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FATF Travel Rule: How UK crypto businesses should operate from September 1

FATF Travel Rule: How UK crypto businesses should operate from September 1
Starting September 1, UK crypto businesses enter a new era of regulation. They must adhere to the FATF Travel Rule which imposes strict anti-money laundering and counter-terrorism financing requirements on these companies. At BitOK, we recognize the importance of complying with the regulations. That's why we've crafted this article to help businesses understand and follow these new rules.

Background on FATF

Founded in 1989, FATF has 39 member countries. It sets global standards and promotes measures against money laundering, terrorist financing, and related threats to the financial system. With the rise of cryptocurrencies, FATF adapted by amending Recommendation 15 in 2019. This extended regulatory oversight to Virtual Asset Service Providers (VASPs), aligning them with traditional finance for improved transparency and regulation.

What is the Travel Rule?

The Travel Rule is a set of measures proposed by FATF to enhance transparency and security in cryptocurrency transactions. The core concept involves collecting and sharing transaction information involving crypto assets among various financial institutions. This aims to mitigate risks associated with potential illicit uses of cryptocurrencies, such as money laundering and terrorist financing.

Who falls under the Rule?

The FATF Travel Rule applies to two key categories of companies:
  • Crypto asset service providers:
    This includes companies engaged in exchanging cryptocurrencies for fiat money or vice versa, exchanging one cryptocurrency for another, and automated processes for converting cryptocurrencies to fiat money or vice versa.
  • Custodian wallet providers:
    These companies offer services to secure and manage cryptocurrencies or cryptographic keys on behalf of their customers.

Key AML requirements

To avoid severe penalties, companies must take several essential measures:
  • Appointment of a Money Laundering Reporting Officer (MLRO):
    Companies need to appoint an employee responsible for anti-money laundering efforts.
  • Staff training:
    All employees must undergo training in AML compliance and the FATF Travel Rule.
  • Risk assessment:
    Conduct risk assessments and implement measures for risk minimization.
  • Customer due diligence (CDD, SDD, EDD):
    Companies must perform comprehensive, simplified, and enhanced customer due diligence to ensure transaction transparency.
  • Sanctions and PEP checks:
    Check customers against sanction lists and Politically Exposed Persons (PEPs) lists.
  • Transaction monitoring:
    Companies need to monitor transactions to identify suspicious activities.
  • Ongoing monitoring:
    Continuously monitor customer behavior and operations to detect unusual aspects.
  • Record-keeping and reporting:
    Maintain transaction records for five years and report suspicious activities to the National Crime Agency.

Requirements for transactions of €/$ 1000 or more

Special attention is given to transactions that are equal to or exceed €/$ 1000. For these transactions, additional requirements apply, including:

  • For inter-cryptocurrency transfers, the originating Virtual Asset Service Provider (VASP) must provide information about the sender and recipient’s names, registered name/the trading name for firms, as well as the account number/unique transaction identifier.
  • If additional sender information is requested, it must be provided within 3 days.
  • Even if a VASP is outside the UK and the transaction is €/$ 1000 or more, it still has to share all the info.
  • Sender information must be verified by the VASP using documents or a reliable source.
  • The beneficiary VASP must ensure that all required information is provided and verified before granting access to crypto assets for the beneficiary.
  • In case of missing or inconsistent information, the VASP must request the required details and consider the need for an investigation.
  • The beneficiary VASP must report cases of missing required information to the FCA.
  • Cryptocurrency businesses must promptly provide information to law enforcement upon written request.

Challenges and Concerns

While the FATF recommendations have been largely successful, challenges remain.

One of the primary concerns is striking a balance between AML regulations and the privacy concerns of cryptocurrency users.

Cryptocurrencies were originally designed to provide users with a certain level of anonymity and privacy. However, the implementation of AML regulations may compromise these principles.

Another challenge is the global nature of cryptocurrencies, which makes it difficult to enforce AML regulations consistently across jurisdictions. Different countries may have varying levels of understanding and implementation of FATF recommendations, resulting in regulatory arbitrage and potential loopholes in the system. According to a recent FATF report, only a quarter of jurisdictions are fully compliant with FATF’s recommendations, while many are yet to decide on regulating the crypto sector.

Additionally, the fast-paced and innovative nature of the crypto industry poses challenges in keeping up with evolving technologies and new methods of illicit activities.

In conclusion

Despite the challenges, adhering to AML and the FATF Travel Rule is a crucial factor in ensuring the legality and transparency of operations. At BitOK, we are ready to support you on this journey and provide the necessary tools for successfully complying with the new rules and contributing to a safer and more secure crypto ecosystem.

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