Travel Rule is not a new term when it comes to the financing industry. It was first introduced by FinCEN in the US which applied regulation to financial institutions. It requires the financial institution to pass on certain information while doing the wire transfers. The compliance got updated by the FATF(Financial Action Task Force) on wire transfers through Recommendation 16 in 2012. And Recommendation 16 evolved to include virtual assets and virtual asset service providers by 2019. And this is where the crypto industry needs to comply with the regulation on checking the ‘travel’ of virtual assets globally.
Financial Action Task Force is an inter-governmental body established in 1989 at the G7 summit. The objective of the FATF foundation is to set international standards for fighting money laundering and terrorist financing. For the purpose of contributing to safety and security, the FATF Recommendations act as a global standard for anti-money laundering(AML) and counter-terrorist financing(CTF). And by 2018, the FATF adopted changes that now cover financial transactions involving virtual assets.
Under Recommendation 16, FATF requires VASPs(Virtual Asset Service Providers) to communicate the information of the originators and beneficiaries of crypto transactions that exceed a certain threshold. The announced threshold is USD/EUR 1,000, therefore, any virtual assets wire transfer that exceeds USD/EUR 1,000 must provide the following information from the originator to the beneficiary, and vice versa.
- The name of the originator
- The originator account number – the wallet address
- One of the following: 1) The originator’s address, 2) national identity number, 3) customer identification number, 4) date and place of birth
- The name of the beneficiary
- The beneficiary account number – the wallet address
The VASPs are required to exchange information between the originator and the beneficiary whenever the virtual asset transaction exceeds $1,000. FATF’s member states can choose what to add more for any further guidelines that best suit their local crypto industries.
The Travel Rule application in the crypto industry is crucial as it blocks terrorist financing and money laundering. The Travel Rule is the first crypto regulation implemented globally, and therefore opens the possibility of further uniform crypto regulation. The number of crypto assets involved in money laundering is $8.6bn of cryptocurrency in 2021, up by 30% from the previous year, a report by blockchain data company Chainalysis says. It is clear how important it is to apply guidance regarding crypto assets globally.
Despite the importance and guidance of the FATF, the Travel Rule has a few challenges. First, there is a ‘Sunrise Problem.’ It is about the nonuniformity of the crypto travel rules applied by various countries. Different regions have different interpretations of the Recommendation 16 guidance for their crypto industry. So each VASP has its own requirements, forming nonuniformity. Open communication sources for VASPs to easily receive and send personal identifiable information would be needed. Another challenge is concerned with data privacy compliance risks. The actions do need to align with the data privacy laws of the jurisdictions in which they operate.
According to the ‘Targeted Update on Implementation of the FATF Standards on Virtual Assets and Virtual Asset Service Providers’ published by FATF in June 2022, the current Travel Rule requires only virtual asset travel within the VASPs. Transactions to unhosted wallets and non-custodial wallets, so-called peer-to-peer transactions are not explicitly covered by AML/FT rules. FATF does recommend collecting such Travel Rule data for virtual asset transfer between VASPs and non-hosted wallets. FATF’s Guidance states that VASP should collect the required information on unhosted wallets.
This is where ARGOS ID, the digital ID for Web 3, becomes the world’s FIRST Travel Rule solution for unhosted wallets. The ID formed through ARGOS ID is self-sovereign, supporting three non-custodial crypto wallets, MetaMask, Phantom, and WalletConnect(more will be added soon) with five different blockchain networks.
The blockchain network includes ETH, SOL, BSC, MATIC, and KLAY. For VASPs that need to operate a system that supports verifying an individual’s unhosted wallet, ARGOS ID is the one for the specific needs.
Be compliant with the FATF’s Updated Guidance on VASPs interacting with unhosted wallets by adopting ARGOS ID to your Travel Rule solution.