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FCA’s Expectations for UK Cryptoasset Businesses and the Travel Rule
Regulation | Aug 18, 2023
Image: Unsplash/Shubham Dhage
Starting from 1st September 2023, UK cryptoasset businesses will be mandated to gather, authenticate, and disseminate information related to transfers, a directive known as the 'Travel Rule'.
The Financial Conduct Authority (FCA) has outlined its expectations for UK cryptoasset businesses in light of the recent changes in money laundering legislation introduced in July 2022. Starting from 1st September 2023, these businesses will be mandated to gather, authenticate, and disseminate information related to cryptoasset transfers, a directive known as the 'Travel Rule'. This initiative is in alignment with the Financial Action Task Force's (FATF) call for a standardized approach to cryptoasset transactions, similar to other financial services sectors.
What is the Travel Rule and Why is it Important?
The Travel Rule (see Targeted Update on the Implementation on FATF Standards on Virtual Assets and VASPs) is designed to bring about increased transparency in cryptoasset transfers. Its primary objective is to make it challenging for criminals to exploit cryptoassets for illegal activities. Specifically, the Travel Rule promotes global anti-money laundering (AML) and counter-terrorist financing (CTF) initiatives by aiding cryptoasset businesses in identifying suspicious transactions and conducting effective sanctions screening.
- Enhanced Transparency: By mandating the collection and verification of transactional information, the Travel Rule ensures that every cryptoasset transfer is traceable and accountable.
- Combatting Illicit Activities: The rule makes it difficult for criminals to use cryptoassets for money laundering, terrorist financing, and other illegal activities.
- Standardization Across Financial Services: The Travel Rule brings the practices of cryptoasset businesses in line with traditional financial services, creating a uniform standard for transactional information.
The implementation of the Travel Rule is a step towards elevating standards in the UK's cryptoasset sector, ensuring consumer protection, market integrity, and the sector's sustained competitiveness.
FCA's Expectations for UK Crypto Businesses to Implement the Travel Rule
- Crypto businesses must diligently adhere to the Travel Rule.
- Even if third-party suppliers are used, firms remain accountable for Travel Rule compliance.
- Full compliance is required for crypto transfers within the UK or to countries that have adopted the Travel Rule.
- Firms should consistently monitor the global adoption of the Travel Rule and adjust their operations accordingly.
- The Travel Rule aims to enhance transparency in crypto transfers, thereby curbing illicit activities and bolstering anti-money laundering (AML) and counter-terrorist financing (CTF) measures.
See: Coinbase Implements KYC Travel Rule in the Netherlands
The FCA, in collaboration with the Joint Money Laundering Steering Group (JMLSG) and HM Treasury (HMT), is also working on guidance to assist firms in complying with the Travel Rule. Feedback on this guidance can be submitted until 25th August 2023.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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