Cryptocurrency was designed to provide a borderless, decentralized, and peer-to-peer alternative to traditional financial systems, granting users greater control over their finances. However, these same qualities have been misused by certain entities in the digital space, prompting regulators to introduce measures aimed at combating money laundering, terrorism financing, and other illicit activities.
Since weekly payments from Yieldfund are distributed in USDC, this article will cover everything you need to know about the crypto travel rule, including how it applies to institutions and what users can do to navigate it safely.
- Understanding the Travel Rule
- What is the Financial Action Task Force (FATF)?
- How the Crypto Travel Rule Applies to Digital Asset Transfers
- What is the Travel Rule threshold for crypto?
- What is a Travel Rule data transfer?
- Why is the crypto travel rule important?
- Who is the Crypto Travel Rule for?
- What Does the Crypto Travel Rule Mean for VASPs?
- How does the Travel Rule affect individual crypto users?
- What you need to do to receive Yieldfund interests and follow the travel rule
Understanding the Travel Rule
Simply put, the crypto travel rule is a set of directives and recommendations established by the FATF, or the Financial Action Task Force —a global anti-money laundering watchdog. The travel rule was first introduced to traditional financial systems before adding it to digital asset exchanges.
In short, the Travel Rule requires companies that transact or deal with crypto to clearly identify the sender, the recipient, and the source of the funds. The travel rule only applies to transactions exceeding a certain threshold and was introduced due to the anonymous and private nature of crypto.
Different countries use various terms other than VASP for crypto service providers, such as the European Union’s Crypto Asset Service Providers (CASPs) or the Money Services Businesses (MSBs).
What is the Financial Action Task Force (FATF)?
FATF, or the Financial Action Task Force, is an intergovernmental organization that was established by the G7s in 1989. Its goal is to combat money laundering. Over the years, its scope has expanded to include issues such as terrorism financing and other financial crimes. FATF’s recommendations are the golden standard for most if not all, digital financial transactions.
The organization has implemented regulatory reforms in 39 member states, as well as in an additional 200 countries. Initially, 40 recommendations were introduced to combat and prevent financial crimes. In 2019, the recommendations were updated to also include virtual asset service providers (VASPs) – which are included under the travel rule.
How the Crypto Travel Rule Applies to Digital Asset Transfers
The rules governing money laundering were updated in 2019 to account for new developments in the payment sector, specifically cryptocurrencies. Under its revised version, virtual asset service providers (VASPs) are required to comply with the travel rule and identify where and to whom the funds are transferred to.
VASPs include any company or entity handling crypto transactions, but it’s primarily targeted towards crypto exchanges, over-the-counter traders, banking solutions, crypto custodians, some centralized wallets, and, in some cases, DeFi entities.
All crypto transactions that pass a certain threshold must comply with the Travel Rule. If users are using any service listed in the initial recommendation, they will have to provide information – making transfers less private or anonymous.
For service providers such as crypto exchanges or wallets, they will need to collect the names and addresses of the parties, as well as their account numbers or unique identifiers.
What is the Travel Rule threshold for crypto?
The FATF’s recommended threshold for the imposed limit is $1,000 or €1,000, which applies to all transactions. What’s important to note is that both single transactions that reach the threshold, as well as combined transactions from the same account totaling over $1,000, must adhere to the travel rule.
For example, If you use a crypto exchange to receive payments and then make 4 transfers of $250 each in cryptocurrency, you will have to submit information about the receiving wallet address. This also applies in the case of Yieldfund payments if you receive weekly payments totaling more than $1,000.
However, depending on the region, the limit may differ—for example, the United States sets the threshold at $3,000. Transactions below the threshold have fewer reporting requirements unless there are suspicions of money laundering or terrorism financing.
What is a Travel Rule data transfer?
When a transaction exceeds the threshold, VASPs must transfer critical Personally Identifiable Information (PII) about the sender and receiver to the designated body. This data includes information about both senders and receivers and includes:
- Sender’s full name, wallet address, and either a physical address, national ID number, or date of birth for identification.
- Receiver’s full name and wallet address.
Why is the crypto travel rule important?
The crypto travel rule significantly alters the way cryptocurrencies and digital assets operate online. One key change is the shift toward transparency, as crypto transactions are no longer entirely private. This rule is designed to protect users while ensuring that companies handling crypto payments maintain their credibility and reliability.
At its core, the travel rule plays a vital role in preventing the misuse of cryptocurrency for illicit activities. By fostering accountability, it helps safeguard the broader financial ecosystem, promoting its stability and integrity over the long term.
Who is the Crypto Travel Rule for?
This rule primarily applies to businesses handling cryptocurrency transactions, collectively referred to as Virtual Asset Service Providers (VASPs). These include:
- Crypto exchanges: Platforms like Coinbase or Kraken where users can trade, store and buy cryptocurrencies
- Custodial wallet providers: Cryptocurrency wallets where the company holds the private keys, not the user.
- Over-the-counter (OTC) desk operators: Providers who facilitate over-the-counter traders for higher amount traders without impacting the price
- DeFi & NFT platforms: Some platforms like OpenSea, where trades of digital assets can take place
- Other financial entities: Platforms that offer cryptocurrency services or payments, including trading, investing, or ICOs
What Does the Crypto Travel Rule Mean for VASPs?
VASPs are responsible for complying with the Travel Rule and collecting user information in real-time. VASPs must comply with the FATF’s recommendations for collecting, verifying, and sharing data about their clients who initiate or receive transactions.
For many VASPs, non-compliance could lead to penalties, fines, and, depending on their jurisdiction, suspension of their operating license.
The travel rule requires crypto companies to take greater responsibility and exercise vigilance in identifying their clients. This involves conducting thorough due diligence on transactions, regularly verifying user identities, and screening entities to ensure that transactions are not connected to sanctioned groups or suspicious activities.
How does the Travel Rule affect individual crypto users?
The Travel Rule introduces new requirements for everyday cryptocurrency users, mandating the disclosure of personal information both about themselves and their transaction recipients. This increased data collection raises concerns about privacy and security, as it heightens the risk of hacks and data breaches that could expose sensitive information—often without the sender’s knowledge or consent.
To mitigate these risks, Virtual Asset Service Providers (VASPs) must prioritize stronger security measures to prevent data leaks and protect user information.
However, the Travel Rule poses a challenge to the core principles of cryptocurrency, particularly its decentralized ethos. By requiring users to share personal details, it undermines the privacy and anonymity that many associate with crypto. Despite this shift, the Travel Rule does not alter the way transactions are executed.
What you need to do to receive Yieldfund interests and follow the travel rule
For investors, the travel rule is a formality that applies to users who receive weekly payouts as part of their investment plan with Yieldfund. Yieldfund, as part of frontpay capital B.V., is required to provide necessary information, including users’ name, address, and wallet details, to the relevant regulatory body.
If you’ve invested with Yieldfund, and are receiving weekly payouts, these payments will be processed through OKX and investors will need to provide information about the company as well as themselves when receiving payments. To ensure smooth transactions, it’s important to use a reputable VASP (Virtual Asset Service Provider) for your payments.
By following these steps, you typically won’t need to provide additional than what the platforms require you.
