The Financial Action Task Force (FATF), the world’s anti-money laundering watchdog, recently published updated recommendations, one of which now necessitates Virtual Asset Service Providers (VASPs) and financial institutions involved in virtual asset (VA) transactions to collect and share personal data of a transaction’s sender and recipient. This is indicated in Recommendation 16, sometimes known as the Travel Rule.
Initially, only financial institutions were subject to this rule; however, in 2019, the FATF amended its proposal to include VASPs or platforms that provide bitcoin services. FATF members and FATF-style regional entities are already incorporating the Travel Rule into their local anti-money laundering laws (AML).
What is FATF Travel Rule?
What is FATF Travel Rule? The term “Travel Rule” refers to FATF Recommendation 16, which addresses methods to combat money laundering and terrorist financing (ML/TF). It requires financial institutions and crypto businesses involved in VA transfers to receive “necessary and correct originator information, as well as needed beneficiary information,” and to share it with counterparty VASPs or financial institutions before or during the transaction.
The law was termed the “Travel Rule” since the personal data of the transacting parties “travel” with their transactions. The FATF proposes that nations establish a de minimis threshold of $1,000 USD/EUR for VA transfers, with the understanding that there will be fewer obligations for VA transactions below the level than for those beyond it.
FATF’s Implementations Shook the Crypto Market
In accordance with the FATF TargetedUpdate on Implementation of FATF Standards on Virtual Assets-VASPs, 29 of the 98 responding jurisdictions reported having implemented Travel Rule legislation as of March 2022, but only 11 jurisdictions had commenced implementing enforcement and supervisory procedures.
Japan has declared that bitcoin transactions would be subject to the Travel Rule byMay 2023. Also, Regulation 5 of the Money Laundering and Terrorist Financing Regulations enters into force in the United Kingdom on September 1, 2023; the same is predicted in Lithuania in 2025. The crypto sector has been shaken by this regulatory upheaval, which has caused confusion about how to execute and comply with the new FATF guideline.
