On August 20, 2020, three Swiss companies, 21 Analytics, Crypto Finance AG, and Mt. Pelerin, conducted a live demonstration of a Bitcoin transaction valued at US$23 million. The transaction between Crypto Finance and Mt. Pelerin was powered by 21 Analytics’ regtech, and ran over Swiss FATF travel rule system OpenVASP and the TRP, another institution-focused solution led by ING Bank. The transaction is reported to be the first cryptocurrency transaction in Switzerland that automated full compliance with the Swiss anti-money laundering (AML) provisions. The AML provisions adopted in Switzerland are generally modelled after standards set by the Financial Action Task Force (FATF), an independent inter-governmental body that develops global standards for anti-money laundering and counter-terrorist financing.
In June 2019, FATF adopted international standards for cryptocurrency-based services. The standards set forth that Virtual Asset Service Providers (VASPs) must monitor and record information about their customers and also share that information during a transfer with another VASP. The recording and sharing of identifying customer information during financial asset transfers, the so-called “travel-rule,” is common practice in the traditional banking system.
While FATF’s standards are non-binding and its members must enact corresponding legislation or rules to give the standards legal effect, FATF’s 36 member nations, such as the U.S., the U.K., Germany, Switzerland and Japan, include some of the largest financial systems in the world. Indeed, FINMA published guidance on August 26, 2019 about how Swiss AML regulations will be applied in the context of blockchain payment services and adopted requirements that are stricter than those set forth in the FATF standards. The FINMA Guidance references Article 10 Anti-money-laundering Ordinance FINMA (AMLO-FINMA), which requires that information about the sending party and the receiving beneficiary be transmitted by a financial intermediary executing payment orders. More specifically, this Guidance means that when a financial intermediary is effecting a token payment transaction, it must transmit the sending party’s name, account number (or, alternatively, a transaction-based reference number) as well as its address (or, alternatively, the place and date of birth, client number or national identity number) to the recipient. With respect to the recipient of the payment, the name and account number (or transaction-based reference number) must be transmitted to the payment originator. This exchange should enable the party on the receiving end of the payment transaction to review the transaction and take any appropriate action. Unlike the FATF standards, the FINMA Guidance imposes these requirements on any supervised entity regardless of whether the other party to the payment transaction is a FINMA supervised entity. Thus, in order to address these requirements, a Swiss financial intermediary that transfers cryptocurrency to or receives cryptocurrency from a non-regulated entity will need to have the information exchange in place as required by Art 10 AMLO-FINMA.
In practice, FINMA supervised entities conducting cryptocurrency transactions have complied with the travel rule manually. This live demonstration, however, shows that the AML information exchange can be conducted in an automated manner. According to Lucas Betschart, CEO and founder of 21 Analytics, “[t]he transfer was fully automated using TRP [Travel Rule Protocol], instead of manually creating PDFs and sending that for each transaction, which happened to be the case for FINMA-regulated Swiss VASPs so far”.