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Everything you need to know about the Travel Rule

TRAVEL RULE

The Travel Rule is a key regulation in the world of Bitcoin. Its aim is to enhance the detection and prevention of money laundering and terrorist financing. At Relai, we follow all regulations while we empower users to control their funds. Here’s how.

Read on the learn more about the Travel Rule and how Relai approaches it.

Disclaimer: Relai services are exclusively recommended for Swiss and Italian residents. None of this content constitutes investment advice. Always conduct your own research before investing in any digital asset.

What is the Travel Rule?

The Travel Rule, introduced by the FATF, requires Virtual Asset Service Providers (VASPs) or (under MiCA) Crypto Asset Service Providers (CASPs) to collect and share sender and receiver information for transactions to prevent money laundering and terrorist financing. It applies during fiat-to-crypto or crypto-to-crypto exchanges but not for non-custodial wallet transactions.

How does it work in Europe?

In April 2023, the Transfer of Funds Regulation (TFR) was finalized, marking a significant milestone in the EU’s implementation of the FATF’s Travel Rule. The TFR complements MiCA regulation by specifically addressing the transfer of crypto-assets, requiring VASP/CASPto implement stricter measures to combat money laundering and terrorist financing.

Under the Travel Rule, the following information must be collected and shared for transactions:

For the Sender (Originator):

  • Full name
  • Account number or unique transaction identifier
  • Address, national ID number, customer ID, or date and place of birth

For the Receiver (Beneficiary):

  • Full name
  • Account number or unique transaction identifier

CASPs must transmit Travel Rule data before allowing the initiation of the transaction. This ensures real-time screening of all parties involved. Data transmission must comply with GDPR standards for security and privacy.

With reference to transfers involving self-hosted wallets, the TFR distinguishes between:

1. VASP/CASP-mediated transactions

VASP/CASP must collect and retain information about the originator and beneficiary for all self-hosted wallet transactions, but no verification is required for this data unless the transaction exceeds EUR 1,000.

For transactions above EUR 1,000 VASP/CASPs must verify that the client controls the associated wallet address.

Only if there is suspicion of inaccurate information or suspicious patterns, VASP/CASPs must take additional measures to mitigate risks.

2. Peer-to-peer (P2P) transfers

Self-hosted wallets are not subject to TFR requirements unless a CASP is involved.

Relai’s Approach to the Travel Rule

At Relai, we ensure compliance with the Travel Rule for buy and sell transactions involving fiat currency and bitcoin. 

This applies specifically when users exchange with Relai fiat for bitcoin or bitcoin for fiat through our application, aligning with anti-money laundering (AML) and counter-terrorist financing (CFT) regulations.

However, once users transfer their bitcoin from Relai’s non-custodial wallet to another non-custodial wallet, the Travel Rule no longer applies.

The key facts about the Travel Rule at a glance:

  • The Travel Rule is a regulation that aims to prevent money laundering and terrorist financing by requiring Virtual Asset Service Providers (VASPs) to collect and share sender and receiver information for transactions.
  • In Europe, the Transfer of Funds Regulation (TFR) implements the Travel Rule, requiring VASPs to collect and share specific information about the sender and receiver for transactions above EUR 1,000.
  • Relai complies with the Travel Rule for buy and sell transactions involving fiat currency and bitcoin, but not for transactions between non-custodial wallets.
  • Non-custodial wallets are not directly subject to the Travel Rule, but VASPs may need to verify information and assess risks when interacting with them.
  • Compliance with the Travel Rule is important for businesses to operate legally, build trust, and contribute to a safer cryptocurrency ecosystem.

Frequently Asked Questions (FAQ)

What information does the Travel Rule require VASPs/CASPs to collect?

VASPs must collect details about the sender (originator) and receiver (beneficiary) of a transaction. This includes names, account details, and in some cases, the purpose of the transaction.

Are non-custodial wallets subject to the Travel Rule?

Non-custodial wallets are not directly subject to the Travel Rule. However, when a VASP interacts with a non-custodial wallet, the VASP may need to verify information and assess risks related to the transaction.

How does the Travel Rule impact user privacy?

While the Travel Rule requires sharing transaction data, measures like encryption are used to protect user privacy. Non-custodial wallets also give users control over their private keys, adding an extra layer of security.

Why is compliance with the Travel Rule important for businesses like Relai?

Compliance ensures that businesses operate within legal boundaries, build trust with users, and contribute to a safer cryptocurrency ecosystem. It also helps prevent misuse of funds for illegal activities.

Information about the author

Raphael Schoen

Raphael Schoen

Raphael is a former journalist, content strategist, and author. He wrote a book about Bitcoin and regularly shares his thoughts on LinkedIn and X.

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