The Travel Rule and the Transfer of Funds Regulation in the European Union
#TravelRule #FATF # TFR
June 22, 2023
4 Minutes
English
The Travel Rule is also known as the Financial Action Task Force (FATF) “Recommendation 16” - a requirement developed to combat money laundering and terrorism financing (ML/TF). The rule requires financial institutions to share certain customer information with each other when conducting transactions on behalf of their clients.
The objective of the Travel Rule is to enhance the traceability of financial transactions and make it more difficult for criminals to move money undetected. It has been a long-standing requirement for the transfer of funds in fiat currencies, and all financial institutions have implemented the rule to some extent.
In April 2023, the European Parliament took a significant step in the fight against money laundering and terrorism financing by passing the TFR, which implements the FATF’s "Travel Rule” on an EU level. This is considered a significant step in the fight against ML/TF across the EU as it ensures transparency on the parties involved in a transaction, whether in fiat currencies or crypto.
TFR is extending the scope of the "Travel Rule" to include Crypto Asset Service Providers (CASPs). Essentially, this means that CASPs are now required to comply with the same transparency requirements on payments that traditional financial institutions have been following for years.
As a result, the regulation will apply to:
The new TFR regulation applies to several types of transactions, including transfers of funds in any currency, transfers of crypto-assets, electronic money tokens used for electronic transfers with payment cards, electronic money, or mobile phones, and the use of crypto ATMs or self-hosted wallets when a CASP is involved.
While the FATF Recommendation 16 requires transactions more than €1000 to be subject to the Travel Rule, the TFR implements stricter measures and covers all fund transfers and crypto transfers irrespective of amount. However, Payment Service Providers (PSPs) and CASPs must only verify the information for transactions that exceed €1000.
The TFR also captures transactions exceeding €1000 originating from self-hosted wallets, which are wallets owned by private individuals that hold crypto assets. These transactions are subject to the Travel Rule when they involve interactions with hosted wallets managed by CASPs.
The originator information that needs to be accompanied with a transfer include:
The beneficiary information that needs to be accompanied with a transfer include:
The TFR does not apply to transfer of funds where:
For crypto providers, the TFR does not apply to transfers of crypto assets where:
Competent authorities are required to lay down the rules for sanctions and measures for persons that breach the requirements of the regulation.
The forthcoming regulation, which supersedes the previous EU2015/847 regulation, will become effective 20 days after its publication in the Official Journal of the European Union. This regulation is mandatory and directly enforceable in all EU member states.
The Reserve Bank of India, which was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act,
In recent times, money laundering and terrorism financing have attracted a lot of attention forcing governments and regulators, across the globe, to focus their energies on stopping the illicit flow of funds. However,