New UK Anti-Money Laundering Rules for Cryptocurrency Now in Effect: Industry Raises Concerns Over Compliance Complexity and Global Alignment

Starting from today, the UK is enforcing new anti-money laundering rules for cryptocurrency, following guidelines from the Financial Action Task Force (FATF).

These rules could require UK-based cryptocurrency businesses to withhold certain crypto transfers. When a virtual asset service provider (VASP) in the UK receives an inbound payment from a country that hasn’t implemented the new rules, they must conduct a risk-based assessment before making the assets available to the recipient. This requirement also applies when a UK-based account holder is sending a transfer outside the UK.

In August, the Financial Conduct Authority (FCA) outlined its expectations for UK firms to comply with these rules and what it “reasonably expects” from them ahead of other countries. The FCA’s expectations include:

• Taking all reasonable steps and exercising due diligence to adhere to the Travel Rule.
• Maintaining responsibility for compliance with the Travel Rule, even when using third-party suppliers.
• Full compliance with the Travel Rule when sending or receiving a cryptoasset transfer to a firm in the UK or any jurisdiction that has implemented the Travel Rule.
• Regularly reviewing the implementation status of the Travel Rule in other jurisdictions and adjusting business processes accordingly.

Regarding transfers to jurisdictions without the Travel Rule, firms should take reasonable steps to determine if the recipient firm can provide the necessary information. If not, UK cryptoasset businesses must still collect and verify the required information as mandated by the Money Laundering Regulations and store it before making the cryptoasset transfer.

Similarly, when receiving a cryptoasset transfer from a jurisdiction without the Travel Rule, UK cryptoasset businesses must consider the countries in which the recipient firm operates and the status of the Travel Rule in those countries when assessing whether to make the cryptoassets available to the beneficiary.

While the crypto industry generally supports greater supervision, many are concerned about the complexity of the Travel Rule, lack of global harmonization, and insufficient progress in implementing it in various jurisdictions.

As of June 2023, FATF reported that only 75% of jurisdictions were partially or not compliant with its requirements, with more than half of the 151 responding jurisdictions having taken no steps toward implementing the Travel Rule. FATF expressed concerns about the increasing risks posed by virtual assets and service providers and the potential loopholes for criminals due to the lack of regulation.