UK government plans to enact ‘travel rule’ for crypto-assets
The suggestion is one of several proposed amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, (the Regulations) which HM Treasury says are essential to keep the UK regime in compliance with the recommendations of the global Financial Action Task Force (FATF).
Identifying the parties to a virtual-currency transfer corresponds to FATF’s so-called travel rule, which has applied to ordinary wire transfers for several years, and is already part of UK law under the Funds Transfer Regulation (FTR). The object is to allow financial institutions to detect potential money-laundering activity by ensuring that the identities of the parties to the transaction are known, and facilitates law enforcement investigations by ensuring that appropriate records of transactions remain with the transfer or related message throughout the payment chain.
FATF extended the rule to cover crypto-assets in July 2019, but there are technical obstacles to achieving this. Not all provisions of the FTR are appropriate to crypto-asset firms, because either the terminology used would be inappropriate or because of material differences in how transfers of funds and transfers of crypto-assets are made. Therefore, it is not feasible to simply expand the scope of the FTR to include crypto-asset firms, which is why HM Treasury has now decided to legislate it through amendments to the Regulations.
The new requirements will apply to crypto-asset exchange providers and custodian wallet providers that are carrying on business in the UK. It will set GBP1,000 as the appropriate amount of the de minimis threshold for transfers subject to the travel rule. It will also try to prevent criminals from circumventing the rule by dividing a pool of illicit funds into multiple small transfers. Transfers from a single originator that appear to be linked, and which exceed the threshold when taken together, must be accompanied by full beneficiary and originator information. However, even transfers below the de minimis threshold will have to be labelled with the name and account number of both originator and beneficiary and a unique transaction identifier.
The receiving crypto-asset service provider will be required to retain this information for five years after completion of the transaction.
They will be required to make it available ‘fully and without delay’ in response to a written request by HM Revenue & Customs, the Financial Conduct Authority, the National Crime Agency or the police, where it is ‘reasonably required’ in connection with the authority’s functions.
Other amendments proposed in the consultation include:
- Formation of limited partnerships will be classed as a business relationship and brought under the regulated services listed for trust or company service providers.
- Persons obliged to carry out customer due-diligence on the beneficial ownership of their clients will be required to report to the authorities on any discrepancies they find.
- Certain types of low-risk payment service providers will be exempted from anti-money landering (AML) regulation.
- Artists are to be removed from the scope of the definition of art market participants in regulation 14 of the Regulations.
- Controls will be relaxed on the sharing of money-laundering information between supervisory authorities and ‘relevant’ law enforcement authorities. In particular, the government’s Department of Business, Energy and Industrial Strategy (BEIS) may be granted access to the information.
As well as announcing the above amendments to the Regulations, the government has also launched a call for evidence on whether the UK’s regulatory and supervisory regimes ‘effectively deter money laundering and terrorist financing activity whilst being proportionate and managing burdens on businesses’. This more wide-ranging review will look at the overall effectiveness of the regimes and their coverage of relevant entities; whether key elements of the current regulations are operating as intended and the structure of the supervisory regime including the work of the Office for Professional Body Anti-Money Laundering Supervision (OPBAS). That consultation closes on 14 October 2021.