The “Travel Rule” and what Luno is doing about it
Content updated 4 April 2022
In June 2019, the Financial Action Task Force (FATF) extended the so-called “Travel Rule” to Virtual Asset Service Providers (VASPs). Since then, regulators in countries around the world, together with VASPs (like Luno), have been coming to grips with how to implement the Travel Rule for our industry.
The Travel Rule requires a VASP to gather details about the recipient of a crypto transaction and to exchange information with the VASP on the other side of that transaction. If this sounds kind of familiar, the Travel Rule has applied to financial institutions like banks for over twenty years. Banks use the SWIFT system to interact with one another for this purpose.
As a Luno customer, the Travel Rule may impact you when sending or receiving cryptocurrency, depending on your country.
Which countries have adopted the Travel Rule?
Singapore was among the first of the countries in which Luno operates to introduce the Travel Rule. VASPs in Singapore seeking to license under the Payment Services Act 2019 (the PSA) must demonstrate to the Monetary Authority of Singapore (the MAS) they comply with the Travel Rule before being awarded a license. The Malaysia Securities Commission (the SC) has introduced the Travel Rule to the Malaysian regulatory framework for Digital Asset Exchanges, with effect from 1 April 2022. VASPs in Indonesia will also be required to comply with the Travel Rule in April 2022.
If you’re a customer in Singapore, Malaysia or Indonesia, you will therefore be prompted to provide us with a couple of extra details when sending or receiving crypto.
Other countries to have implemented the requirements include the USA, Japan, South Korea and Switzerland. The UK and EU are finalizing their respective Travel Rule requirements and Luno expects more countries to follow over the course of the year.
What role does FATF play?
The FATF is an inter-governmental body made up of member countries and regions mandated to establish international standards for combating money laundering and terrorist financing. Member countries and regions are, in turn, required to implement those standards through their local laws.
What are VASPs?
Luno and other businesses that offer exchange facilities and allow customers to send and receive crypto are considered VASPs. VASPs also include any businesses which provide crypto custody services and those which offer financial services related to the issuing and sale of any coins.
What is the purpose of the Travel Rule?
The Travel Rule requires VASPs to communicate with one another when a customer wants to transfer crypto between them. Similar to the obligations imposed on banks, the VASP responsible for the crypto send is required to transmit certain customer and transaction information to the VASP receiving the crypto. This exchange of information is aimed at mitigating the risk of crypto being used for money laundering or terrorist financing by ensuring that VASPs know where their customers are sending crypto to and receiving crypto from.
Luno’s view on the Travel Rule
While there remain a number of challenges associated with the Travel Rule, its objective of mitigating the risk of money laundering and terrorist financing using crypto is the right one.
The Travel Rule requires VASPs to ensure that they are properly identifying their customers and applying strong know your customer (KYC) policies and practices. Luno has always adopted strong KYC policies and practices and is well prepared for this. We believe that by requiring these standards across the board, it will lead to higher customer confidence in VASPs and promote trust in the crypto industry as a whole.
Sending crypto to a wallet address without any further information can also be pretty scary for customers. Including the details of the recipient when sending crypto should feel quite familiar for most of our customers. Additionally, by introducing additional checks around those transactions, the risk of sending crypto to an incorrect wallet address is reduced.
Finally, we believe that the Travel Rule will help provide regulatory clarity and general trust in crypto transactions, ensuring broader and faster adoption. The decision to extend the Travel Rule to VASPs signifies an acknowledgement by the FATF, central banks, and other regulators that the crypto industry has earned its place in today’s financial system. It also presents an opportunity to continue shaping that financial system going forward. At Luno, where our mission is to put the power of crypto into everyone’s hands, we’re confident that we’re on the right path to achieve this.
What this means for you
If the Travel Rule applies in your country, Luno will ask you to provide the name of the person or entity that you’re sending crypto to, and the name of that person or entity’s VASP. Once we have this information, Luno will securely send payment instructions to the VASP you are sending to. These instructions will include the details you have provided about the recipient as well as certain information about you. This will include your name and, depending on the specific requirements in your country and the value of your transaction, information such as your address and identity number.
To meet our Travel Rule obligations, Luno is working alongside Notabene. Notabene has developed a privacy-preserving compliance platform to help VASPs interact with one another securely and to comply with the Travel Rule. This will ensure that your Luno experience is as smooth as ever, your data is stored securely, and that everything runs seamlessly in the background.
Luno continues to monitor the adoption of the Travel Rule in the other countries in which it operates, and will keep all customers informed of any changes that may affect your Luno journey.