On June 1, 2019, the Financial Action Task Force (FATF) officially adopted what is known as the Travel Rule. Prior thereto, those that engaged in wire transfers of fiat currencies were already required to share a range of information about such transfers. The Travel Rule extended these anti-money laundering and counter-financing of terrorism (AML/CFT) obligations to cryptocurrency transfers valued at USD 1000 or more and applies to Virtual Asset Service Providers (VASPs) such as cryptocurrency exchanges and digital wallet providers. The Travel Rule requires the relevant financial institutions to pass on certain customer and transaction information to the next financial institution. From the outset, it was apparent that there would be difficulties in applying to the pseudonymous world of cryptocurrency a set of regulations that had initially been enacted for traditional finance.
On June 25, 2021, the FATF published a paper reporting the outcome of its June plenary meeting, which included the second 12-month review of the 2019 adoption of the Travel Rule. The paper makes clear that most countries have not implemented the Travel Rule:
The report finds that many jurisdictions have continued to make progress in implementing these revisions, finalised in 2019. So far, 58 out of 128 reporting jurisdictions advised that they have now implemented the revised FATF Standards, with 52 of these regulating VASPs and six of these prohibiting the operation of VASPs. The private sector have made progress in developing technological solutions to enable the implementation of the ‘travel rule’. However, the majority of jurisdictions have not yet implemented the FATFs requirements, including the “travel rule”. This disincentivises further investment in the necessary technology solutions and compliance infrastructure. These gaps in implementation also mean that we do not yet have global safeguards to prevent the misuse of VASPs for money laundering or terrorist financing. The lack of regulation or implementation of regulation in jurisdictions can enable continued misuse of virtual assets through jurisdictional arbitrage. The report highlights the need for all jurisdictions to implement the revised FATF Standards, as quickly as possible.
The FATF guidance is, however, being revised and is expected to be finalized in October 2021.