In 2022, the United Kingdom took significant steps to align with global regulatory standards for cryptocurrency usage by enacting legislation to comply with the extended Travel Rule. As of September 1, 2022, crypto businesses operating within the UK are required to adhere to the Financial Action Task Force’s (FATF) Anti-Money Laundering and Counter-Terrorist Financing regulations, collectively known as the Travel Rule.
The core principle of the Travel Rule mandates that virtual asset service providers (VASPs) share important customer information during transactions to identify potential illicit financial activities within the cryptocurrency realm. This regulation became effective in the UK in July 2022, requiring all UK-based crypto businesses to integrate Travel Rule requirements into their operations by September 1, 2022. This applies to transactions within the UK and with jurisdictions that have already embraced the regulation, including third-party vendors.
For transactions involving VASPs in non-compliant jurisdictions, UK crypto enterprises must ensure recipients can receive the required information and collect and retain the necessary data. When receiving transactions, UK-based crypto companies are advised to exercise caution.
The Travel Rule was originally introduced by the FATF in 2012 for traditional financial institutions and expanded to include VASPs in 2019. However, global implementation has been limited, with only 11 out of 98 surveyed countries effectively enforcing the rule by 2022.
The UK’s crypto sector is also grappling with increasing regulatory obligations. New marketing standards by the Financial Conduct Authority (FCA) are set to take effect in October, adding to the compliance burden on crypto businesses. The FCA’s comprehensive consultation paper released in February reflects heightened scrutiny on the entire cryptocurrency landscape.
In the United States, regulatory action was taken against Farmington State Bank by the Federal Reserve Board and the Washington State Department of Financial Institutions due to its unapproved deviation from its business plan. This intervention demonstrates regulatory vigilance in the crypto space.
Despite regulatory pressures, the cryptocurrency industry continues to evolve, with developments like the bankruptcy declaration of the cryptocurrency exchange FTX in November 2022 and Farmington State Bank’s involvement in stablecoin issuance for a third party despite its stated exit from the crypto realm.
By FCCT Editorial Team
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