Soon, in addition to MiCA, a new Regulation on the so-called “Travel Rule” will come into force in Poland. What are the new obligations for crypto players in Poland? I will try to answer this question with this article – have a look!
Introduction
The European Union is advancing its regulatory framework for the crypto market with the implementation of the new “Travel Rule” Regulation. This Regulation is part of a broader legislative effort to enhance the security and transparency of crypto-asset transfers, a significant move from the previously limited scope under EU Regulation No. 2015/849. The updated Travel Rule now extends its obligations to all participants involved in transferring crypto funds, aiming to prevent, detect, and investigate money laundering and terrorist financing.
Understanding the Travel Rule
What is the Travel Rule?
The Travel Rule is a regulatory requirement mandating that information on the originators and beneficiaries of crypto-asset transfers accompany these transactions. This rule is designed to ensure traceability and accountability, crucial for combating financial crimes such as money laundering and terrorist financing.
Historical Context
Initially, the Travel Rule was covered by EU Regulation No. 2015/849, which applied to institutions involved in traditional fund transfers, including e-money. However, with the rise of cryptocurrencies and their potential misuse, the need to extend these regulations to the crypto market became evident.
Scope of the New Regulation
The new Travel Rule regulation now applies to Crypto-Asset Service Providers (CASPs) involved in any transfer where at least one of the CASPs is established or has its registered office within the EU.
Key Components of the Travel Rule
Information Requirements for Originators and Beneficiaries
Originator Information
The CASP of the originator must ensure that each crypto-asset transfer is accompanied by the following information:
- Name of the originator
- Distributed Ledger Technology (DLT) address, if used
- Account number
- Address (including country)
- Identification number, customer ID number, or the originator’s date and place of birth
- Legal Entity Identifier (LEI) number or equivalent
Beneficiary Information
For the beneficiary, the CASP must collect and include:
- Name of the beneficiary
- DLT address, if used
- Account number
- LEI number or equivalent
Implementation and Compliance
Procedures for Ensuring Compliance
Submission of Information
The information must be submitted in advance of, simultaneously with, or concurrently with the crypto-asset transfer. This ensures that the transaction can be traced and monitored effectively.
Transfers to Self-Hosted Addresses
In cases where crypto-assets are transferred to self-hosted addresses, the CASP of the originator must obtain and hold the necessary information. They must also ensure that the transfer can be individually identified.
Monitoring and Detection by Beneficiary CASP
The CASP of the beneficiary must implement effective procedures to detect if the information on the originator and beneficiary is complete. This includes monitoring transfers to identify any missing or incomplete data.
Risk-Based Procedures
Beneficiary CASPs must establish risk-based procedures to determine the appropriate action if required information is lacking. Actions may include rejecting, returning, or suspending the transfer of crypto-assets. If information is missing, the CASP must act without undue delay to rectify the situation.
European Banking Authority (EBA) Guidelines
New EBA Guidelines on the Travel Rule
On July 4, 2024, the European Banking Authority (EBA) issued new guidelines to clarify the Travel Rule requirements. These guidelines specify the necessary information that must accompany transfers and outline steps for Payment Service Providers (PSPs), Intermediary PSPs (IPSPs), CASPs, and Intermediary CASPs (ICASPs) to detect and address missing information.
Importance of the Guidelines
The EBA’s guidelines are crucial for ensuring that all parties involved in crypto-asset transfers adhere to the same standards, thereby enhancing the overall security and integrity of the crypto market.
Practical Implications
Impact on Crypto-Asset Service Providers
Compliance Challenges
CASPs must invest in robust systems and processes to comply with the new Travel Rule requirements. This may involve significant operational adjustments and technological upgrades to ensure accurate data collection and reporting.
Benefits of Compliance
While compliance can be challenging, adhering to the Travel Rule enhances the credibility and reliability of CASPs. It also helps mitigate risks associated with financial crimes, fostering a more secure crypto ecosystem.
Conclusion
The EU’s new Travel Rule regulation marks a significant step towards regulating the crypto market more effectively. By extending the scope to include crypto-asset transfers and mandating detailed information requirements, the EU aims to enhance the transparency and security of the crypto market. Compliance with these regulations is essential for CASPs to operate within the EU, ensuring they play their part in preventing financial crimes.
The Travel Rule aims to prevent, detect, and investigate money laundering and terrorist financing by ensuring that detailed information on originators and beneficiaries accompanies crypto-asset transfers.
The regulation applies to all Crypto-Asset Service Providers (CASPs) involved in crypto-asset transfers where at least one CASP is established or has its registered office in the EU.
Transfers must include the originator’s name, DLT address (if used), account number, address, identification numbers, and the LEI number. The beneficiary’s name, DLT address (if used), account number, and LEI number must also be included.
For transfers to self-hosted addresses, the CASP of the originator must obtain and hold the required information and ensure that the transfer can be individually identified.
CASPs must implement risk-based procedures to decide whether to execute, reject, return, or suspend transfers that lack the required information. They must act without undue delay to obtain the missing information.
The EBA guidelines provide detailed instructions on the information that must accompany transfers and outline steps for detecting and addressing missing information, ensuring uniform compliance across all CASPs.
