"Important update for UK cryptoasset businesses: The FCA has released guidelines for complying with the Travel Rule. It is crucial for all industry players to adhere to these expectations to ensure a safe and transparent ecosystem."

Starting from 1 September 2023, cryptoasset businesses in the UK will be required to collect, verify, and share information about cryptoasset transfers, known as the 'Travel Rule.' This move is in line with the Financial Action Task Force's (FATF) call for other jurisdictions to swiftly implement the Travel Rule, which aligns practices for cryptoasset businesses sending and receiving transactions with those common in other areas of financial services.

The Travel Rule mandates that cryptoasset businesses collect and share certain information about their customers and transactions. The goal is to prevent money laundering and terrorist financing by making it more difficult for criminals to move illicit funds through the financial system. The rule requires cryptoasset businesses to share information such as the name and address of the sender and receiver, as well as the amount and nature of the transaction.

The FATF has highlighted the challenges arising from delays in adoption and different timelines for enforcement of the Travel Rule across jurisdictions. As a result, the UK has worked closely with industry to provide guidance on how to comply and what is expected of firms ahead of other countries following the UK's position.

The expectations for firms include taking all reasonable steps and exercising due diligence to comply with the Travel Rule. Firms remain responsible for achieving compliance with the Travel Rule, even when using third-party suppliers. They must fully comply with the Travel Rule when sending or receiving a cryptoasset transfer to a firm that is in the UK, or any jurisdiction that has implemented the Travel Rule. Firms must also regularly review the implementation status of the Travel Rule in other jurisdictions and adapt business processes as appropriate.

When sending a cryptoasset transfer to a jurisdiction without the Travel Rule, firms must take all reasonable steps to establish whether the firm can receive the required information. If the firm cannot receive the necessary information, the UK cryptoasset business must still collect and verify the information as required by the Money Laundering Regulations (MLRs) and should store that information before making the cryptoasset transfer.

When receiving a cryptoasset transfer from a jurisdiction without the Travel Rule, if the cryptoasset transfer has missing or incomplete information, UK cryptoasset businesses must consider the countries in which the firm operates and the status of the Travel Rule in those countries. The UK cryptoasset business should take these factors into account when making a risk-based assessment of whether to make the cryptoassets available to the beneficiary.

To further support cryptoasset businesses, industry, the Joint Money Laundering Steering Group (JMLSG), and HM Treasury (HMT) have been working on guidance to help firms comply with the Travel Rule. Firms have until 25 August 2023 to input into this guidance.

In conclusion, this move by the UK to implement the Travel Rule is a significant step towards strengthening anti-money laundering and counter-terrorist financing measures in the cryptoasset industry.

It is crucial that all cryptoasset businesses comply with these regulations to ensure that illicit funds do not enter into legitimate financial systems. The UK will continue to review its expectations regularly as global adoption of the Travel Rule develops and will communicate any changes accordingly.

The Financial Action Task Force (FATF) has called on other jurisdictions to swiftly implement the Travel Rule

#Cryptocurrency #Regulation #Compliance

The Importance of the Travel Rule in the Cryptoasset Sector

In recent years, the use of cryptoassets has become increasingly popular, but with this growth comes the risk of illicit activity. To combat this, the Travel Rule has been introduced, designed to bring greater transparency to cryptoasset transfers and make it harder for criminals to use cryptoassets for illegal purposes.

The Travel Rule is a vital component in advancing anti-money laundering (AML) and counter-terrorist financing (CTF) efforts worldwide. By helping cryptoasset businesses detect suspicious transactions and carry out effective sanctions screening, the Travel Rule can play a significant role in preventing illicit activities.

The implementation timeline for the Travel Rule follows the publication of amendments to the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 by HMT in July 2022. Specifically, part 7A of these regulations highlights the requirements for businesses to comply with the Travel Rule.

As part of our commitment to consumer protection and competitiveness, the Travel Rule is just one way we are raising standards in the cryptoasset sector. Stronger standards, such as those brought in by the Travel Rule and the financial promotions regime for cryptoassets in October 2023, allow us to better protect people, maintain the integrity of our markets, and support the sustained competitiveness of the cryptoasset sector in the UK.

