The debate surrounding the implementation of the Financial Action Task Force’s Travel Rule within the crypto sector has highlighted several critical issues. Officially named FATF Recommendation 16, theto prevent money laundering and terrorism financing by requiring virtual asset service providers to share specific details for cryptocurrency transfers above a certain threshold.
Varying approaches to VASPs’ due diligence also pose significant challenges. While some protocols are permissionless, requiring no DD from participants, others enforce stringent checks. The difference across jurisdictions causes ambiguity for VASPs’ compliance efforts and, on a technical side, operational overhead for compliance teams as they try to keep up with multiple standards to treat cross-jurisdiction transactions.
Delphine Forma, Solidus Labs, policy Lead for Europe and UK, Crypto Compliance and Legal TG Group founder Moreover, the inconsistency in guidelines across jurisdictions, or the “sunrise issue,” adds to the complexity. Different thresholds, approaches to unhosted wallets, third-party transfers, and data sets exchanged further complicate compliance. Delphine stressed the lack of clear and practical guidelines on handling funds received without the required information or when to terminate a relationship due to missing data.
The inconsistency in shared customer data formats exacerbates compliance difficulties. Differing interpretations and formats can lead to errors and inefficiencies, making it essential for the industry to move toward standardized data-sharing practices. Zukovskis emphasized the importance of choosing the right Travel Rule provider, considering factors like interoperability, data privacy, and implementation ease to ensure seamless compliance.