According to a worldwide anti-money laundering watchdog, the majority of nations lack "travel rule" laws that may aid in preventing the unauthorised use of cryptocurrencies by criminals and terrorists.
The legislation requires businesses and service providers to submit information about the senders and receivers of cryptocurrency transactions. Only a small sample of the governments questioned by the Financial Action Task Force (FATF) reported passing such rules, and only approximately 30% of those jurisdictions had begun enforcing the regulations.
The State of Travel Rule Compliance Among Member Nations
In a report released on June 30th, FATF stated that more countries need to grasp the risks of money laundering and terrorist financing present in the cryptocurrency industry. One way to reduce these risks is to enact travel rules. Only 29 of the 98 jurisdictions that replied to the FATF survey as of March indicated that they had passed relevant rules, and only 11 of those 29 had begun enforcing and monitoring those rules.
According to FATF, roughly a third of the respondents had not yet begun introducing pertinent laws, and about a quarter of the respondents were in the process of passing such laws.
Although there are technical ways to make it easier to follow travel regulations, FATF stated that the private sector still has to improve information sharing between countries.
FATF added that it would keep an eye on new threats in the industry, such as using cryptocurrencies to get around regulations and launder illegal ransomware attack proceeds. FATF also observed member nations' concerns regarding decentralised finance (DeFi) and nonfungible tokens (NFTs), which are challenging to implement FATF rules, had grown.
Member jurisdictions develop relevant policies that businesses and organisations must abide by once FATF sets guidelines for member countries to implement. The FATF conducts mutual evaluations of member nations to evaluate the success and application of anti-money-laundering measures. Members from various nations conduct the peer reviews that make up the FATF's mutual assessments to evaluate the efficacy and application of one another's anti-money-laundering policies.
FATF stated that it would facilitate dialogue with member nations and keep an eye on market trends that might require further investigation in order to promote the implementation of the travel-rule requirement. In June 2023, FATF will again assess how the implementation of the travel rule is going.
The Role of Virtual Asset Service Providers (VASPs)
While new regulations can create a larger framework in the fight against financial crime, the onus is on virtual asset service providers (VASPs) to implement the regulations. New regulatory reforms would mean increased obligations for banks, money service businesses, asset management and exchange houses.
They normally do this via regulatory compliance programmes, which include both human and technology resources.
VASPs are facing increasing pressure from local and global regulators to revamp their AML compliance programmes. Given the rapidly evolving nature of virtual assets, the financial system and sophisticated criminal networks, it would be a complex task for them.
Regarding AML compliance, crypto exchanges are troubled by the scarcity of skilled compliance staff and inefficient staff allocation. A shortfall in these areas might lead to enforcement actions, including hefty fines.
FATF’s report highlights that there are now technological solutions available to facilitate travel rule compliance in practice, but the private sector needs to continue to increase interoperability between solutions and across jurisdictions and to work towards full compliance.
On market developments and emerging money laundering/terrorist financing (ML/TF) threats, the report highlights the continued need for the FATF to monitor the growth of, and illicit financing risks associated with, DeFi and NFTs markets and unhosted wallets.
How can Tookitaki Help?
With modern technologies such as artificial intelligence and machine learning at the forefront, compliance departments can address many of these issues effectively. With proper implementation, these technologies can bring in a paradigm shift in the way financial institutions approach financial crimes and compliance risk at large.
This is an area where machine learning-powered platforms like Tookitaki can add value. Our end-to-end AML/CFT analytics solution, the Anti-Money Laundering Suite (AMLS), can create next-generation compliance programmes encompassing key processes such as transaction monitoring, AML screening and customer due diligence on a single platform.
The suite comprises our Transaction Monitoring, Dynamic Risk Review, Smart Screening and Case Management solutions under one roof for all your AML needs. AMLS achieves new levels of accuracy and speed by providing the industry’s only shared typology platform, allowing our clients to break through silos and benefit from the industry’s collective AML insights. Our coordinated, collaborative and innovative approach enables everyone to join forces in the fight against financial crime.
Both modern and traditional financial institutions across the globe are building agile and scalable compliance programmes using AMLS, making us a partner of choice.
If you are a crypto business that is looking to set up an AML compliance programme, reach out to one of our experts.
