The new rules could require UK based crypto asset businesses to withhold some crypto transfers. If an inbound payment is received by a virtual asset service provider (VASP) from a country that has not implements the new rules, the VASP is required to make a risk based assessment around whether to make the assets available to the recipient. The rule also applies when a UK-based account holder is making a transfer outside of the UK. In August, the FCA set out its expectations on how UK firms should comply and what it “reasonably expects” of firms ahead of other countries. The FCA’s expectations include:• Take all reasonable steps and exercise all due diligence to comply with the Travel Rule.• Firms remain responsible for achieving compliance with the Travel Rule, even when using third-party suppliers.• Fully comply with the Travel Rule when sending or receiving a cryptoasset transfer to a firm that is in the UK, or any jurisdiction that has implemented the Travel Rule.• Regularly review the implementation status of the Travel Rule in other jurisdictions and adapt business processes as appropriate.When sending a cryptoasset transfer to a jurisdiction without the Travel Rule:• Take all reasonable steps to establish whether the firm can receive the required information. • If the firm cannot receive the necessary information, the UK cryptoasset business must still collect and verify the information as required by the Money Laundering Regulations (MLRs) and should store that information before making the cryptoasset transfer.When receiving a cryptoasset transfer from a jurisdiction without the Travel Rule:• If the cryptoasset transfer has missing or incomplete information, UK cryptoasset businesses must consider the countries in which the firm operates and the status of the Travel Rule in those countries.• The UK cryptoasset business should take these factors into account when making a risk-based assessment of whether to make the cryptoassets available to the beneficiary.While the crypto industry has (for the most part) called for greater supervision of the space, many players are concerned that the Travel Rule adds to an already complex web of crypto regulations that need to be navigated. Not only is a lack of harmonisation proving a concern, but the fact that a large number of jurisdictions have made insufficient progress toward implementation, or don’t plan to enforce the Travel Rule at all, causes a headache for firms attempting to implement the rule.In June 2023, FATF found that just 75% of jurisdictions are only partially or not compliant with the FATF’s requirements. Of the 151 jurisdictions that responded to FATF’s 2023 Survey, more than half had still not taken any steps towards implementing the Travel Rule. FATF stated: “This is a serious concern as the risks posed by VAs and VASPs continue to increase and that the lack of regulation creates significant loopholes for criminals to exploit.” Aja Heise, senior compliance officer at XBTO stated: “The FCA’s implementation of the Travel Rule in the UK, while an admirable step forward to help tackle money laundering, is another example of the increasingly complex web of different regulatory requirements institutions are being asked to follow. There are also serious questions about whether the FATF rule will work in practice between jurisdictions and be adopted globally, especially given the technology and development requirements posed to institutions to comply with the requirements. Better regulatory alignment and clarity is needed globally, so institutions have a consistent understanding of what is expected of them, and they have the confidence to move their digital assets investments with confidence. It’s also important to note that regulation alone, while important to get right, will not be enough to drive forward the institutional adoption of digital assets, if there are no investments in education, funding, technology infrastructure, ecosystem growth and development alongside it.”On the new rule’s implementation, Meiran Shtibel, associate general counsel at Fireblocks added: “From September 1st, Virtual Asset Service Providers (VASPs) in the UK will need to comply with the Travel Rule, which may prove to be a complex compliance task, especially when it comes to the Sunrise Issue. This refers to when one VASP is located in a jurisdiction where the Travel Rule is already being enforced and the counterparty VASP is located in a different jurisdiction where the Travel Rule is not being enforced. Essentially, VASPs in the UK must comply with Travel Rule requirements when dealing with counterparts in locations where enforcement is pending. Although the initial Travel Rule guidance by the UK’s Financial Conduct Authority (FCA) remains somewhat ambiguous, with the FCA having recently published a consultation to provide more clarity, it however provides more flexibility than the guidance put forward by the intergovernmental Financial Action Task Force (FATF), which includes VASPs limiting virtual asset transfers within their customer base and only allowing first-party transfers outside of their customer base. To state the obvious, compliance means investing resources. However, whilst pseudo-anonymity is a crypto-native ideal, this is a significant step that could benefit the digital assets sector by legitimising it and paving the road to mass adoption.”Jordan Wain, UK public policy lead at Chainalysis explained: “Implementation, [of the Travel Rule] however, remains challenging as companies will need to get to grips with identifying relevant transactions, collecting relevant Travel Rule information, and creating a means to delay, reject or block transfers that do not meet the required criteria.Third-party providers, therefore, will undoubtedly have a significant role to play in helping companies with compliance at each stage of the transaction flow. We join other industry voices in asking for further support, and for authorities to show the same spirit of proportionality and collaboration as shown when first considering what implementation might look like in practice.”