In a move aimed at strengthening anti-money laundering measures within the crypto industry, the Financial Conduct Authority (FCA) of Britain has delineated its anticipations for UK cryptoasset businesses to adhere to the widely discussed 'travel rule'. The new regulations stem from alterations to money laundering legislation that were enacted by the UK government back in July 2022.
The 'travel rule' itself has garnered significant attention, both within the UK and globally, for its potential to bolster efforts against money laundering and illicit financial activities within the realm of digital assets. This rule mandates that crypto-asset businesses abide by certain procedures when transferring digital assets. The FCA's recent statement clarifies the expectations placed upon these businesses to ensure full compliance.
The Financial Action Task Force (FATF), a global watchdog on money laundering and terrorist financing, raised concerns in June 2023 regarding the uneven adoption and enforcement of the 'travel rule' across different jurisdictions. This has led to various challenges and delays in implementing the rule effectively.
According to the National Cryptocurrency Association (NCA), the main expectations outlined for cryptoasset firms include:
Diligent Compliance: Crypto-asset businesses are expected to take all reasonable steps and exercise due diligence to ensure compliance with the 'travel rule'.
Third-Party Accountability: Even when employing the services of third-party suppliers, firms are reminded that they retain full responsibility for achieving 'travel rule' compliance.
Cross-Border Adherence: The FCA expects businesses to fully comply with the 'travel rule' when sending or receiving cryptoasset transfers to or from firms in the UK or any jurisdiction that has integrated the rule into its framework.
Global Implementation Review: Firms are urged to periodically review the implementation status of the 'travel rule' in various jurisdictions and adjust their business processes accordingly.
Addressing the challenges posed by transfers to jurisdictions that have not yet implemented the 'travel rule', the NCA's guidelines suggest:
Information Verification: Prior to sending a cryptoasset transfer, businesses should take reasonable measures to establish if the recipient firm is capable of receiving the requisite information.
Missing Information: In cases where the recipient cannot receive the necessary information, UK cryptoasset businesses are required to collect and verify the information in line with Money Laundering Regulations (MLRs). This information should then be securely stored before the transfer is executed.
Risk Assessment: Upon receiving a cryptoasset transfer from a jurisdiction without the 'travel rule', UK cryptoasset businesses are advised to assess the risk. Factors such as the operating countries of the recipient firm and the 'travel rule' status in those countries should be considered when deciding whether to make the cryptoassets available to the beneficiary.
These guidelines from the FCA and the NCA come at a time when the crypto industry is under heightened scrutiny from regulatory bodies globally. By specifying the expectations and compliance protocols, the UK aims to strike a balance between fostering innovation in the crypto space and preventing its misuse for unlawful activities.
As the crypto landscape continues to evolve, businesses operating within this domain will need to remain vigilant in their efforts to adhere to these new regulations, fostering a safer and more accountable digital asset ecosystem.
By fLEXI tEAM