In June 2019, the Financial Action Task Force (FATF) extended the so-called “Travel Rule” to Virtual Asset Service Providers (VASPs). The Travel Rule requires VASPs to share information with one another and it has applied to financial institutions like banks for over twenty years. You may have heard of the SWIFT system, for example, which was introduced to address the banks’ information sharing requirements.
The question you’re undoubtedly asking now is: Is this something I should worry about? No, not at all. But is it something you should know about? Sure, it’s interesting. It will also involve adding just a couple of extra details when sending crypto.
What are VASPs?
Luno and other businesses which offer exchange facilities and allow customers to send and receive crypto are considered VASPs. VASPs also include any businesses which provide crypto custody services, and those which offer financial services related to the issuing and sale of any coins.
Who is the FATF?
The FATF is an inter-governmental body made up of member countries and regions mandated to establish international standards for combating money laundering and terrorist financing. Member countries and regions are, in turn, required to implement those standards through their local laws.
What is the Travel Rule?
The Travel Rule requires VASPs to communicate with one another when a customer wants to transfer crypto between them. Similar to the obligations imposed on banks, the VASP responsible for the crypto send is required to transmit certain customer and transaction information to the VASP receiving the crypto. This exchange of information is aimed at mitigating against the risk of crypto being used for money laundering or terrorist financing by ensuring that VASPs know where their customers are sending crypto to and receiving crypto from.
How does it work in Singapore?
Singapore is the first country in which Luno operates to implement the Travel Rule. VASPs in the country seeking to license under the Payment Services Act 2019 (the PSA) must now comply with the requirements – referred to as the “value transfer” requirements. Other countries to have implemented the requirements include the USA, Japan, South Korea and Switzerland. Luno expects more countries to follow as they get ready for the FATF’s next 12 month-review, which is due to take place in June 2021.
Luno’s view on the Travel Rule
While there are a number of challenges associated with the Travel Rule, its objective of mitigating the risk of money laundering and terrorist financing using crypto is the right one.
The Travel Rule requires VASPs to ensure that they are properly identifying their customers and applying strong know your customer (KYC) policies and practices. Luno has always adopted strong KYC policies and practices, and is well prepared for this. We believe that by requiring these standards across the board, it will lead to higher customer confidence in VASPs and promote trust in the crypto industry as a whole.
Sending crypto to a wallet address without any further information can also be pretty scary for customers. If the sender needs to include the details of the recipient when sending crypto, it feels a bit more familiar and by introducing additional checks around those transactions, the risk of sending crypto to an incorrect wallet address is reduced.
Finally, it should help provide regulatory clarity and general trust in crypto transactions, ensuring broader and faster adoption. The decision to extend the Travel Rule to VASPs signifies an acknowledgement by the FATF, central banks, and other regulators that the crypto industry has earned its place in today’s financial system. It also presents an opportunity to continue shaping that financial system going forward. At Luno, where our vision is to upgrade the world to a better financial system, we’re confident that we’re on the right path to achieve this.
What this means for you
To comply with the Travel Rule requirements introduced in Singapore, Luno will soon ask its customers in Singapore to provide the name of the person or entity they are sending crypto to, and the name of that person or entity’s VASP. Once we have this information, Luno will securely send payment instructions to the VASP you are sending to. These instructions will include the details you have provided about the recipient, as well as your name and - where the transaction is more than SDG1,500 - your address or identity number.
To meet our Travel Rule obligations in Singapore, Luno is working alongside Notabene. Notabene has developed a privacy-preserving compliance platform to help VASPs interact with one another securely and to comply with the Travel Rule. This will ensure that your Luno experience is as smooth as ever, your data is stored securely and that everything runs seamlessly in the background.
Luno continues to monitor the adoption of the Travel Rule in the other countries in which it operates and will keep all customers informed of any changes that may affect their Luno journey.