Source: MoneyLaundering.com :: Changes in Bank Regulations, Financial Compliance Regulations, Regulation Banks, Money Laundering Cases, Anti Money Laundering, Money Laundering Training

Travel Rule Will be Mandatory in the UK by 23 September 2023

The European Union & North America, are strengthening their anti-money laundering laws to prevent illicit activities.

Key Takeaways

- The United Kingdom recently introduced “Amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 Statutory Instrument 2022.

- The amendment mentions that, subject to legislation, the Travel Rule will be enforced in the UK from 23rd September 2023.

- The threshold value for the Travel Rule compliance in the UK will be €1000, which may change to £1000 after the MRLs review.

The United Kingdom is among the most important countries in the global financial ecosystem, with London being one of the only two Alpha++ cities worldwide. Alpha++ is the highest category according to a city as per its standing in the global financial industry. This ranking system is from a think tank known as the Globalization and World Cities Research Network (GaWC).

Speaking of digital assets, they have become a hot topic among the global financial circles, including in the United Kingdom. Due to the pseudo-anonymous nature of crypto-related transactions, there are concerns that illicit actors and sanctioned entities and individuals, including terrorist organizations, will turn to digital assets to circumvent the sanctions. Thus, countries, especially in the European Union & North America, are strengthening their anti-money laundering laws to prevent such instances.

Recently, the United Kingdom introduced “Amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 Statutory Instrument 2022.” And the country is also mandating compulsory Travel Rule compliance nationwide from 23 September 2023. Thus, subject to final legislation the UK is closing all the loopholes illicit actors and sanctioned individuals and businesses can leverage to access the country’s financial infrastructure and services.

So, let’s look at what the recent amendment to the UK’s AML/CFT provisions has in store for the virtual asset service providers.

Crypto-Specificity

Respondents who shared their opinion on a proposal to extend FATF’s recommendations over wire transfers to digital assets agreed that a crypto-specific approach is a must. Thus, the Fund Transfer Regulations (FTR) provisions that will apply to the digital assets industry must be explicitly catered to it.

The respondents also brought attention to the uniqueness of the virtual assets industry. They mentioned that the words “Payer” and “Payee” do not fit within the context of the virtual assets. And instead, the terms “Originator” and “Beneficiary” should be used.

Costs

Although the government believes there will be a considerable increase in the cost of integrating new technologies to comply with the rules, on top of regular expenses because of ongoing compliance-related procedures, the benefits outweigh the risks. After all, complying with the Travel Rule will make the crypto industry better regulated. Thus, the crypto assets will become attractive to institutional and mainstream investors.

Grace Period

Most respondents agreed that a grace period of six to twenty months must be given to the firms to begin complying with the Travel Rule. Government, too, believes that businesses will need a grace period for ease of compliance. Thus, the Travel Rule will be enforced in the UK from 23 September 2023.

Data Privacy

Respondents from the industry expressed concerns about the breadth of personally identifiable information (PII) they will have to furnish to comply with the Travel Rule. After all, coupling the information that is publicly available on the blockchain with a user’s personal information, such as date of birth, name, address, and government ID number, among other things, can expose the user’s identity and spending habits.

Despite the industry’s reservations around data privacy and safety, the government has decided to make no changes to the type of information required from the originator and beneficiary of a crypto transaction.

The government also clarified that it is impossible to make unilateral changes to FATF’s recommendations. After all, FAFT’s recommendations are global in nature. Besides, most countries will fully comply with the Travel Rule and demand all the information that FATF has recommended. Thus, if the UK makes any changes to Travel Rule-related compliance requirements, it will severely impact cross-border transactions.

Also, the proposal does not indicate that the personally identifiable information (PII) during cross-border crypto-asset transfers should take place on-chain. Instead, it means that data transfer should be through other publicly-inaccessible mechanisms. And in such systems, data safety can be ensured.

Intermediaries = Crypto Asset Exchanges & Custodial Wallet Providers

In the government’s opinion, the term “intermediary” is not too broad and is rather apt for crypto exchanges and custodial wallet providers. Thus, service providers like software developers do not come under the ambit of the Travel Rule, but third-party custodial wallet service providers do.

An Exemption for Exchange of Crypto Assets Between UK-based VASPs

When crypto-asset transfers take place between crypto exchanges located within the United Kingdom, it won’t come under the Travel Rule. Hence, for intra-country transactions, there won’t be any need to share the personal data of users involved in the transaction.

Threshold Amount

The government has kept the minimum threshold for Travel Rule at 1,000 Euros (rather than GBP). That said, there is a possibility of changing the threshold value to pounds from euros after the MRLs review.

Fiat and crypto-asset transactions will be treated separately to calculate the minimum threshold value. And the fiat currency transfers will be subject to Fund Transfer Regulations (FTR) provisions.

Unhosted Wallets

When it comes to unhosted wallets, the government will only mandate the collection of Personally Identifiable Information (PII) when the risk of illicit financial activity is higher. The government has not entirely done away with this requirement, as this move would otherwise become an attractive incentive for criminals to undermine the current protocol.

Summary

All in all, the 2023 implementation of the Travel Rule in the United Kingdom has both positive and negative aspects. The positive aspect is that VASPs have a clear deadline to prepare themselves before the implementation of the Travel Rule. And the negative aspect is that the VASPs outside the UK will find it challenging to comply with the Travel Rule if they do business with the country.

Well, there’s a solution to this problem. Veriscope! First, it is a highly-secured Travel Rule Service Provider that can act as a safeguard against data privacy-related risks. Veriscope is special because it does not store PII, and the transfer of personal information is exclusively VASP to VASP. At no point does Veriscope access the data. Besides, Veriscope allows VASPs to obtain explicit consent from their users to prevent data mining.

And second, VASPs with counterparties in the United Kingdom can submit their request for information now, and once the UK-based VASPs come online, they will respond to their requests. Thus, solving the puzzle of the “Sunrise issue” in the process. All thanks to Veriscope “Historic Look-back” feature. So, all VASPs need to do for now is sign up for Veriscope and start submitting requests for information from UK-based VASPs.

As the date for implementing the FATF Travel Rule in the United Kingdom has been announced, VASPs must plan accordingly and be prepared beforehand. The first thing that VASPs must do is choose a Travel Rule Service Provider (TRSP). Speaking of TRSPs, Veriscope is the best solution in the market, and is already compliant to FATF and proposed-UK standards. After all, with Veriscope, you don’t have to worry about VASP data discovery, data privacy and security, Know Your VASP, and payment screening-related challenges.

Visit our website to know more about Veriscope: https://www.veriscope.network/ and contact our BizDev team for a discussion.

Also, follow us on Twitter, LinkedIn, Facebook, Discord, Telegram, and Medium to get regular updates on the evolving regulatory landscape in the world of digital assets.

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