently, all virtual asset service providers operating in jurisdictions where virtual assets are regulated and where the Travel Rule is in place must comply. However, the Financial Action Task Force expected all its members and observer countries to create policies around this recommendation as soon as possible. You can find a list of the subjected jurisdictions here.

According to the FATF, a virtual asset service provider is someone who conducts one or more of the following activities on behalf of its customers:

1. exchange between virtual assets and fiat currencies; 

2. exchange between one or more forms of virtual assets; 

3. transfer of virtual assets; 

4. safekeeping and/or administration of virtual assets or instruments enabling control over virtual assets; and 

5. participation in and provision of financial services related to an issuer’s offer and/or sale of a virtual asset.

Does the Travel Rule apply to all transactions?

Each country decides if there will be a threshold and what would be the maximum amount of a transaction that does not require collection, storage and exchange of FATF Travel Rule information. However, the FATF does not allow this threshold to be higher than USD / EUR 1000. In Switzerland and Liechtenstein, the Travel Rule applies to all transactions, regardless of their value.

What is the required information a VASP needs to collect, exchange, and store to transact in a Travel Rule-compliant way?

1. The name of the originator (person sending funds);

2. the originator account number or unique transaction identifier

3. the originator’s address, or national identity number, or customer identification number, or date and place of birth;

4. the name of the beneficiary (person receiving funds); and 

5. the beneficiary account number or unique transaction identifier.

This data must be sent accompanying the transfer to the receiving company. 

Switzerland and Singapore are typical examples of countries leading the cryptocurrency regulations and have been at the forefront by including the Travel Rule as a requirement for VASPs operations already early on. This has created collateral effects on the crypto operations of companies based in these countries since both parties must be compliant, which is often not the case, especially in cross-border transfers. As a result, in Switzerland, most VASPs have suspended cross-border transactions as it prevents them from complying. 

The FATF Travel Rule brings challenges to VASPs, such as knowing where to send the information and how to communicate it. A range of different protocols, like TRP and OpenVASP, have been developed to solve these demands. 21 Analytics is a core contributor to both of them. Our software solution, the 21 Travel Rule, supports the leading protocols for a seamless compliance experience to VASPs anywhere in the world.

Contact us to learn more and see our solution in action.

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