UK Travel Rule takes effect: What it means for crypto transfers
- Both incoming and outgoing crypto transactions are subject to scrutiny under this regulatory framework.
- Its primary objective is to enforce Anti-Money Laundering and Counter-Terrorist Financing rules on blockchain networks.
The United Kingdom has implemented the crypto Travel Rule as of 1 September, which could potentially disrupt certain cryptocurrency transfers.
The Financial Conduct Authority (FCA) initially introduced the rule targeting Virtual Asset Service Providers (VASPs) on 17 August. These rules mandate that VASPs located in the UK must “collect, verify, and share information” pertaining to crypto-asset transfers.
One crucial aspect of this regulation is that if a VASP receives an incoming payment from a person or entity based in a foreign jurisdiction that has not implemented the Travel Rule, they must conduct a “risk-based assessment” to determine whether they should release the crypto assets to the intended recipient.
Interestingly, this rule also applies to British individuals seeking to make payments outside of the UK. In other words, both incoming and outgoing crypto transactions are subject to scrutiny under this regulatory framework.
New regulations in the crypto space
The Travel Rule, which was established by the United Nations agency Financial Action Task Force (FATF) in June 2019, has been gradually adopted by various countries worldwide. These other countries include the United States, Germany, Japan, Singapore, Switzerland, Canada, South Africa, the Netherlands, and Estonia, as reported by Sygna.io.
However, it’s worth noting that there have been challenges in implementing the Travel Rule globally. In June 2022, the FATF expressed concern about member states’ inadequate implementation of this rule. It was found over half of them failed to take any significant action toward its adoption.
A survey conducted by the FATF in March 2022 revealed that only 29 out of 98 jurisdictions had met the requirements necessary to comply with the Travel Rule. Even among these, only a small subset had initiated enforcement.
Ian Andrews, the Chief Marketing Officer of blockchain forensics platform Chanalysis, pointed out in April 2022 that coordinating the exchange of information between VASPs across international borders presents a significant challenge, especially during the early stages of implementation.
The UK’s adoption of the Travel Rule aligns with the global trend of enhancing regulatory oversight within the cryptocurrency industry. This move is part of a broader effort to ensure compliance with AML and CTF regulations.
It will also provide authorities with greater visibility into cryptocurrency transactions to combat illicit financial activities.
As crypto businesses operating in the UK adjust to these new regulations, they will need to develop mechanisms for collecting, verifying, and sharing information related to crypto transfers.
Furthermore, they must conduct risk assessments for transactions from jurisdictions that have not yet implemented the Travel Rule.