In June 2019, global anti-money laundering (AML) watchdog the Financial Action Task Force (FATF) the updated its guidance to explicitly state that virtual asset service providers, or VASPs, must share sender (originator) and receiver (beneficiary) information in cryptocurrency transactions above a certain threshold – collectively known as ‘the Travel Rule’
It has been over a year since the FATF announced the introduction of the Travel Rule for the crypto industry. And while some countries have adopted a wait-and-see approach, others are well ahead of the curve:
When it comes to applying the Travel Rule, the US is already a global leader. This is in part because the Travel Rule is based on the BSA, which is part of US law. Since 2013, the Financial Crimes Enforcement Network (FinCEN) has determined that the BSA applies to the cryptocurrency industry. Additionally, FinCEN issued its own guidance for VASPs in May 2019, which includes the application of the BSA travel rule.
When it comes to AML efforts, the European Union is at the forefront. The EU’s 5th Anti-Money Laundering Directive (5AMLD) came into effect in January 2020, and mostly corresponds to the FATF guidance. However, 5AMLD directives take a more relaxed approach to user recordkeeping. While the FATF Travel Rule recommends that data is gathered on both the recipient and the sender (including those communicating with other VASPs), 5AMLD only requires the submission of data to financial regulators upon request.
Although the United Kingdom is slated to leave the European Union’s trade and customs union in early 2021, the country’s financial sector is required to follow the 5AMLD directives, as they came into effect prior to the Brexit deadline. As a result, the UK’s AML authority, the Financial Conduct Authority (FCA), stated in January 2020 that all crypto firms need to enact ongoing monitoring of all customers. Now that the FATF Travel Rule is in full effect, the United Kingdom has updated its requirements. All crypto businesses are required to submit applications outlining how they will comply with the Travel Rule to the FCA by the end of this month. Although the deadline for this is technically January 2021, the FCA wants time to go through submissions. Any crypto business that has not submitted an application by January 2021 will have to cease all activity in the UK.
Singapore has always been a keen adopter of FATF recommendations. The country enacted the Payment Services Act (PSA) in January 2019, which unlike the ambiguous language of the EU’s 5AMLD, clearly defined actions that crypto businesses needed to take. The PSA requires digital payment token services (which includes both crypto businesses and exchanges) to comply with the FATF AML rules. In compliance with the Travel Rule, Singapore’s reporting threshold is around $1,000 (SG $1,500).
Japan has a reputation of being at the forefront when it comes to cryptocurrency adoption, and the country has been a keen observer of crypto regulations too. Since the creation of Japan’s Payment Services Act in 2017, domestic crypto firms have had to comply with AML regulations and register with their local finance bureau.
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