Author: Casey Wagner, Blockworks; Translation: Song Xue, LianGuai
International regulators have stated that the new information reporting requirements for cryptocurrency trading in the UK will come into effect on Friday, but the impact will be limited if other countries do not join.
According to data from the Financial Action Task Force (FATF), the UK is one of the 62 jurisdictions out of more than 200 jurisdictions in the FATF that have already updated or are planning to update their “travel rule” to include digital assets.
According to the new rule known as FATF Recommendation 16, virtual asset service providers and financial institutions must collect and share personal data of individuals involved in certain cryptocurrency transfers.
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In the UK, FATF Recommendation 16 will come into effect on September 1st, and institutions will be required to collect and report data of UK individuals involved in digital asset transfers exceeding £1,000.
This includes the name, address, account/transaction identifier, personal identification number, and customer identification number or data, location, and birth information of the originator. Institutions must also report the name and account of the recipient.
FATF has expressed disappointment with jurisdictions that have not taken action to enforce the travel rule, noting that different international standards have made it more difficult to achieve the goal of combating money laundering.
In its report on the current implementation status in June 2023, FATF wrote, “The lack of progress in this area is a serious problem, as the nature of the travel rule means its effectiveness depends on consistent global implementation and enforcement.” “FATF urges jurisdictions to make immediate progress in enacting and implementing legislation to implement the travel rule.”
In addition, even within countries that agree to comply, policies vary, making it difficult for companies to meet the requirements. In the US, the transaction threshold is $3,000, and in Canada, institutions must also record the name and address of the transaction beneficiary.
Lawyers from international law firm Clifford Chance stated that aside from the differences, it will be very difficult to meet the general information reporting requirements throughout the UK.
“Cryptocurrency service providers cannot identify whether the counterparty of a cryptocurrency transfer from a wallet address is an individual or another cryptocurrency service provider, and they cannot identify the location of the sender’s wallet,” the law firm’s recent report stated. “The transaction initiator (who may be a client of a cryptocurrency service provider) may not have this information, which further complicates this challenge.”
The law firm pointed out in the report that these rules also do not take into account non-custodial wallets, which are not subject to reporting requirements.
The lawyer added, “Considering that transferring to non-custodial wallets increases the risk of money laundering, this is an interesting approach.”