Key Crypto Travel Rule Milestones and Developments in 2023

Throughout 2023, the landscape of Travel Rule compliance was marked by a series of developments, from regulatory updates to strategic shifts in countries’ crypto stances. This article provides a comprehensive view of key milestones and strategic changes in various countries, underlining the year's pivotal role in shaping global Travel Rule compliance standards.

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An Overview of Key Crypto Travel Rule Milestones and Developments in 2023

The U.K., with the third-highest transaction volume worldwide, adopted the Travel Rule 

According to Chainalysis’ 2023 Geography of Cryptocurrency Report, the United Kingdom “is third in the world in terms of raw transaction volume, at an estimated $252.1 billion received in the past year.”[1]

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At the time of writing, 43 VASPs registered with the Financial Conduct Authority (FCA) under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs) were potentially required to comply with the Travel Rule. Travel Rule requirements entered into force in the United Kingdom on September 1, 2023, marking a significant global milestone for Travel Rule adoption. 

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As a major beneficiary of transaction volume, we anticipate counterparties to United Kingdom companies globally to accelerate the implementation of Travel Rule compliance to avoid losing the ability to transact, regardless of the regulatory status in their jurisdictions. 

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Hong Kong and the United Arab Emirates emerged as crypto hubs, with Travel Rule compliance as a prerequisite

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Hong Kong

Hong Kong and the United Arab Emirates (UAE) have capitalized on the regulatory challenges in the United States (U.S.) and solidified their positions as prominent global crypto hubs. A robust regulatory framework and legal certainty are cornerstones of their strategy. In particular, strict compliance with the Travel Rule is a prerequisite for VASPs who want to obtain licenses in these jurisdictions. 

In March 2023, despite China's ongoing ban on cryptocurrency transactions, the Secretary for Financial Services and the Treasury, Christopher Hui, highlighted Hong Kong's dedication to fostering the crypto sector. He revealed that following the government's Policy Statement on Development of Virtual Assets (2022), over 80 companies in the crypto space have shown interest in setting up operations in the region.

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The United Arab Emirates

The UAE has pioneered a bespoke approach to regulating the crypto-asset space, fostering a business-friendly atmosphere. In 2018, the Abu Dhabi Global Market achieved a global milestone by introducing a comprehensive regulatory framework for overseeing spot VA activities. This framework extended to multilateral trading facilities, brokers, custodians, asset managers, and various other intermediaries.

Fast forward to 2022, Dubai took a significant step by establishing the Virtual Assets Regulatory Authority (VARA), the world’s first independent virtual asset regulator, and implementing a comprehensive framework under Dubai’s Regulating Virtual Assets in the Emirate of Dubai (2022). In 2023, VARA’s Compliance and Risk Management Rulebook outlined Travel Rule obligations for VASPs. VARA has quickly attracted key players, receiving 1,000 registration applications since its incorporation.

At the time of writing, 16 VASPs have active or pending licenses, including Binance, OKX, Hex Trust, and Komainu. Also, in 2022, the Dubai Financial Services Authority (DFSA) introduced a comprehensive regulatory framework for regulating financial services using Crypto Tokens as part of its commitment to support the development of a crypto ecosystem in Dubai and the DIFC. This framework accommodates firms who want to provide custodial services, manage clients’ assets, establish or manage funds, or provide other financial services. 

The DFSA recently published proposals to update their regime focusing on Travel Rule compliance and transaction monitoring. The United Arab Emirates and Hong Kong are making strategic bets by fostering a robust and safe crypto environment and solidifying their positions as global crypto hubs. Both require Travel Rule compliance as a key prerequisite for operating in the region, which constitutes a substantial advancement in the widespread adoption of the Travel Rule on a global scale.

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Crypto adoption leaders in India and Japan require Travel Rule compliance

Chainalysis’ 2023 Global Crypto Adoption Index assesses the leading countries in grassroots crypto adoption, focusing on where everyday people are embracing cryptocurrencies the most.

According to the Index, India holds the top spot in grassroots crypto adoption and ranks as the world’s second-largest crypto market by raw estimated transaction volume. ^[2]

The report also notes that Japan has secured a spot in the top 20 of the Index, claiming the 18th position globally for grassroots crypto adoption. ^[3]

Both countries made significant achievements in Travel Rule compliance in 2023:

• On March 10, 2023, Travel Rule obligations entered into force in India through the introduction of the AML & CFT Guidelines for Reporting Entities Providing Services Related to Virtual Digital Assets (2023) issued by the Financial Intelligence Unit.
• In June 2023, the amendment to Japan’s Act on Prevention of Transfer of Criminal Proceeds entered into force, establishing Travel Rule obligations for Japanese VASPs and replacing the self-regulatory rules that the Japan Virtual and Crypto Assets Exchange Association had previously introduced.

These regulatory advancements align two countries that lead in crypto transaction adoption with FATF’s crypto Travel Rule standards, marking a significant step toward ensuring safer transactions for end customers.

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The European Union presents a unified front on crypto Travel Rule requirements

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On May 31, 2023, the European Union achieved a significant milestone in crypto regulation by releasing its Markets in Crypto-Assets (MiCA) and revising the Transfer of Funds Regulation (TFR). These regulatory developments underscore the EU’s strategic commitment to the crypto sector. The establishment of MiCA created a comprehensive and harmonized framework that covers diverse crypto-assets and service providers. 

Through it, the EU seeks to strike a balance between investor protection, financial stability, and innovation. This approach is designed to foster a safe and thriving crypto-asset sector. Notably business-friendly, MiCA’s passporting principle simplifies the process for crypto-asset service providers (CASPs), requiring just one license to access the “single market of 27 countries, serving 450 million consumers and 23 million businesses.” ^[4]

The revised TFR introduces Travel Rule requirements for European CASPs. Before this, various member states had independently initiated steps to implement Travel Rule requirements, leading to a patchwork of regulations with different timelines. However, the revised TFR is directly applicable across all 27 EU member states, harmonizing crypto Travel Rule requirements and ensuring a consistent compliance timeline throughout the region.

With the establishment of a clear and cohesive regulatory environment, the EU has laid the foundation for a flourishing crypto-assets ecosystem. Including Travel Rule compliance as a strategic component marks a notable achievement in the global adoption of this rule. 

Reflecting on a transformative year

In summary, the 2023 global landscape of Travel Rule compliance shifted dramatically. The United Kingdom, ranking third in global transaction volume, adopted Travel Rule requirements, creating significant urgency among global counterparts. Hong Kong and the UAE emerged as crypto hubs and made Travel Rule compliance a prerequisite for operating in their jurisdictions. Leading grassroots crypto adoption, India and Japan enforced Travel Rule obligations, increasing consumer safety.

With the release of MiCA and revised TFR, the EU streamlined the adoption of and compliance with Travel Rule requirements among its 27 member states. These developments underscored the most relevant global crypto hubs’ strategic commitment to adopting and swiftly implementing the Travel Rule. 

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Download the State of Crypto Travel Rule Compliance Report 2024 to learn more.