The Jersey Financial Services Commission (JFSC) recently shared guidance outlining what virtual asset service providers (VASPs) need to do to comply with the 'travel rules'. This article briefly explains the concept of the Travel Rule, its development in the EU and Jersey, its importance in Jersey, and key points from the JFSC Guide.
Click here to view article
Understand the travel rules
FATF Recommendation 16 establishes the Travel Rule, an international regulatory standard aimed at combating financial crimes such as money laundering and terrorist financing. This requires financial institutions, including those that handle virtual assets, to share certain information about the parties involved in the transaction when transferring funds electronically.
This requirement specifically targets transactions exceeding the minimum threshold of €1,000 or $1,000. The main purpose of this regulation is to ensure transparency and traceability of financial transactions, making it difficult for illegal actors to hide their activities.
EU approach
Within the EU, the regulatory framework for the transfer of funds is outlined in the Funds Transfer Regulation (FTR). The FTR details that payment service providers must include complete payer and payee information on all funds transfers.
In anticipation of the evolving digital economy, the EU recently updated this regulation (Recast FTR) to extend these requirements to the transfer of crypto assets, with effect from December 30, 2024. This expanded travel rule applies to transfers of crypto assets, including transfers of crypto assets. Crypto ATM. At least one of the crypto asset service providers involved in the transfer is established or has a registered office within the EU.
In particular, the EU regulations are stricter than the global standards set by the FATF, as they also apply to transfers of crypto assets worth less than €1,000, aiming for more comprehensive coverage.
jersey approach
Jersey has taken a proactive approach by incorporating travel rules into local regulations, ahead of the EU's timeline for including crypto assets in travel rules. By amending the law in September 2023, Jersey expanded the definition of 'payment service provider' to include her VASP if:
- a person performing payment services in or from Jersey;
- As a company incorporated under Jersey law, we also provide payment services in other parts of the world.
This expansion means that VASPs operating within Jersey or elsewhere under Jersey law must comply with the Travel Regulations. This local adaptation underlines Jersey's commitment to maintaining a strong regulatory framework in line with international standards.
Key takeaways from JFSC's Travel Rules Guidance
JFSC's guidance clarifies expectations for VASPs when complying with travel rules. This highlights the need for VASPs to:
- Compliance plan implementation: VASPs must make reasonable efforts to comply with the Travel Regulations, including developing a clear and documented plan to achieve full compliance in a timely manner.
- Ensure robust trading procedures: Compliance is not only necessary for dealing with entities within Jersey or in jurisdictions that approve the Travel Regulations, but also involves continued vigilance regarding the global application of the Regulations.
- Please handle your transactions carefully: This guidance details transactions involving jurisdictions without travel rules, details requirements for the transfer of information between VASPs, and addresses transactions below the minimum threshold of €1,000. For small-value transactions, compliance with the Travel Rule is only required if the funds being transferred are suspected to be related to money laundering or terrorist financing.
A notable aspect of this guidance is that it recommends a cautious approach to transactions involving non-hosted wallets. VASPs are required to ensure they have sufficient information to uncover the control and ownership of these wallets before proceeding with any transaction.
next step
This guidance is particularly applicable to Jersey-based VASPs who are currently tasked with developing and documenting their compliance strategy. VASPs should also note that the guidance provided between Jersey VASPs and non-VASPs is only general guidance until the Recast FTR is applied.
As the regulatory landscape evolves, VASPs must remain aware of updates and changes to regulatory requirements, especially with the impending adoption of Recast FTR in the EU.
[View source.]
