The “Travel Rule” legislation, which tracks crypto-asset transactions to combat money laundering and terrorist financing, was adopted by the European Parliament.

The European Parliament has approved the language of the legislation on information accompanied by the movement of cryptocurrency funds, or the “Travel Rule”. Cryptocurrency assets will be a part of this (Transfer of Funds Regulation).

The proposal, which is a component of the EU’s anti-money laundering package, is meant to complete the legal framework that applies to services related to cryptocurrencies, together with the regulation on cryptoassets (MiCA).

The rule intends to ensure that crypto-asset transfers can be tracked and that operators can stop questionable transactions, thereby lowering the danger of money laundering or terrorist financing.

The agreement calls for the so-called travel rule to be applied to cryptocurrency asset transactions in order to accomplish this purpose.

What is the ‘travel rule’ and how does it relate to cryptocurrency?

The Travel Rule is a regulation used in the banking and financial industry that requires both the sender and recipient’s information to be included in the data that accompanies the (money) transfer and be preserved by both parties.

As a result, the relevant authorities will need to receive this originator and beneficiary information from crypto-asset service providers (CASPs).

Effects on cryptocurrency operators

Regardless of the transaction’s amount, crypto operators are required by the so-called travel rule to confirm the source of money in all transactions in which they are involved.

This implies, for instance, that the operator is obligated to provide specific information regarding the identity of the executor, including the address of his or her wallet on the blockchain, whenever a user performs a transaction using a wallet maintained at an exchange.

The receiving exchange must next confirm that all of the data needed by the rule was properly sent. In order to apply restrictive measures, other anti-money laundering, anti-terrorism, or other actions, it is necessary to ascertain the source of the funds.

Markets for non-fungible tokens are likewise subject to the new regulations, but only if the NFTs meet MiCA’s definition of crypto assets. Another significant advancement relates to interactions between unhosted wallets, or wallets where owners have the private keys, and wallets hosted by a crypto operator.

The crypto operator is expected to find out who the executor is when one of its customers receives a certain amount of cryptocurrency from an unhosted wallet.

Additionally, the operator must confirm the real identity of the individual handling the wallet if the amount sent is 1,000 euros or more.

The application of this law, however, is not applicable when a crypto asset is transferred between two people without the assistance of a registered crypto operator (such as when two people send bitcoin to one another using their wallets).

What will happen after that?

The passage of the Regulation places significant requirements on crypto operators that will complement those outlined in the MiCA Regulation, which was also enacted concurrently by the European Parliament.

Thus, the two regulations will work in concert to provide the broadest set of guidelines for the conduct of crypto operators.

In particular, MiCA will establish a record of operators who violate European laws and with whom European operators will not be permitted to interact.

“Travel rule” for crypto
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