April 19, 2024
Latest Cryptocurrency News

Challenges Abound as UK Crypto Firms Rush to Implement Money Laundering ‘Travel Rule’

UK cryptocurrency firms are facing a tight deadline to implement the “travel rule,” a measure designed to combat money laundering. However, industry experts have pointed out that the uneven global implementation of this rule is posing challenges for service providers striving to comply.

The Financial Action Task Force (FATF), an international standard-setting body, has established norms for identifying individuals behind cryptocurrency transactions. These requirements have sparked controversy within the crypto industry, especially concerning their adaptation to unique crypto features like self-custodied wallets not hosted by regulated providers.

While some view the travel rule as crucial in the fight against illicit funds and as a means to enhance the reputation of cryptocurrencies, only 35 jurisdictions have passed the necessary legislation, leading FATF to express serious concerns about its enforcement.

The rule also presents a conundrum for crypto firms when it comes to gathering data on their customers’ interactions overseas. Ilya Brovin, Chief Growth Officer at Sumsub, a verification platform, described this as a “sunrise issue” due to the varying enforcement of the rule in different places. Regulators have been slow to provide guidance, leaving industry players with numerous questions.

The UK is set to enforce these laws from September 1st, and lobby groups like UK Finance are advocating for a standardized approach to the travel rule across jurisdictions. However, even in places where laws have been passed, they have not all taken effect, such as in the European Union, where implementation is set for the end of 2024.

Even where the rule is in effect, there are discrepancies among jurisdictions. For example, Canada requires operators to record beneficiaries’ postal addresses, while the UK does not. This creates challenges for firms when transferring funds between these two regions.

Caterina Veloso, co-chair of CryptoUK’s travel rule working group, highlighted the open approach of the UK’s Financial Conduct Authority (FCA) in testing the rule with the industry. However, she suggested that the FCA’s August guidelines, which ask wallet providers to make risk-based assessments when receiving funds from non-compliant foreign jurisdictions, could benefit from more detail.

To address these issues, Veloso is turning to the Joint Money Laundering Steering Group (JMLSG), an industry body whose guidance can influence regulators and courts. CryptoUK plans to contact the JMLSG to request additional guidance on handling inbound transfers and dealing with non-compatible closed protocols.

Despite the imminent implementation of the rules, she hopes the FCA will be understanding of the challenges faced by firms and exercise flexibility, particularly considering the complexities related to data privacy and the need for practical resolutions as conflicts arise over time.

Image by Freepik

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