FINMA Position on FATF “Travel Rule” With Respect To Blockchain-Based Transactions
On August 26th 2019, FINMA issued additional guidelines to clarify Swiss position with respect to AML/KYC requirements as they relate to blockchain-based transactions.
As a reminder – this comes as an aftermath following FATF requirement to mandate so called “travel rule” to be applicable for blockchain transactions, which essentially means that whenever a financial institution executes transactions on behalf or with its customers and the amount is higher than 1000 USD/EUR, some basic information about the sender, recipient and the purpose of the transaction must accompany the transfer, and the identity of the customer must be verified.
Important quotes and takeaways:
- No exceptions for DEXs or unregulated custodians
- It is not necessary for the information (e.g. customer KYC information) to be transmitted on the blockchain. Transmission can take place via other communication channels.
- As long as an institution supervised by FINMA is not able to send and receive the information required in payment transactions, such transactions are only permitted from and to external wallets if these belong to one of the institution’s own customers (e.g. if I send funds from my Ledger wallet to a regulated custodian, it’s ok as long as I can prove it’s my wallet) => the chances are that in the near future all transfers from Binance to Coinbase and back will be executed by their customers via privately held wallets (e.g. Ledger or similar), because transactions with self are still allowed, and it’s unlikely that Coinbase and Binance (figuratively speaking) will figure out a quick and easy way to exchange their customer information.
- The ownership of the external wallet must be proven using suitable technical means… If the customer is conducting an exchange (fiat-to-virtual currency, virtual-to- fiat currency, or virtual-to-virtual currency) and an external wallet is involved in the transaction, the customer’s ownership of the external wallet must also be proven using suitable technical means. (that’s easily doable)
- Transactions between customers of the same institution are permissible.
- A transfer from or to an external wallet belonging to a third party is only possible if, as for a client relationship, the supervised institution has first verified the identity of the third party, established the identity of the beneficial owner and proven the third party’s ownership of the external wallet using suitable technical means. => It looks like exchanges will continue to do mutual due diligence, so that they can apply reliance criteria and can trust each other’s AML checks and controls.
Want to learn more about KYC setup for your FinTech startup? Download this FREE Checklist here.
