Financial Crime World

EU Travel Rule Provisions Set to Shape Global Cryptocurrency Landscape

The European Union’s travel rule proposal is nearing implementation, which will have significant implications for the cryptocurrency industry. The new regulations aim to prevent the misuse of virtual assets (VAS) for money laundering and terrorist financing.

What are the EU Travel Rules?

According to sources, the EU travel rules require financial intermediaries to ensure that transaction details are accurate and complete, including the originator’s information and beneficiary details. This is already in effect in Switzerland, where Article 10 of its FINMA ordinance on money laundering has been amended.

Implementation Timeline

  • Switzerland: The travel rule was implemented on January 1, 2020.
  • UK: Regulation 64C of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 will come into force on September 1, 2023.
  • EU: The proposal for a regulation on information accompanying transfers of funds and certain crypto-assets (recast) is expected to enter into force soon.

Key Provisions

The EU travel rules aim to ensure that virtual asset service providers (VASPs) collect and retain specific information about transactions, including the originator’s and beneficiary’s identities. This will help prevent the misuse of VAS for illicit activities.

  • VASPs must collect and retain specific information about transactions.
  • Contracting parties executing cryptocurrency exchanges valued at over CHF1,000 must be identified.
  • Non-compliance with regulations may result in severe penalties, including a ban on carrying out financial activities.

Global Impact

As the travel rule comes into force across Europe, it is expected to have far-reaching implications for the global cryptocurrency industry. With Estonia, Germany, Switzerland, and the UK having already transposed the regulation into their national legal frameworks, other jurisdictions are likely to follow suit.

Consequences of Non-Compliance

The consequences of non-compliance with regulations are severe:

  • Switzerland: Article 9 of Switzerland’s ordinance provides for penalties, including a ban on carrying out financial activities.
  • UK: The Financial Conduct Authority (FCA) may impose directions in writing on crypto-asset providers that fail to comply with regulations.

Compliance is Key

As the industry adapts to these new regulations, it is crucial that virtual asset service providers prioritize compliance to avoid enforcement action and prevent the misuse of their services for illicit activities.