Last month the UK government’s finance ministry HM Treasury finally announced that it will be holding a long-anticipated public consultation to discuss, among other subjects, its planned implementation of FATF’s Travel Rule for cryptocurrency transactions. This comes soon after the European Commission recently announced its own expansive AML draft to adopt the Travel Rule into EU-wide legislation among other things.
The public consultation was launched on 22 July and will run until 22 October 2021 (which should synchronize it well with the FATF’s expected new guidance due for November 2021), with legislation expected to be introduced in spring 2022.
The consultation “invites the views from industry, law enforcement, supervisors, and the broader public and civil society” on potential amendments to Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs).
Implementing the Travel Rule Into UK Legislation
Part of the UK government’s plan to amend the MLRs includes transposing the Financial Action Task Force (FATF)’s Travel Rule update, which debuted in the summer of 2019, and have been subject to two 12-month reviews since, into domestic legislation. The regulations require that the originator and recipient of all cryptocurrency transactions be “transmitted and received alongside the transfer, in an appropriate format”.
The report includes several of FATF’s proposals, including the suggestion that there should be a £1000 withdrawal limit for beneficiaries if any required information is missing. However, it is the responsibility of crypto firms to determine the value of the £1000 threshold in a cryptocurrency transfer.
On July 22, HM Treasury announced that the public consultation represents a critical step toward amending UK AML/TF regulations.
“The government has been kept informed of technological developments, such as the development of common data standards and the progress of a large number of software solutions, and considers that the time is now right to begin planning for the implementation of the travel rule.”
HM Treasury stated that the Travel Rule should be applied consistently across all financial industries, “regardless of the technology being used to facilitate transfers, unless there is a compelling reason to adopt a different approach”. It also stated that existing Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regulations don’t transfer smoothly to cryptocurrency because of the peculiarities of the sector, and therefore need to be adapted.
The regulations will apply to all crypto asset service providers (CASPs) such as crypto-asset exchange providers and custodian wallet providers that conduct business within the UK.
“The government’s approach to implementation is guided by the principle that the application of [the travel rule] should be consistent across the financial services industry, regardless of the technology being used to facilitate transfers, unless there is a compelling reason to adopt a different approach. The requirements will apply to cryptoasset exchange providers and custodian wallet providers, as defined in The Money Laundering and Terrorist Financing (Amendment) Regulations 2019, which are carrying on business in the UK.”
Treasury delayed Travel Rule adoption to encourage technological solutions
HM Treasury stated that it has delayed formal adoption of FATF’s travel rule so as to allow crypto firms a chance to develop compliance solutions.
In the consultation report, it stated that:
“The government has been kept informed of technological developments, such as the development of common data standards and the progress of a large number of software solutions, and considers that the time is now right to begin planning for the implementation of the travel rule”.
The Financial Conduct Authority (FCA), which is the primary UK regulator for crypto firms, has been compiling a list of licensed firms, of which only five of have been approved so far under this new framework. It recently extended the AML registration period to March 2022 after over 90% of firms assessed to date withdrew their applications.
Covid-19 May Delay Implementation
The social distancing measures of the Covid-19 pandemic are expected to slow down the process of implementing the Travel Rule into UK legislation. The added pressure of the pandemic, coupled with the sunrise issue – in which various regulations are established and applied in different time zones throughout the world – may require that regulators be given more time to implement the new regulations, making a spring 2022 deadline unlikely.
More information regarding the public consultation can be found in the official report.
Get in touch with Sygna and demo our Travel Rule solution
Sygna Bridge has received praise from our client Independent Reserve, who this month received in-principle licensing approval from the Monetary Authority of Singapore (MAS) as one of the first CASPs to operate digital payment token services in Singapore. This came after our favorable independent assessment by the country’s ACCESS blockchain association last year.
We have been meticulously refining our easy-to-use and interoperable Travel Rule protocol/API since 2019 and our “live” exchange clients have been demonstrably using our network to successfully share AML compliance information with other VASPs since 2020.
We’re here to help educate and guide your crypto service provider through this complex compliance process, not only with our Travel Rule solution Sygna Bridge, but also new solutions in response to evolving regulations. We understand your biggest compliance pain points and have answers to your questions.
Simply complete our sign-up form on our site, and we’ll get back to you or connect with Vince Lee (Product Manager) and Elsa Madrolle (General Manager International) on LinkedIn or at [email protected] to get the help you need on your licensing process.