On September 1, a considerable shift shook the cryptocurrency scene in the United Kingdom. Implementing the new crypto Travel Rule caused several cryptoasset enterprises to reconsider their plans for specific crypto transfers. But what does this signify for the digital finance industry and, more significantly, for UK residents?
The Financial Conduct Authority (FCA), a critical regulatory authority in the United Kingdom, issued these new recommendations on August 17. Who is the primary target? VASPs are virtual asset service providers. The goal is straightforward but effective: Ensure all VASPs with a UK base “collect, verify, and share information” about crypto-asset transactions.
This is when it gets interesting. Assume a VASP in the UK receives an inbound crypto payment from a person or organization in another country. The VASP is responsible if that region has not followed the Travel Rule. They must perform a “risk-based assessment” to determine whether or not to unlock the crypto assets for the intended receiver. The same restriction applies to British people or businesses interested in sending funds outside the UK.
But where did this Travel Rule come from? The UN organization Financial Action Task Force (FATF) developed it in June 2019, intending to stifle illegal financial operations such as money laundering and terrorist funding, particularly when carried out on-chain. The UK had legally passed legislation to enforce it by July 2022.
The United Kingdom is not alone in its endeavor. According to Sygna.io, other countries on board with the Travel Rule range from the United States to Estonia, including major players such as Japan, Canada, Switzerland, and Germany. The FATF’s optimism, however, suffered a minor setback on June 23. Their study highlighted that many member countries lacked effective implementation of the rule. A disturbing finding was that more than half of the members had not even begun to consider its use. According to the FATF’s March 2022 study, just 29 of the 98 jurisdictions reviewed matched the Travel Rule’s criteria.
Why is the speed so slow? In April 2022, Ian Andrews, Chief Marketing Officer of blockchain forensics platform Chanalysis, gave insight into this. He stated that establishing data interchange between VASPs across borders could be difficult, particularly in the early stages.
Finally, as the United Kingdom welcomes this development, it is apparent that the global crypto environment is transforming. Individuals and corporations must both be aware and prepared for what lies ahead. The Travel Rule is only the tip of the iceberg!