To comply with the new travel rule for cryptocurrencies that went into effect on September 1, crypto asset enterprises in the United Kingdom may start delaying some crypto transactions. So, the UK’s new crypto travel rule may negatively affect crypto transfers. The goal of the implementation of the crypto travel rule is to prevent on-chain money laundering and terrorist funding operations.

The Financial Conduct Authority originally announced the regulations aimed at virtual asset service providers on August 17. These regulations mandate that UK virtual assets service providers (VASPs) “collect, verify, and share information” regarding crypto-asset transfers.

The VASP must conduct a “risk-based assessment” to determine “whether to make the crypto assets available to the beneficiary” if an incoming payment is received from a person or business from a foreign country that hasn’t implemented the Travel Rule. The same regulation would also apply to British sending money abroad.

The Financial Action Task Force, a UN organization, developed the Travel Rule in June 2019. The United Kingdom passed legislation to implement the Travel Rule in July 2022. It makes an effort to make sure that on-chain activities comply with anti-money laundering and counter-terrorist financing regulations.

According to Sygna.io, additional nations implementing the Travel Rule include the United States, Germany, Japan, Singapore, Switzerland, Canada, South Africa, the Netherlands, and Estonia.

After a study found that more than half of the member states had yet to take steps to execute the regulation, the FATF criticized member states for their inadequate implementation on June 23.

Only 29 of the 98 nations surveyed in March 2022 by the FATF had met the conditions outlined in the travel rules, and only a tiny portion of these jurisdictions had begun enforcing them.

According to Ian Andrews, the chief marketing officer of the blockchain forensics platform Chainalysis, organizing the cross-border flow of information amongst VASPs will initially be a “pretty hard problem” to handle.

Third Parties Will Need to Comply

New Crypto Travel Rule May Negatively Affect Crypto Transfers

Some crypto-based platforms have rules in which third parties have a significant role in their operations.

Jordan Wain, UK Public Policy Lead at Chainalysis, said: “At Chainalysis, we support what the extension of the Travel Rule means for addressing economic crime and creating trusted transaction flows in the UK. We look forward to seeing more countries make the necessary changes to introduce these requirements.

“Implementation, however, remains challenging as companies will need to get to grips with identifying relevant transactions, collecting relevant Travel Rule information, and creating a means to delay, reject, or block transfers that do not meet the required criteria.

“Third-party providers, therefore, will undoubtedly have a significant role to play in helping companies with compliance at each stage of the transaction flow. We join other industry voices in asking for further support, and for authorities to show the same spirit of proportionality and collaboration as shown when first considering what implementation might look like in practice.”

Doubts on the UK Travel Rule

New Crypto Travel Rule May Negatively Affect Crypto Transfers

There are some sincere doubts about whether the FATF rule will work in practice; some organizations have raised their concerns, like XBTO.

According to Aja Heise, Senior Compliance Officer at XBTO, “The FCA’s implementation of the Travel Rule in the UK, while an admirable step forward to help tackle money laundering, is another example of the increasingly complex web of different regulatory requirements institutions are being asked to follow. There are also serious questions about whether the FATF rule will work in practice between jurisdictions and be adopted globally, especially given the technology and development requirements posed to institutions to comply with the requirements.

“Better regulatory alignment and clarity is needed globally, so institutions have a consistent understanding of what is expected of them, and they have the confidence to move their digital assets investments with confidence. It’s also important to note that regulation alone, while important to get right, will not be enough to drive forward the institutional adoption of digital assets, if there are no investments in education, funding, technology infrastructure, ecosystem growth and development alongside it.”

In conclusion, the UK has put a lot of effort into creating a more regulated crypto system for the last several years. So far, several complaints have come up against the rule. This rule will only work seamlessly if the regulators empathize with these complaints.