UK Travel Rule: What You Need to Know About Crypto Transactions

The consultation on guidance on the UK travel rule for crypto transfers is outlined by Syed Rahman

The UK. Joint Money Laundering Steering Group (JMLSG) opened a consultation on July 28 on guidance on the UK travel rule for cryptoasset transfers. It has published its proposed revisions to Sector 22 (Cryptoasset providers and custodian wallet providers) in Part II of its guidance and sought comments on the proposed amendments.

The revised guidance sets out JMLSG’s proposals relating to what information must be sent, received and verified as part of a cryptoasset transfer - the travel rule. This guidance concerns cryptoasset businesses as defined in Regulation 14A of The Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR). This definition concerns crypto exchange providers and custodian wallet providers, with the travel rule set out as per Part 7A of the MLR. Firms had to be complying with the travel rule by September 1, 2023.

Information

The JMSLG guidance says that a cryptoasset business operating on behalf of the originator of a transaction (i.e., the entity from whom the asset is being transferred from) must ensure the following information accompanies the transfer:

• The name of the originator and the beneficiary.
• The registered name of the originator or beneficiary if they are a legal entity (or trading name if there is no registered name).
• The account number of the originator and the beneficiary (or unique transaction identifier if there is no account number). Account numbers should be - and should remain - unique to a customer.

The guidance also sets out further information that may be requested from the cryptoasset business of the originator. This information - which is to be provided within three working days – is:

• If the originator is a legal entity:
  • Customer identification number.
  • Address of the originator’s registered office - or their principal place of business if there is no registered office or the place of business differs from the registered office.

• If the originator is an individual, one of the following:
  • Customer identification number.
  • Address.
  • Birth certificate number, passport number or national identity card number (or individual’s date and place of birth).

The above matters concern cryptoasset businesses operating within the UK. But the guidance does also state that in instances where one of the businesses operates outside of the UK and the transfer value exceeds €1,000 then the above referred information should nonetheless be provided and/or requested.

Obligations

This does, of course, have the potential to place quite onerous obligations and internal policy procedures on those operating cryptoasset businesses, who remain ultimately responsible for their own compliance.

In instances where there is missing or inaccurate information, the cryptoasset business operating on behalf of the beneficiary is to firstly verify the information received and secondly, when appropriate, request the further missing information. Generally, cryptoasset businesses are expected to adopt a risk-based approach to such instances, with particular regards to:

• The nature of their business relationship with the beneficiary and the purpose of the transfer.
• The value of the transfer and any linked transactions.
• The frequency of the transfers.
• The duration of their business relationship with the beneficiary.

These same obligations are expected from those acting as intermediaries in such transfers.

The Financial Action Task Force (FATF) has called on other jurisdictions to implement the same obligations set out within this travel rule. Such widespread implementation of this travel rule does, in theory, make sense. If the UK were the only jurisdiction to implement more stringent anti-money laundering (AML) regulations and impose more requirements on cryptoasset businesses, the likely outcome would be that such businesses would choose to operate in different jurisdictions. This would be to the UK’s detriment but would also be likely to lead to more money laundering-related concerns and occurrences.

The Financial Conduct Authority (FCA) has largely echoed the points made in the JMLSG’s guidance. This is understandable, given that it expects cryptoasset businesses to take reasonable steps to ensure compliance with the travel rule obligations and AML guidelines generally.

Much has been said in recent months and years about the UK government taking active steps to regulate the crypto markets. Whilst this is not quite the holistic regulatory action that many have been calling for, it certainly addresses some of the fears that many have due to the fraud and money laundering that is occurring through cryptoasset transfers.

The extent to which this guidance will be implemented and/or remain as proposed, remains to be seen. The deadline for feedback has now passed and so those operating as a cryptoasset business will do well to keep an eye on what the eventual outcome of these proposals proves to be.