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What to Expect from the Implementation of the Travel Rule?

04 May, 2022

This is why we invited Delphine: 

Be it because Switzerland is crypto friendly or because it has an efficient regulatory system, the country was one of the first to implement the Financial Action Task Force’s (FATF’s) Travel Rule for crypto companies (virtual asset service providers, or so-called VASPs). This is why we invited Delphine Forma, an experienced compliance officer who has been working in the crypto space for five years and who is an active contributor in the blockchain and crypto compliance space, to discuss the Travel Rule with us. 

Delphine has worked across different industries, including the Bank of Tokyo, Mitsubishi UFJ, HSBC Bank, and various crypto businesses (exchanges and miners). She holds a diploma from Sciences Po Lyon, and two masters specialising in European Criminal Business Law and Frauds and Money Laundering Prevention. Currently, Delphine is a board member of the OpenVASP Association and senior compliance officer at BitMEX.

Disclaimer: In this interview, Delphine expresses her own views and not the ones of BitMEX.

What to Expect from the Implementation of the Travel Rule?

21 Analytics: Is the FATF Travel Rule good or bad for the overall crypto ecosystem? 

There are two sides to this question. In order to attract more institutional players, which is needed for mass adoption, the industry needs to show greater and similar compliance to the one applied by financial intermediaries. Compliance with the FATF recommendations and especially the Travel Rule will help that goal.

On the other hand, it can be challenging to apply old regulations made to regulate a world with intermediaries to a new world where the goal is to operate without third parties. Travel Rule compliance can be incredibly complicated and raises many issues and challenges in terms of data privacy, how to identify if an address belongs to another VASP or is it a private wallet, what to do if the counterparty is located in a jurisdiction with different rules in terms of thresholds, scope of application or where it is just not implemented. 

More importantly, blockchain technology provides a public record of each transaction which makes the use of cryptocurrency not the best choice for criminals to hide the source of their funds. Using blockchain investigation tools, law enforcement agencies and internal compliance officers can track the full flow of money and see the potential exposure to illicit activities, which is not possible with fiat currency. They can see the connection between all wallet addresses.

It is important to remember that most virtual asset service providers (VASPs) are startups with small teams and limited resources; Travel Rule compliance will have an important cost.

Compliance is key to enable the industry to flourish and grow while keeping customers safe.

21 Analytics: How do you think the FATF Travel Rule will impact the day-to-day operations of a compliance officer?

For sure, it will increase the workload of the compliance team. My recommendation is to work on all the different scenarios and anticipate what problems can be foreseen and how to solve them. First, compliance officers will be involved in choosing the best solutions for the business to be able to operate as smoothly as possible; then, it will have a key role to play in implementation, setting up the rules and alerts. For example, if there is a spelling mistake, how will you deal with that? What will you do if your counterparty is not subject to Travel Rule compliance?

One of the first things you need to do as a compliance officer is to imagine as many scenarios as possible and create solutions for these scenarios, as this will benefit you and your team. Moreover, your goal is to reduce the impact of the Travel Rule on your customer’s journey. Everything should be as automatic as possible.

Once you have a better picture of what needs to be done for compliance, you will be able to communicate a solution to the VASP’s management team effectively and push for a budget. 

At the end of the day, compliance needs to have a plan. Preparation is key for any compliance officer. 

21 Analytics: What are the advantages and disadvantages for VASPs in countries that adopt the FATF Travel Rule first? 

Being one of the first will allow the VASP to be prepared. You will be able to find a solution that fits your market.

In Switzerland, the Travel Rule regulation is very restrictive: there is a lot to consider before you can interact with another VASP and let your customers transact. This has a significant impact on the way the business operates. Therefore, the more planning you can do, the better. In this process, it is key to involve the business and management. Depending on the business plan, the levels of compliance might vary.

As a professional, there is an advantage: it puts you ahead of the game. Since you are a compliance officer who has already dealt with this, you are more desired by the market. When the regulation hits different countries, you will be able to share your experience and help your peers. Your VASP might also be then in a position to impose its chosen compliance solution to its counterparties.

21 Analytics: Should a compliance officer argue with a VASP’s management for the early adoption of a FATF Travel Rule solution? If so, how? 

A compliance officer needs to inform the management by describing the problem, the impact, the why, how to solve it and what the possible costs will be. 

As a compliance officer, your job is to educate and advise, work closely with the business to find the best solutions for your customers, and make sure the business comply with applicable regulations at all times. 

You also need to make sure you know what the business wants in order to assist them and provide them with the best suitable solution. Together you need to work out and agree on a plan for the way forward. 

21 Analytics: What is one thing that VASPs in countries that will soon implement the FATF Travel Rule could learn from Switzerland's pioneering adoption?

In 2019 the FATF released the paper with Recommendation 16, the Travel Rule. I remember opening my PC on a Monday morning at the end of August 2019, and there it was: the new guidance. I thought to myself:  "They are implementing the Travel Rule! No threshold! And I need to do wallet proof of ownership. How am I going to deal with that?"

Since I had to start considering the Travel Rule back in 2019, I have had a lot of time to think about all the possible solutions.

This triggered industry discussions in Switzerland and gave rise to the OpenVASP Association. But there was still nothing on the market, so we developed our own solution to the problem.

I believe that it is great as it has enabled the industry to come together, allowing a dialogue between the main players. Through this dialogue, a solution was made. A solution by the industry for the industry: OpenVASP Association and the TRP.

Delphine Forma’s expertise can help point crypto companies in the right direction. For VASPs in Switzerland, the Travel Rule is a reality, which has allowed the country to become a benchmark on the topic, and compliance professionals like Delphine have become references.

Let us know of any other questions that you have for our interviewees. We will help you overcome your biggest Travel Rule challenges.

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