New information reporting requirements for crypto transactions in the United Kingdom take effect Friday, but if other countries don’t get on board, results will be limited, international regulators say.
The UK is one of 62 jurisdictions of more than 200 under the International Financial Action Task Force (FATF) that has or is planning to update its “travel rule” to include digital assets, according to data from the FATF.
Under the new rule, known as the FATF’s Recommendation 16, virtual asset service providers and financial institutions must collect and share personal data of those involved in certain crypto transfers.
In the UK, Recommendation 16 will take effect Sept. 1, and institutions will be required to collect and report data involving UK-based persons who engage with any digital asset transfers exceeding 1,000 pounds.
Required information includes the originating party’s name, address, account number/transaction identifier, personal document number and customer identification number or the data and place and birth. Institutions must also report recipients’ name and account number.
The FATF has expressed public frustration with jurisdictions that have failed to act on implementing the Travel Rule, noting that different international standards make the programs’ goal – to combat money laundering – more difficult.
“The lack of progress in this area is a serious concern as the nature of the Travel Rule means that its effectiveness depends on consistent, global implementation and enforcement,” the FATF wrote in a June 2023 report on the current implementation status. “The FATF urges jurisdictions to make immediate progress to enact and enforce legislation implementing the Travel Rule.”
Plus, even among the countries who have agreed to comply, the policies differ, making it difficult for companies to meet requirements. In the US, the threshold for transactions is $3,000, and in Canada, institutions have to also record the names and addresses of transaction beneficiaries.
Discrepancies aside, in the UK and across the board, the general information reporting requirements will be incredibly difficult to meet, attorneys from international law firm Clifford Chance said.
“Cryptoasset Service Providers are unable to identify from the wallet address whether a counterparty to the cryptoasset transfer is an individual or another Cryptoasset Service Provider, and it is not possible to identify the location of the sender’s wallet,” a recent Clifford Chance report reads. “This challenge is compounded by the fact that the originator of the transaction (likely the Cryptoasset Service Provider’s client) may not have this information.”
The rules also do not account for unhosted wallets, which will be exempt from reporting requirements, Clifford Chance noted in its report.
“This is an interesting approach given that transfers to unhosted wallets pose a heightened risk of money laundering,” attorneys added.
