The US Travel Rule Working Group (USTRWG), a consortium of 25 companies that deal with virtual assets, had published a white paper proposing how the members must comply with the Travel Rule, that layout more stringent anti-money laundering (AML) and combat the financing of terrorism rules.
However, the US-centric working group that was comprised of US virtual asset service providers (VASPs) such as Gemini and Coinbase, may hit roadblocks that work with crypto companies from the other jurisdictions, and also must comply with the Travel Rule. And then may throw roadblocks of their companies outside of the “closed network” solution that doesn’t meet their requirements.
The Travel Rule requires financial institutions to share some information with other financial institutions when money is transmitted to law enforcement can track money laundering and other financial crimes.
Particularly, the transfers of at least $3,000 require the originator’s name, account number, address, financial institution, and also the date and amount sent. The recipient’s name, address, accounts, and financial institution name are also required.
In June, the FATF has confirmed that the virtual asset service providers (VASPs) have to comply with AML and CFT rules. And then placed the onus on member countries for the enforcement, but it was looking for industry-wide progress in June 2020.
The former executive director of Global Digital Finance, Teana Baker-Taylor stated that the onboarding process had yet to be formalized but then believes that it will be done in a way that doesn’t shut out the legitimate new entrants. “Ensuring access which enables fair competition and mitigates collision risk will be paramount,” she said.
According to Baker-Taylor, the bigger obstacle seems to be combining the goals of the US industry leader with the non-US VASPs, these are also beholden to the Travel Rule but then lie with different governmental jurisdictions.
“Whilst establishing a pilot solution to ensure effectiveness makes a lot of sense,” she stated, “given the global nature of digital asset exchange, and the global VASP compliance requirement of [the Travel Rule], excluding non-U.S. entities, may create some interoperability asymmetry across VASP compliance globally.”
It is also John Jefferies’ concern. As the chief financial analyst of CipherTrace, a cryptocurrency security company has focused on locating the illegal transactions, he is also well aware of the US crypto industry’s efforts to comply. CipherTrace has released an open-source fix to the Travel Rule in September 2019.
“The USTRWG’s proposed bulletin board approach does not scale globally and lacks a security and privacy model,” he stated. “It is a good way to show regulators, in this case, FinCEN, that VASPs are taking the Travel Rule requirements seriously. But it is not a scalable global solution.”
Jefferies had recommended that the USTRWG members shall parlay the work that they have done here to further progress the Travel Rule Information Sharing Alliance (TRISA), a global group that he co-chairs and counts some USTRWG companies as their members.
“The USTRWG effort is US-centric, typifying the regional solutions that have emerged to address specific jurisdictional pressures,” he noted. “TRISA is a global interoperable alliance and software effort that unifies these local attempts.”
Baker-Taylor had some ideas for getting the virtual asset companies transversely diverse jurisdictions to working together.
“Within the network, members will have access to a VASP ‘lookup mechanism’ to find counterparty VASP information,” she said. Supposing that information is partial to the USTRWG members in Phase 1, she said, “The feature could be bolstered with global VASP information by incorporating additional third-party data sources, such as VASPnet, which is also in the pilot.” It would tap the group into the registration data from 1,800 VASPs straddling 22 regulators.
Another way, she stated, “It’s encouraging to see the industry continue to collaborate to solve these global regulatory challenges.”
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