It’s been about five years since the Financial Action Task Force (FATF) laid down its requirements on virtual assets. Since then, the implementation of these rules by countries has increased significantly. Today, we’ll look at all that has gone down in the realm of Crypto Travel Rule this year, so far.
First, a bit of history.
In 2019, the FATF expanded its recommendations or Travel Rule to cover crypto and Virtual Asset Service Providers (VASPs).
Updated in 2021, the Crypto Travel Rule applies to crypto exchanges, brokers, and custodians that handle crypto transactions. It mandates that these businesses share transaction details, including sender and receiver information, above a certain threshold.
In February, at a FATF plenary, the group agreed to publish a summary of the steps jurisdictions have taken to regulate VASPs.
Then, after a year-long process of collecting and evaluating information, late in March this year, the FATF released a report detailing the implementation of the Crypto Travel Rule across 58 jurisdictions.
These jurisdictions involved those who are official members of FATF, host VASPs with greater than 0.25% of global virtual asset trading volume, and have 1 million or more active users. These jurisdictions combined account for a vast majority (97%) of global crypto activity.
Based on the self-reported survey, the results showed that all 38 assessed members and 20 other jurisdictions have either completed or begun a virtual asset risk assessment.
According to the report, Saudi Arabia, China, and Egypt have explicitly prohibited the use of crypto and VASPs.
For several years, the FATF has urged jurisdictions to implement its recommendations. Although not mandatory, failure to adopt them may result in being placed on the organization's watchlist.
The FATF president stated that the agency does not require jurisdictions to pass laws for successful recommendation implementation; notifications from authorities could suffice.
So, against this backdrop, the South African Financial Intelligence Centre (FIC) issued a draft directive in May. As per the draft, VASPs are required to implement the FATF Travel Tule.
The directive provides obligations of crypto transfer originators and defines the policies and procedures, which also need to be incorporated into exchanges’ risk management and compliance programs, to be followed when dealing with unhosted wallets. Those who fail to comply will be “subject to an administrative sanction.”
The same month, the Turkish ruling party submitted a draft crypto bill to the parliament that focuses on licensing and registration for VASPs and aligns with international standards.
Back in 2021, Turkey was put on the FATF's “gray list” due to its failure to implement AML measures in the banking industry. As such, it has taken steps to address the organization's concerns and align with its standards.
The bill aims to comprehensively govern the crypto market. It will update existing laws, with a key focus on platform transparency, compliance with financial regulations, and consumer protection.
Under the proposed legislation, VASPs and other entities will have to obtain licenses from the Capital Markets Board (CMB), foreign crypto brokers will be banned, and enhanced CMB oversight will ensure effective dispute resolution.
Then, last week, the UK crypto industry’s self-regulatory trade association, CryptoUK, released a detailed guide on the Crypto Travel Rule to help market participants gain a deeper understanding and navigate the complications in the rule’s application to FCA-registered companies and conduct unhosted wallet transfers.
In the European Union (EU), meanwhile, the final Travel Rule guidelines are expected soon now that the deadline (Feb. 2024) to submit a response to the European Banking Authority’s (EBA) public consultation on it has passed. Once released, authorities will have two months to comply with the region’s crypto regulator or explain their non-compliance.
The implementation of FATF’s Crypto Travel Rule is overseen by the Transfer of Funds Regulation (TFR) in the EU, which was approved in April last year and will take effect on Dec. 30, 2024.
As crypto adoption continues to rise, regulators around the world have increased their scrutiny of the sector and are introducing regulatory measures for crypto businesses to follow, including FATF’s Crypto Travel Rule.
With this, the crypto regulatory scene across nations has been aligning with global standards. However, this is far from being achieved, with countries still not having a robust framework to regulate the crypto space and having different crypto transaction reporting thresholds and information reporting requirements.
This highlights the need for superior solutions like Shyft Veriscope to efficiently meet the unique blockchain sector requirements without burdening users.
Guide to FATF Travel Rule Compliance in the United States
Guide to Crypto Travel Rule Compliance in Japan
Guide to FATF Travel Rule Compliance in the Philippines
Guide to FATF Travel Rule Compliance in Estonia
Guide to Travel Rule Compliance in Malaysia
Guide to FATF Travel Rule Compliance in South Korea
Guide to FATF Travel Rule Compliance in India
Guide to FATF Travel Rule Compliance in Canada
Guide to FATF Travel Rule Compliance in Indonesia
FATF Travel Rule Compliance Guide for South Africa
Guide to FATF Travel Rule Compliance in Switzerland
FATF Travel Rule Compliance in Germany
Guide to FATF Travel Rule Compliance in Mexico
The Visual Guide on Global Crypto Regulatory Outlook 2024
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Veriscope, the compliance infrastructure on Shyft Network, empowers Virtual Asset Service Providers (VASPs) with the only frictionless solution for complying with the FATF Travel Rule. Enhanced by User Signing, it enables VASPs to directly request cryptographic proof from users’ non-custodial wallets, streamlining the compliance process.
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