The “travel rule” for money transfers has been part of the United States law book for a long time. In short, it means that banks must have detailed customer information about both parties in transactions in excess of $3,000 – this is to counter money laundering and other financial crime.
When the US chaired the Financial Action Task Force (FATF) a couple of years ago, it pushed through that the travel rule would also apply internationally.
This is how the travel rule affects the crypto space
Here comes the interesting part for anyone who cares about cryptocurrencies. Since June this year, the travel rule also applies to companies that enable transfers with – and storage of – digital assets such as bitcoin and other cryptocurrencies.
At the international level, the rules are only indicative. But given that countries that do not follow the FATF’s rules risk ending up on the organization’s blacklist, it is likely that a lot of countries will follow the regulations and implement the travel rule in the law book.
Malcolm Campbell-Verduyn, associate professor of international relations at the University of Groningen in the Netherlands who has researched the new rule and its potential consequences for the crypto space, believes that most countries will follow the rules.
“Countries that do not comply with the regulations risk sanctions against them. Of course, countries in the Caribbean and, for example, Switzerland could try to resist. But there are ways to get micronations to join in”, he tells Trijo News and exemplifies how the EU has previously used sanctions against countries in Africa and the Caribbean that have been pointed out as risk zones for money laundering.
A separation of the industry
For crypto exchanges, for example, the rules mean that you must have information about your own customers – but also the people with whom the customers make crypto transfers. This, according to Malcolm Campbell-Verduyn, can have far-reaching consequences for the industry.
“What I see is a division, where some crypto companies will follow the official rules and others will move further into the dark corners of the internet. This has always been the case in the crypto industry, but now the distinction between those who follow the rules and those who move in the grey area will become more obvious”.
This is how users are affected
At present, most crypto exchanges and other companies that work with storage and transfer of cryptocurrencies have a so-called know your customer process (KYC). This means that users must provide information such as name and date of birth when transferring money via their crypto exchange.
The new rules mean that the crypto exchanges will have to share this information with other crypto exchanges as well. Malcolm Campbell-Verduyn also believes that the rule could mean that government agencies around the world have greater access to people’s data.
“The rules do not really say anything about sharing data with, for example, the police or intelligence organizations. But once the technology is in place and, for example, the FBI knocks on the door, which crypto exchanges will say no then? Your own cryptocurrency exchange may refuse to share your customer information – but that other cryptocurrency exchange that you sent money to this week, will they also refuse?”
The race to develop a new standard
Technology is another component that is important to address when it comes to the travel rule. Right now, there is no standard for how the sharing of information is supposed to work – but several companies are competing to develop the solution that will help the world’s crypto companies to easily follow the rules.
“There will be fierce competition between the different companies. Everyone wants to develop the solution that becomes the standard. Right now, there are three or four consortia of companies working on this. Some of these have solutions that are centralized, others try to create a more decentralized system to maintain the users’ anonymity”, Malcolm Campbell-Verduyn explains.
Another blow to anonymity
So how will the new rule change things for all the people around the world who trade in cryptocurrencies?
According to the Dutch researcher, it will be another blow to the anonymity of crypto users.
“These rules will probably have consequences for users. Already today, there are ways for authorities to find out who sent cryptocurrencies to whom. But this will make it easier. The whole appeal of cryptocurrencies used to be anonymity. It’s not like that anymore. It is another blow to the whole notion that it is still possible to trade cryptocurrencies and be completely anonymous”, Malcolm Campbell-Verduyn says.
