What is it?
The Crypto Travel Rule refers to a set of new international regulations that impose significant restrictions on the transfer of cryptoassets. Under these regulations, it is largely prohibited to send cryptoassets without including specific information about both the originator and the beneficiary of the transaction. This rule aims to enhance transparency and accountability in the crypto space, aligning it more closely with traditional financial systems.
How does it impact me?
Starting from September 1, 2023, you may encounter restrictions when attempting to send your cryptoassets. Specifically, you will be required to provide detailed beneficiary information for each transaction. In certain situations, you may also need to supply information about the originator of the funds. This means that before you can successfully execute a transfer, you must ensure that all necessary details are accurately provided, which may add an extra step to your transaction process.
Why do I have to do this?
The term "Travel Rule" is commonly associated with the FATF Recommendation 16 (R.16). This recommendation stipulates that electronic fund transfers must be accompanied by documented information about both the originator and the beneficiary. This requirement has been adopted and enforced by over 200 jurisdictions globally. Consequently, whenever you initiate a transfer of funds, financial institutions are already exchanging this essential information behind the scenes to comply with regulatory standards.
On July 21, 2019, the FATF clarified that cryptoassets fall under the scope of this recommendation, which has led to the implementation of jurisdiction-specific legislation. In the UK, for instance, the HM Treasury's consultation regarding amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 concluded on October 14, 2021. This paved the way for the Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022, which outlines the regulations governing cryptoasset transfers in Part 7A, set to take effect on September 1, 2023.
These regulations mandate that UK-based cryptoasset businesses, also known as Virtual Asset Service Providers (VASPs), which include cryptoasset exchange providers and custodial wallet providers, must collect and maintain records of the originator and beneficiary information prior to executing any cryptoasset transfers. Furthermore, when transferring cryptoassets to a beneficiary's wallet that is hosted by another cryptoasset business, instead of an unhosted wallet, the originating business is required to relay this information to the receiving cryptoasset business.
How does it work?
The method by which you will provide the required information, such as the names and account numbers of both the originator and beneficiary, will vary depending on the user interface you are utilizing. For users accessing the service via the web, you will be able to input the necessary information through an updated “Transaction” form. This form has been enhanced to facilitate the entry of the required details seamlessly.
Additionally, we have expanded our address book functionality to allow for the storage of this required information alongside existing data. This means that when you select an entry from your address book, the relevant details will be automatically populated, streamlining the process for you.
We also offer a “Transactions” list view, where you can monitor and edit all inbound and outbound transactions that are missing the required information. Once you have provided all necessary details, the transaction will be sent to your iOS device for approval, just as it has been done previously.
For users of MetaMask, there will be no changes to the extension's user interface. However, applicable transactions will be organized into the “Transactions” list. In this workflow, you will create a transaction in MetaMask, add the required information in the “Transactions” list via the web, and then approve the transaction using the iOS app.
For API users, there is an option to append the necessary information to an existing transaction prior to its submission to the blockchain, ensuring compliance with the new regulations.
References:
MLTFR 2022. The Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022. Published July 21, 2022.
HM Treasury 2021. Amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 Statutory Instrument 2022 July 2021 | Consultation. Published July 22, 2021.
HM Treasury 2022. Amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 Statutory Instrument 2022 | Response to the Consultation. Published June 2022.