Financial institutions and authorities worldwide are keen to combat the menace of illicit funds. However, the emergence of cryptocurrencies made them rethink their approach, as this new means of digital payments enabled everyone to send funds without disclosing their identities.
Although the intention behind the privacy-oriented feature of cryptocurrencies was good at large, the hoard of malicious actors saw it as a sure-shot way to launder their ill-gotten funds without being detected. However, their excitement was rather short-lived.
Having sensed the risks beforehand, the Financial Action Task Force (FATF) laid out KYC/AML recommendations for crypto transactions in June 2019. And although only a few countries, so far, have enforced the Crypto Travel Rule, it’s only a matter of time before that changes.
Are you wondering what exactly the FATF Travel Rule is? We got you covered, as in this article, we provide in-depth answers to the most googled questions on FATF Travel Rule. Let’s dive straight into it.
The FATF Travel rule is a crucial crypto AML/CFT measure aimed at empowering Virtual Asset Service Providers (VASPs) with a robust mechanism for efficient sanction screening and suspicion crypto transaction detection.
It requires VASPs to obtain, hold, and transmit required originator and beneficiary information immediately and securely whenever virtual asset transfers are conducted.
FATF stands for the Financial Action Task Force, a 39-member body that sets international standards to ensure effective crackdowns on illicit funds for national authorities. These illicit funds may generate from drug trafficking, illegal arms trade, cyber fraud, and similar crimes.
Relevant Article: What is KYC in Crypto, and Why do Crypto Exchanges Require it?
The FATF Travel Rule applies to both Virtual Assets and VASPs. According to the FATF, Virtual Assets are “digital representations of value that can be digitally traded or transferred and can be used for payment or investment purposes.”
However, the definition does not include digital representations of fiat Currencies, securities, and other financial assets.
VASPS can be any business entity or an individual engaged in any sort of crypto-related business activity, be it a crypto exchange, crypto lending platform operator, crypto custody service provider, or more.
The FATF has been monitoring the virtual asset ecosystem for a while to manage and mitigate risks that emerge from virtual assets. However, the FATF demands cooperation from individual countries, as it holds them responsible for ensuring strict AML/CFT-related compliance among Virtual Asset Service Providers operating within its borders.
FATF has set its recommendations with appropriate compliance measures in it. And it wants the licensing and registration of VASPs to happen within the boundaries of these monitoring systems.
By Virtual Asset, the FATF implies a digital representation of value that is possible to digitally trade or transfer. These assets may also qualify for payment or investment purposes. However, Virtual Assets, as the FATF defines them, do not include digital representations of fiat currencies, securities, and other financial assets already covered in the FATF recommendations.
Yes, FATF can impose sanctions under the Travel Rule. However, only those competent authorities that meet the requirements set by the FATF can impose sanctions and not self-regulatory bodies. However, competent supervisory or monitoring bodies must first conduct risk-based supervision before imposing sanctions.
Relevant Article: AML and KYC Compliance in Crypto Industry
The foremost requirement under the Crypto Travel Rule is that the VASPs must screen, record, and communicate the originator's and beneficiary's information for transactions exceeding a certain amount as agreed upon by the FATF member states. However, the amount can vary.
For instance, in the United States, the threshold is US$3,000. Once the transaction crosses this threshold, the Originator VASP has to send personally identifiable information (PII) to the Beneficiary VASP and vice versa.
To comply with the Crypto Travel Rule, both Originator and Beneficiary VASPs must exchange the originator and beneficiary information for every virtual asset transaction. The originator refers to the user sending the crypto, and the beneficiary refers to the user receiving the crypto.
The Originator VASP must share the originator’s name, wallet address, and physical address (National Identity Number, Customer Identification Number, date, and place of birth) with the Beneficiary VASP.
The Beneficiary VASP, too, must share similar information about the beneficiary, such as the beneficiary’s name, wallet address, and physical address or national identification number with the Originator VASP.
Although the FATF Travel Rule does not cite any particular Travel Rule Solution or promote any specific method to exchange user data, VASPs must opt for a way that enables them to comply with minimal impact on user experience and privacy. And the only way to do so is to choose an automated Travel Rule Solution that does not store the data on third-party servers or its own.
Shyft Veriscope checks both boxes, as it enables VASPs to exchange user data among themselves in a peer-to-peer mode and comply with the FATF Travel Rule frictionlessly. Click here to know all about the Shyft Veriscope.
Shyft Network powers trust on the blockchain and economies of trust. It is a public protocol designed to drive data discoverability and compliance into blockchain while preserving privacy and sovereignty. SHFT is its native token and fuel of the network.
Shyft Network facilitates the transfer of verifiable data between centralized and decentralized ecosystems. It sets the highest crypto compliance standard and provides the only frictionless Crypto Travel Rule compliance solution on the blockchain while protecting user data.
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