The Financial Conduct Authority (FCA) has introduced a new regulation in the UK that requires crypto firms to freeze some inbound payments that are not compliant with anti-money laundering rules.
Cryptoasset businesses in the UK are mandated to collect, verify, and share information about cryptoasset transfers, which is known as the Travel Rule.
The FCA is the UK regulator for cryptoasset businesses and has issued a statement on how they should comply with the Travel Rule.
The Travel Rule
The Travel Rule is a global standard that requires cryptoasset service providers to share information about the originators and beneficiaries of cryptoasset transfers.
The regulation requires UK crypto firms to obtain and share information on the sender and receiver of crypto assets with counterparty crypto firms.
The regulation applies to any crypto transaction over £1,000 that is sent from a non-UK entity that does not have a UK registration or equivalent. Crypto firms must also report the frozen payments to the (FCA) within 48 hours and provide information on the sender and recipient.
The Travel Rule is based on the global standards set by the Financial Action Task Force (FATF), which is an intergovernmental organization founded in 1989 by the G7 to develop policies to combat money laundering and terrorism financing.
The FATF has called on other jurisdictions to swiftly implement the Travel Rule, which aligns practices for cryptoasset businesses sending and receiving transactions with those common in other areas of financial services.
The Travel Rule will come into force on September 1, 2023, and UK crypto firms will have a 12-month grace period to implement solutions to comply with it.
Compliance with the Regulation
The FCA says the regulation is aimed at preventing the use of crypto assets for illicit purposes and enhancing consumer protection.
The FCA expects UK cryptoasset businesses to implement the travel rule and to use open standards to facilitate data exchange.
The FCA also reminds UK cryptoasset businesses of their obligations under the Money Laundering Regulations and the need to register with the FCA.
The FCA warns that failure to comply with the travel rule or other regulatory requirements may result in enforcement action or cancellation of registration.
However, some crypto experts and advocates have criticized the regulation as too intrusive and damaging to the innovation and growth of the crypto sector in the UK.
The regulation is a significant development for the UK crypto sector and is likely to have a major impact on how crypto firms operate. It remains to be seen how the regulation will be implemented and whether it will achieve its intended goals.