Financial Action Task Force (FATF) Travel Rule

FATF Travel Rule, officially accepted by FATF on 21 June 2019, is the AML / CFT compliance obligations that financial institutions in 37 member countries worldwide must apply. Travel Rule is an update to existing FATF Recommendation 16 on cross-border and domestic bank transfers.


What Is The FATF Travel Rule?


It was the advice of the Financial Action Task Force (FATF) on the recently updated Bank Transfers in June 2019. It is also called the Crypto Travel Rule because it mimics the Travel Rule of the U.S. Banking Privacy Act. Also, this regulation believed to replace AML / KYC and KYT efforts.


According to the Travel Rule of Recommendation 16, the creators and beneficiaries of all digital fund transfers should exchange descriptive information. The rule will be applied to all VASPs, financial institutions, and mandatory organizations. Before that, the crypto industry has been trying to comply with the Anti-Money Laundering (AML) and Anti-Terrorism Financing (CFT) policies in recent years. At first are verifying Know your Customer (KYC) and Know your Transaction (KYT), which reveals the true identities behind registered user accounts and suspicious cryptocurrency transfers, respectively.


Information needed for the travel rule


As part of FATF Recommendation 16, virtual asset transfers must provide information such as the name, account number, physical address, national ID number, customer ID number, date, and location of the creators, as well as beneficiaries. Should present information such as account numbers.


Travel Rule for VASPs


VASPs that are defined to classify a business as a Virtual Asset Service Provider (VASP) should perform activities related to cost and virtual asset exchange, exchange, transfer, protection, or issuance and commitment of virtual assets between virtual assets. In addition, according to 16 Travel Rules recommended by FATF;


  • VASPs collect and store the necessary and correct resource information and necessary beneficiary information and send this information to beneficiary institutions if any.
  • Beneficiary institutions acquire and store the necessary resource information and necessary and correct beneficiary information.


Why Must VASPs Comply with FATF Travel Rules?


If they do not comply with the FATF standards of their local VASPs, FATF reserves the option to penalize countries with VASP by adding them to a high-risk watchlist (gray list) or incompatibility list (blacklist).


Countries will make it a priority for VASPs in jurisdictions to fully comply with FATF's AML / CFT regulations or absence in jurisdictions until the end of June 2020. In March 2019, there were fewer than 20 countries in the world where Bitcoin ownership was illegal or restricted, and if there is no suitable Travel Rule solution in 2020, the increase in this number could become a real risk. When countries are exposed to money laundering and terrorist funds due to cryptocurrencies, the easiest way for them would be to ban cryptocurrencies completely or bankrupt them.


What Are The Obstacles to FATF Travel Rules Compatibility?


In addition to the numerous different challenges, the process of transmitting the necessary data to comply with the travel rule of VASPs and similar regulations still needs to be resolved. Currently, many cryptocurrency businesses comply with two-thirds of the questions asked by the Travel Rule and FATF's global regulatory guidance.


Experts say the cryptocurrency industry can be better presented with a simple framework and resource set that all VASPs can use to create a path to compatibility based on their own needs and the requirements of their local jurisdictions. FATF will review the industry's adoption of guidelines in June, assessing the impact and future steps to dominate crime activity in the cryptocurrency industries. The more harmonized the regulation, the easier it will be to implement it.


Conclusion


FATF stated that this year, due to the fast-moving nature of virtual asset technology, it will continue to evaluate the industry and take the next AML / CFT incentive steps in June 2020. The combined goal of the Rule of Travel and AML / KYC is to clean and strengthen cryptocurrencies to ensure their long-term survival.


The Travel Rule is an essential tool that helps financial institutions comply with worldwide regulations. VASPs that fail to keep up with these new regulatory requirements are facing extinction, as can be seen at the recent stock market closings, which show new regulations such as CryptoBridge as a reason for closing shops. Therefore, VASPs must create a constructive and objective discussion with regulators to make things easier, not only in 2020 but in the following decade.








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