The FATF (Financial Action Task Force) Travel Rule is a set of guidelines that require financial institutions, including virtual asset service providers (VASPs), to collect, retain, and transmit information about the sender and recipient of virtual assets when certain transactions exceed certain thresholds.
The Travel Rule was introduced in order to combat money laundering and terrorist financing, which can be facilitated through the use of virtual assets. The goal of the Travel Rule is to increase transparency and traceability in virtual asset transactions, making it more difficult for illicit actors to use virtual assets to conduct illegal activities.
The Travel Rule requires VASPs to collect and transmit the following information:
- The name and address of the sender
- The name and address of the recipient
- The amount of the transaction
- The date and time of the transaction
VASPs are required to transmit this information to the recipient VASP or to a financial institution if the recipient is not a VASP.
The Travel Rule has been in effect since June 2019, and all FATF member countries are expected to implement it. In practice, this means that VASPs operating in these countries must comply with the Travel Rule, and financial institutions that interact with VASPs may also need to comply with the rule.
For example, let’s say Alice wants to send 10 virtual assets to Bob using VASP A. If the transaction exceeds the threshold established by the FATF, VASP A will be required to collect and transmit the information listed above to either VASP B (if Bob is using a VASP) or to a financial institution if Bob is not using a VASP. This information will be used to help identify and track the sender and recipient of the virtual assets, and to ensure that the transaction is not being used for money laundering or other illicit purposes.
A great resource to learn more about this is from these two companies:
- TRISA: A Regulator’s Guide to TRISA: Travel Rule
- Notabene: Crypto Travel Rule 101 Guide: Get Started with Compliance Today
References
- Financial Action Task Force (FATF): The FATF is an international organization that develops and promotes policies to combat money laundering and terrorist financing. You can find more information on the FATF and the Travel Rule on their website: https://www.fatf-gafi.org/
- Virtual Asset Service Providers (VASPs): The FATF has published guidance on the regulation and supervision of VASPs, which includes information on the Travel Rule. You can find this guidance here: https://www.fatf-gafi.org/publications/virtual-assets/guidance-for-a-risk-based-approach-to-virtual-assets-and-virtual-asset-service-providers/
- Virtual Asset Service Providers (VASPs) – Travel Rule: The FATF has also published a set of frequently asked questions (FAQs) on the Travel Rule and its implementation. You can find the FAQs here: https://www.fatf-gafi.org/publications/virtual-assets/faq-virtual-asset-service-providers-travel-rule/
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This page was last updated on January 7, 2023.
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