The FATF Travel Rule, also called Crypto Travel Rule informally, came into force in Canada on June 1st, 2021. It laid out the requirements for a virtual currency transfer to remain under the legal ambit of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLFTA).
In Canada, the FATF Travel Rule applies to electronic funds and virtual currency transfers. The term Virtual Currency has a wider meaning in the Canadian context. It can be a digital representation of value or a private key of a cryptographic system that enables a person or entity to access a digital representation of value.
The Crypto Travel Rule guides financial entities, money service businesses, foreign money service businesses, and casinos. These institutions must work per the information disclosure requirements inscribed in the Travel Rule.
In Canada, the Travel Rule applies to any virtual currency transactions exceeding $1,000. For these transactions to be compliant, the parties involved must share their personally identifiable information (PII) with the originator and beneficiary exchanges.
PII to be shared for Travel Rule compliance includes the requester's name and address, the nature of their principal business or occupation, and, if the requester is an individual, their date of birth. This is consistent whether it is shared with a Virtual Asset Service Provider (VASP) inside or outside of Canada.
On a related note, entities receiving large virtual currency transactions must report it to FINTRAC. The authorities consider a VC transaction to be large if it is equivalent to US$10,000 or more in a single transaction.
A similar report is also mandatory when the provider receives two or more amounts of virtual currency, totaling $10,000 or more, within a consecutive 24-hour window, and the transactions are conducted by the same person or entity on behalf of the same person or entity or for the same beneficiary. These reports can be submitted to FINTRAC electronically through the FINTRAC Web Reporting System or FINTRAC API Report Submission.
The reporting required for a large virtual currency transaction form includes general information, transaction details, and actions from start to completion. General information might cover the reporting entity and the review period for aggregate transactions over 24 hours. The remaining sections must include information about how each transaction is being reported, how the transaction started, and how it was completed.
Crypto service providers must have a well-laid-out compliance program with policies and procedures etched out in the smallest details. Ideally, they should have a person to assess the transactions even when an automated system detects when they have reached a threshold amount.
Merely having a large transaction reporting system in place is not enough. A system capable of reporting suspicious transactions to FINTRAC is also necessary.
Another set-up that is needed is robust record-keeping. If the provider has submitted a large virtual currency transaction report to FINTRAC, it must keep a copy for at least five years from the date the report was created.
Providers are also obligated to verify the identity of persons and entities accurately and timely, following FINTRAC's sector-specific guidance. Identification is also crucial for determining whether a person or entity is acting on behalf of another person or entity. Providers must also be fully aware of requirements issued under ministerial directives.
FINTRAC emphasizes shared responsibility in compliance reporting. It allows providers to voluntarily self-declare non-compliance upon identifying such instances.
The FATF Travel Rule in Canada imposes stringent compliance demands on cryptocurrency exchanges and wallets, emphasizing transparency and security for transactions over $1,000. This regulation aims to mitigate financial crimes, requiring detailed record-keeping and reporting to uphold a secure digital financial marketplace.
Canada has set a $10,000 threshold for providers to submit a Large Virtual Currency Transaction Report to FINTRAC.
Financial Entities, Money Service Businesses, and Foreign Money Service Businesses must register under FINTRAC and report the travel rule information when they send VC transfers.
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About Veriscope
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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