Cryptoasset Businesses in the UK Now Required to Withhold Certain Transfers

New Travel Rule for Crypto Comes Into Effect

Cryptoasset businesses in the United Kingdom are now obligated to withhold certain cryptocurrency transfers in order to comply with the new Travel Rule for crypto that took effect on September 1st. This rule, introduced by the Financial Conduct Authority on August 17th, requires virtual asset service providers (VASPs) based in the UK to collect, verify, and share information related to crypto-asset transfers.

Risk-Based Assessment for Inbound Payments

Under the new rule, if a VASP receives an inbound payment from a person or entity in a jurisdiction that has not implemented the Travel Rule, they must conduct a "risk-based assessment" to determine whether to make the cryptoassets available to the recipient. This same rule applies to UK residents sending payments outside of the country.

Preventing Money Laundering and Terrorist Financing

The Travel Rule, created by the Financial Action Task Force (FATF) in June 2019, aims to combat money laundering and terrorist financing activities conducted with cryptocurrencies. The UK passed legislation to enforce the Travel Rule in July 2022, joining other countries such as the US, Germany, Japan, Singapore, Switzerland, Canada, South Africa, the Netherlands, and Estonia who have adopted the rule.

FATF Calls Out Member States for Lack of Implementation

In June 2022, the FATF criticized member states for failing to adequately implement the Travel Rule, as over half of them had taken no action towards implementation. A survey by FATF in March 2022 found that only 29 out of 98 jurisdictions at the time had met the requirements of the travel rules, and enforcement had begun in only a small subset of these jurisdictions.

Coordinating Cross-Border Information Exchange

Coordinating the exchange of information between VASPs across borders has been described as a challenging problem by industry experts. Ian Andrews, the Chief Marketing Officer of blockchain forensics platform Chanalysis, stated that this issue will be difficult to solve, especially in the early stages of implementation.