The Financial Action Task Force (FATF), global anti-money laundering watchdog,recently published its updated recommendations, one of which now requires Virtual Asset Service Providers (VASPs) and financial institutions engaged in virtual asset (VA) transfers to collect and share personal data of a transaction’s sender and recipient. This is included in Recommendation 16, commonly referred to as the Travel Rule. Initially, the requirements were only applicable to financial institutions but in 2019, the FATF expanded its recommendations to also include VASPs, or platforms that offer crypto asset services.

The FATF Travel Rule is set to be enforced in the UK on 1 September 2023 and is a key AML/CFT measure to enable compliance with sanctions and detect suspicious transactions. It requires VASPs to obtain,hold, and exchange information on the originators and beneficiaries of VA transfers. The TR applies to all VA transfers, based on the cross-border nature of VA activities and VASP operations. However, there is one exception to the TR which refers to un-hosted wallet transfers that are on a risk sensitive basis only.

The specific application of the Travel Rule is as follows:

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The impact on VASPs will be as follows:

- Firms will have to uplift AML/CTF Policies and Procedures to include the Travel Rule.

- Firms will have to uplift Transaction Monitoring and Transfer of Funds Procedures.

Firms will also have to establish and implement:

- Maintenance of originator and beneficiary information.

- Validation of originator/beneficiary information, including checks for missing information on inbound transfers.

- A RFI process if not in place (inbound and outbound).

- A risk-sensitive approach on un-hosted wallet transfers.

- Technology solutions enabling compliance, evidencing consistency and completeness.

- Uplift staff training.

Consult the Experts

Lysis Group has the necessary expertise to provide consulting and operational support by helping firms to not only implement the Travel Rule effectively but to also operationalise the legislation by embedding this into the business-as-usual processes followed by firms.

Specifically, we can assist firms as follow:

Transactional Process: Review,Uplift, Remediate Services

- Lysis can determine the existence of processes for collection/exchange of originator/beneficiary data and create this if it is absent.

- Lysis can determine the existence of a RFI process and create this if such a process is not yet in place.

Lysis can also uplift processes where gaps are identified:

- Are controls within collection/exchange of information platform adequate? Does it recognise missing information or un-hosted wallet requirements?

- Where gaps are identified, including the client on boarding due diligence process, Lysis can uplift and assist with remediation.

- GDP for data privacy to be observed – is it included in the process?

Lysis can further review adequacy of platform functionality to identify missing/incomplete beneficiary/originator information. We can also review and uplift policies and procedures to reflect theTravel Rule amendments to MLRs¹. Lastly, Lysis can provide training to adequately reflect the Travel Rule and empower staff to meet all requirements.

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* ¹The Money Laundering, Terrorist Financing and Transfer of Funds(Information on the Payer) Regulations 2017 (as Amended)

NOTE: UK Future Regulatory Regimefor crypto assets

Following the European Council’s announcement to implement the Markets in Crypto-Asset law (MiCA), expected in 2024, the HM Treasury published a consultation paper on 31 January 2023 entitled “Future Financial Services Regulatory Regime for Crypto assets”.  This proposes a new regulatory regime reflecting the risks and opportunities in the crypto asset market and signifies the UK’s commitment and strategy to become a leader in the international regulatory arena whilst, at the same time, attract crypto firms to the UK. The proposals within the paper cover a wide range of specified activities, largely aligned with the current regulated activities of crypto asset firms.  The consultation paper can be viewed here.

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