Despite the crypto winter, we can see the rapid adoption of cryptocurrencies in many countries around the world, which, of course, has not escaped the attention of their governments, which are attempting to alter legislation to meet new conditions.
I'd like to mention one piece of legislation: the Travel Rule.
PURPOSE of travel rules
The main goal of the Travel Rule is to address the issues of money laundering and terrorism financing (ML/TF) by requiring financial institutions and crypto firms involved in virtual asset transfers to acquire and exchange precise and reliable details of the transaction's originator and beneficiary with their counterparties before or during the transfer. By gathering this information, authorities can spot suspicious conduct, such as the transfer of funds by individuals or entities involved with criminal operations, and take appropriate measures to prevent or punish illicit activities. The Travel Rule is intended to align the crypto business with traditional financial industry anti-money laundering (AML) and counter-terrorism financing (CTF) standards. It is one of the most crucial cryptocurrency regulations for FATF members.
Who has to obey the travel rule?
The Travel Rule applies to financial institutions and crypto firms that engage in virtual asset transfers, often known as VASPs. This includes organizations that exchange virtual assets for fiat currency, custodian wallet providers, and financial service providers for Initial Coin Offerings (ICOs) and other token offerings.
The Rule applies to VASPs whenever their transactions involving either fiat currency or virtual assets (VA) include a conventional wire transfer, a VA transfer between two VASPs, or a transfer between a VASP and any other obligated entity such as a bank or financial institution. Furthermore, the Travel Rule applies to a VA transfer between a VASP and an unhosted wallet, although the FATF does not compel VASPs to transmit the mandatory information to non-obligated individuals (for example, the owner of an unhosted wallet).
According to the FATF, a business entity is subject to cryptocurrency regulation if it provides any of the following services:
· enabling the use of fiat money to facilitate the trading of virtual assets
· assisting in the exchange of a single or several types of virtual assets virtual property transfer
· offering administration or storage services for virtual assets or tools that enable control over virtual assets
· the act of taking part in or rendering financial services associated with an issuer's issuance or sale of virtual assets.
TRAVEL RULE IMPLEMENTATION
The application of the travel rule is contingent on the country's cryptocurrency regulatory environment. In general, financial institutions and VASPs must follow the regulations imposed by their respective government bodies.
VASPs should implement an adequate system for collecting and exchanging client information to comply with the Travel Rule. This includes acquiring and confirming client information for VA transactions, keeping correct and up-to-date records, and exchanging this information with the transaction's counterparties or financial institutions.
To facilitate information sharing, VASPs must use secure data transmission protocols, such as encryption and decryption techniques, to guarantee that sensitive information is protected during transmission. Additionally, to identify and report odd transactions that might be indicative of money laundering or terrorism funding, VASPs must have adequate risk management and compliance processes in place.
The crypto industry, which was founded to enable anonymous transactions, has experienced significant hurdles as a result of the Travel Rule's implementation. VASPs must now strike a balance between the need for privacy and the necessity for regulatory compliance, which has prompted significant investment in compliance technology and infrastructure.
TRAVEL RULE REQUIREMENTS
The following are the primary requirements of the travel rule:
· Before providing data, conduct due diligence on the counterparty.
For VASPs:
· Identifying their client (source)
· Obtaining the required information from the source, keeping a record, and sharing the information with the beneficiary VASP once all checks have been completed
screening to ensure that the beneficiary's name is not a prohibited one.
· Monitoring transactions and reporting suspicious transactions
To ensure compliance, a company needs to install two solutions: one for data collection and another for data sharing. Fortunately, the FATF does not mandate a specific technique or technology for data sharing, leaving enterprises free to choose an effective solution on their own.
Recommendation #16
The guideline, formally known as FATF Recommendation #16, requires VASPs to communicate the originators and beneficiaries of cryptocurrency transactions that surpass a particular level. More particularly, the regulations compel VASPs to disclose information about the originator and beneficiary's identities anytime the amount transacted exceeds $1,000.
In essence, if two people exchange crypto valued at more than $1,000, the crypto service provider of the sender is expected to communicate the sender's personally identifiable information (PII) to the crypto service provider of the recipient, and vice versa. While this is a given, member states can choose to interpret and implement variations of the guidance that best suit their local crypto sectors.
HOW CAN IT AFFECT CRYPTO USERS?
The first difficulty with the crypto travel rule is the nonuniform method of implementing this legislation in different locations. As previously stated, the restrictions of the travel rule vary by country. As a result, VASPs are tasked with adopting sophisticated self-compliance systems that take into account the varying requirements of various nations and apply them accordingly. The non-uniformity of crypto travel restrictions is commonly referred to as the "Sunrise Problem."
Given that VASPs must exchange transaction details, an interoperable communication system is required so that VASPs can readily receive and deliver PII. This means that the whole cryptocurrency sector must work together to develop the best data and communication standards.
Another major topic of the article is the perceived impact of the introduction of digital asset regulation by a segment of the crypto community. Some think that legislation such as the travel rule provides regulators with the tools and data they need to monitor and penalize cryptocurrency users.
The apparent security dangers that VASPs will encounter when transmitting users' information are also important to note. To protect user data from such hazards, it is essential to install additional security measures.
The travel rule also exposes VASPs to compliance issues related to data privacy. VASPs must make sure that their actions comply with the data privacy legislation of the countries in which they operate, despite their best efforts to abide by the travel rule.
My thoughts.
Overall, you should keep in mind that you may have to give up some of your privacy to continue to connect with the crypto market.
You must also know the names of your beneficiaries and those paying you funds. And, because there are still issues with the trip regulation, it is unclear how the inefficiencies of any of the compliance systems will influence your user experience.
However, even though I am not a crypto millionaire or crypto businessman, I believe it is important to understand some financial legislation because ignorance does not prevent us from obeying the law.
I hope you enjoyed this post.
Greetings
