The UK’s Financial Conduct Authority (FCA) is setting out their expectations for crypto-asset businesses that need “to comply with a change in money laundering legislation legislated by government in July 2022.”
From 1 September 2023, crypto-asset businesses in the UK will be “required to collect, verify and share information about cryptoasset transfers, known as the ‘Travel Rule’.”
The Financial Action Task Force (FATF) has “called on other jurisdictions to swiftly implement the Travel Rule, which aligns practices for crypto-asset businesses sending and receiving transactions with those common in other areas of financial services.”
In June 2023, FATF highlighted the challenges “arising from delays in adoption and different timelines for enforcement of the Travel Rule across jurisdictions.” As a result, we have worked closely with industry to provide guidance “on how to comply and what we reasonably expect of firms ahead of other countries following the UK’s position.”
Our expectations for firms include:
- Take all reasonable steps and exercise all due diligence to comply with the Travel Rule.
- Firms remain responsible for achieving compliance with the Travel Rule, even when using third-party suppliers.
- Fully comply with the Travel Rule when sending or receiving a cryptoasset transfer to a firm that is in the UK, or any jurisdiction that has implemented the Travel Rule.
- Regularly review the implementation status of the Travel Rule in other jurisdictions and adapt business processes as appropriate.
When sending a cryptoasset transfer to a jurisdiction without the Travel Rule:
- Take all reasonable steps to establish whether the firm can receive the required information.
- If the firm cannot receive the necessary information, the UK cryptoasset business must still collect and verify the information as required by the Money Laundering Regulations (MLRs) and should store that information before making the cryptoasset transfer.
- When receiving a cryptoasset transfer from a jurisdiction without the Travel Rule:
- If the cryptoasset transfer has missing or incomplete information, UK cryptoasset businesses must consider the countries in which the firm operates and the status of the Travel Rule in those countries.
The UK cryptoasset business should take these factors “into account when making a risk-based assessment of whether to make the crypto-assets available to the beneficiary.”
The FCA will keep their expectations “under regular review as global adoption of the Travel Rule develops and we will communicate any changes accordingly.”
To further support crypto-asset businesses, the FCA has been “working with industry, the Joint Money Laundering Steering Group (JMLSG) and HM Treasury (HMT), on guidance to help firms comply with the Travel Rule. Firms have until 25 August 2023 to input to the guidance.”
The Travel Rule is designed “to bring greater transparency to crypto-asset transfers, making it harder for criminals to use crypto-assets for illicit activity.”
Specifically, the Travel Rule “advances anti-money laundering (AML) and counter-terrorist financing (CTF) efforts globally by helping crypto-asset businesses detect suspicious transactions and carry out effective sanctions screening.”
The timeline for implementation “follows HMT publishing amendments to the MLRs in July 2022. Specifically, part 7A of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.”
In line with their consumer protection and competitiveness objectives, the Travel Rule is one way they are “raising standards in the crypto-asset sector.”
Stronger standards like those “brought in by the Travel rule and the financial promotions regime for crypto-assets in October 2023, help us better protect people, the integrity of our markets and support the sustained competitiveness of the cryptoasset sector in the UK.”