FATF Travel Rule, officially accepted by FATF on 21 June 2019, is the AML / CFT compliance obligation 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 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 is believed to replace AML / KYC and KYT efforts.
According to the Travel Rule of Recommendation 16, all digital fund transfers creators and beneficiaries should exchange descriptive information. The rule will be applied to all VASPs, financial institutions, and mandatory organizations. Before that, the crypto industry tried 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 and beneficiaries. Should present information such as account numbers.
Travel Rule for VASPs
VASPs 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 between virtual assets. Besides, according to 16 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 comply with FATF's AML / CFT regulations fully or absent in jurisdictions until the end of June 2020. In March 2019, there were fewer than 20 countries 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. Moreover, 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 their local jurisdictions' requirements. 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.
FATF stated that this year, due to virtual asset technology's fast-moving nature, it will continue to evaluate the industry and take the next AML / CFT incentive steps in June 2020. The Rules and AML / KYC's combined goal 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. Therefore, VASPs must create a constructive and objective discussion with regulators to make things easier, not only in 2020 but in the following decade.