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Understanding the FATF Travel Rule: What You Need to Know

The FATF Travel Rule, also known as Recommendation 16, was released by the Financial Action Task Force (FATF), an organization that leads global action to tackle money laundering, terrorist and proliferation financing. The rule requires financial institutions and cryptocurrency companies, known as Virtual Asset Service Providers (VASPs), to collect personal data on participants exceeding 1,000.00 USD/EUR (or local currency equivalent) in transaction value. It also recommends countries to ensure that VASPs share information of the originator and the beneficiary to their counterparties.

While VASP-to-VASP transfers are currently the only transfers covered by the FATF recommendation, VASPs, which includes, crypto exchanges, digital wallet providers, and those who participate in the provision of financial services relating to an issuer’s offer or sale of virtual assets. Decentralized Exchanges (DEX) and Decentralized Finance (DeFi) platforms are also considered VASPs according to FATF, but may not be categorized as such on a domestic level.

The FATF Travel Rule implementation is essential in identifying and preventing payments to sanctioned individuals, entities, countries, and wallet addresses, blocking terrorist financing, detecting suspicious users, preventing money laundering, and avoiding fraud.

The recent update on the Travel Rule implementation was discussed in the FATF plenary meeting that happened from 14 to 17 June 2022. The EU has also made public the proposal for the Transfer of Funds Regulation (TFR), which aims to become the legislative package that will require Crypto Asset Service Providers (CASPs) to support each transfer of funds with the originators’ and beneficiaries’ information.

VASPs and CASPs are struggling to understand how to fully comply with the FATF Travel Rule even with the help of available blockchain analytic tools as of now.

At VAF Compliance, we analyse and assess the exact impact of the travel rule for your organization in order to implement the correct processes to comply with the travel rule.

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