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What has happened?

On 20 July 2021, the European Commission published a proposed cryptoasset compliance regulation on the transfer of funds and certain cryptoassets. This will implement in European law the Financial Action Task Force recommendation that the transfer of cryptoassets is accompanied by information on the originator and on the beneficiary of each transfer (the so-called “travel rule”).

A similar initiative is also underway in the UK as shortly following the publication of the Commission’s proposal, on 22 July 2021, HM Treasury launched a public consultation on amendments to The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 Statutory Instrument 2022.

Cryptoasset Compliance – What do you need to do?

The proposed UK regulations will apply to cryptoasset exchange providers and custodian wallet providers as defined in The Money Laundering and Terrorist Financing (Amendment) Regulations 2019 that are carrying on business in the UK. The relevant amendments are intended to be consistent with the corresponding requirements for the banking sector, as set out in the Funds Transfer Regulations (FTR). As such, HM Treasury is considering replicating – to the extent feasible – the relevant FTR’s requirements for the cryptoassets sector. HM Treasury is also considering the introduction of a grace period after the relevant changes are adopted in order to allow in scope firms to develop and adopt their cryptoasset compliance arrangements. It is seeking stakeholders’ views on the prospective length of such a grace period.

Cryptoasset firms will need to provide information, in an appropriate format, on the originator and beneficiary of a cryptoasset transfer and ensure that such information is transmitted and received alongside the transfer. The Government proposes to vary the relevant information on the originator or beneficiary, depending on whether the transfer is above or below a set de minimis threshold, and whether all cryptoasset service providers involved in the transaction are UK-based. To this end, HM Treasury is seeking stakeholders’ views on whether GBP 1,000 is the appropriate amount and denomination for the de minimis threshold, and whether transfers from the same originator to the same beneficiary that appear to be linked and are made from the same cryptoasset service provider should be included in the de minimis threshold.

Cryptoasset service providers will be required to have effective procedures in place for the purposes of validating the required beneficiary and originator information and detecting any missing information. The receiving cryptoasset service provider will be required to retain the beneficiary and originator information for a period of five years and must be prepared to make this information fully available without delay to UK regulatory authorities or the police if required. Finally, in respect of transfers from unhosted wallets, HM Treasury is considering putting an obligation on a beneficiary’s cryptoasset service providers to obtain the required originator information.

In the UK, the implementation of the travel rule is currently in its very early stages, with the public consultation open until 14 October 2021. It is unclear when the relevant regulations will be published for adoption.

How can we help you?

If you’d like to know more about how we can help you with your cryptoasset transfer arrangements, cryptoasset compliance or with any other regulatory compliance issues, our expert team is here to help.

Contact us today on 0207 436 0630 – or email info@thistleinitiatives.co.uk.