The Travel Rule is not just important for preventing illicit activities; it also has wider implications for the cryptoasset sector. By increasing transparency and accountability, the Travel Rule can help to build trust between businesses and their customers. This trust can be essential for attracting new customers and investors, as well as maintaining existing relationships.

Furthermore, by implementing the Travel Rule, businesses can demonstrate their commitment to ethical practices and regulatory compliance. This can be important for building a positive reputation within the industry and wider community.

In conclusion, the Travel Rule is a crucial component in advancing AML and CTF efforts globally. By increasing transparency and accountability within the cryptoasset sector, it can play a significant role in preventing illicit activities, building trust between businesses and customers, and promoting ethical practices and regulatory compliance. As such, it is essential that businesses operating within the cryptoasset sector comply with the requirements of the Travel Rule to ensure a safe and secure environment for all stakeholders.

The Securities and Exchange Commission (SEC) has charged Payward Inc. and Payward Ventures Inc., collectively known as Kraken, with operating their cryptocurrency trading platform as an unregistered securities exchange, broker, dealer, and clearing agency.
The SEC alleges that Kraken has made hundreds of millions of dollars unlawfully facilitating the buying and selling of crypto asset securities since at least September 2018.

Kraken is accused of intertwining the traditional services of an exchange, broker, dealer, and clearing agency without having registered any of those functions with the Commission as required by law.
This alleged failure to register these functions has deprived investors of significant protections, including inspection by the SEC, record keeping requirements, and safeguards against conflicts of interest, among others.

Through its platform’s services, Kraken allegedly provides a marketplace that brings together the orders for securities of multiple buyers and sellers using established, non-discretionary methods under which such orders interact, and thus operates as an exchange.
The company is also accused of engaging in the business of effecting securities transactions for the accounts of Kraken customers, and thus operates as a broker.
Kraken is further accused of engaging in the business of buying and selling securities for its own account without an applicable exception, and thus operates as a dealer.

Finally, the company is accused of serving as an intermediary in settling transactions in crypto asset securities by Kraken customers, and acts as a securities depository, and thus operates as a clearing agency.

The SEC’s complaint also alleges that Kraken’s business practices, deficient internal controls, and poor record keeping practices present a range of risks for its customers.
As alleged in the complaint, Kraken commingles its customers’ money with its own, including paying operational expenses directly from accounts that hold customer cash.

Kraken also allegedly commingles its customers’ crypto assets with its own, creating what its own auditor had identified as “a significant risk of loss” to its customers.

“We allege that Kraken made a business decision to reap hundreds of millions of dollars from investors rather than coming into compliance with the securities laws.
That decision resulted in a business model rife with conflicts of interest that placed investors’ funds at risk,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement.

“Kraken’s choice of unlawful profits over investor protection is one we see far too often in this space, and today we’re both holding Kraken accountable for its misconduct and sending a message to others to come into compliance.”
The SEC’s complaint, filed in federal district court in San Francisco, alleges that Kraken violated the registration provisions of the Securities Exchange Act of 1934 and seeks injunctive relief, conduct-based injunctions, disgorgement of ill-gotten gains plus interest, and penalties.

In February of this year, Kraken agreed to cease offering or selling securities through crypto asset staking services or staking programs and pay a civil penalty of $30 million.

The SEC’s investigation was conducted by Elizabeth Goody and Jennie B. Krasner of the Division of Enforcement’s Crypto Assets and Cyber Unit and Peter Moores of the Boston Regional Office with the assistance of Sachin Verma and Pasha Salimi.

It was supervised by Paul Kim, Jorge Tenreiro, and David Hirsch of the Crypto Assets and Cyber Unit. The SEC’s litigation will be led by Alec Johnson, Daniel Blau, and Mr. Moores under the supervision of Douglas Miller, Olivia Choe, and Mr. Tenreiro.

This case highlights the importance of complying with securities laws and regulations. Investors must be protected against fraudulent activities that can result in significant losses.

It is essential for companies to register with relevant authorities and implement adequate internal controls to safeguard investors' funds. The SEC will continue to monitor this space closely and take action against those who violate securities laws.

#SEC #Kraken #Compliance