The travel rule is a pressing issue for crypto-asset service providers (CASPs). The Transfer of Funds Regulation (TFR) impacts all CASPs involved in crypto-asset transfers, including NFTs, regardless of their status under the Markets in Crypto-Assets (MiCA) regulation.
As noted by Gintare Kosubiene, the CEO of micapass, “We need new approaches to compliance that move beyond traditional methods.” Current AML solutions often rely on historical data analysis, which can be slow and inefficient. The shift towards immediate digital transactions requires real-time, proactive compliance measures.
The TFR requires CASPs to collect and exchange information about their transactions between the originator (payer) and the beneficiary (payee) for all transfers. Additional verification is needed for transactions over €1000 to satisfy compliance with AML and counter-terrorist financing (CTF) regulations. CASPs must collect and share detailed information about the originator and beneficiary to ensure transaction traceability and prevent illicit activities.
In particular, a key element of the TFR is identifying owners of self-hosted custodial wallets. For transactions over €1000, CASPs must verify ownership or control of these addresses, closing loopholes allowing anonymous transfers, and enhancing transparency.
Implementing the travel rule will require CASPs to adjust their current operational frameworks, enhance know-your-customer (KYC) processes, and ensure robust data verification mechanisms. The revised TFR 2023/1113 sets comprehensive guidelines for monitoring and regulating transfers, aiming to fortify the financial system against misuse while promoting transparency and accountability among CASPs. By meeting these requirements, CASPs will contribute to the integrity and security of the evolving financial ecosystem.
“The future of compliance in the crypto-asset industry lies in integrating advanced, real-time monitoring systems that adapt to the rapid pace of digital transactions. By adopting these new approaches, CASPs can meet regulatory expectations and contribute to a more secure and transparent financial ecosystem”, says G. Kosubiene.
Innovative solutions like the ones being developed by Micapass, which utilize on-chain analytics to provide real-time AML monitoring and KYC/AML verification. As the crypto industry is progressively stepping out of the shadows through evolving regulation, these seamless integrations are becoming the new essential tools for most CASPs, especially in the context of instant e-money token payments under the MiCA regulation.
“It’s important to understand that the new era of crypto is regulated. A regulated ecosystem requires a new set of tools to match the evolving dynamics of compliance requirements. The previously optional tools are now becoming essential necessities and even more so tailor-made solutions designed for the 10 different licensable CASP services under MiCAR”, says Tavi from ECOVIS ProventusLaw.
There’s no question that the crypto-asset industry is getting increasingly intertwined with the conventional financial system and our daily lives. This development compelled meaningful regulatory change requiring new integrations based on the expanding requirements. While some familiar compliance tools offer excellent general capabilities, with MiCAR’s introduction of 10 different CASP services, every service requiring service-specific compliance tools such as the ones offered by Micapass has become noticeably nuanced.
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