How Do Regulators in Different Jurisdictions (E.g. US Vs. EU) View the Application of the Travel Rule to Unhosted Wallets?
Regulators have differing views. In the US, FinCEN has proposed rules that would require VASPs to collect and store information for transactions involving unhosted wallets above a certain threshold, placing the burden on the regulated entity.
The EU, under its Transfer of Funds Regulation (TFR), has taken a stricter stance, requiring VASPs to verify the identity of the unhosted wallet owner for any transaction amount, which presents significant technical challenges. Both approaches signal a move away from treating unhosted wallets as outside the regulatory perimeter, but their methods and thresholds for enforcement differ.
Glossar
Unhosted Wallets
Custody ⎊ Unhosted Wallets represent the ultimate form of self-custody, where the user maintains sole control over private keys, removing reliance on third-party custodians for crypto assets.
Wallets
Custody ⎊ Cryptocurrency wallets, in the context of derivatives trading, primarily function as secure repositories for digital assets, facilitating access and control while adhering to stringent regulatory frameworks.
Transfer of Funds Regulation
Transfer ⎊ Cryptocurrency transactions, particularly those involving derivatives, are subject to evolving regulatory frameworks designed to mitigate risks associated with illicit finance and market manipulation.
Jurisdictions
Regulation ⎊ Jurisdictions define the legal and regulatory frameworks governing cryptocurrency, options trading, and financial derivatives, impacting market participants’ obligations and permissible activities.
The Travel Rule
Regulation ⎊ The Travel Rule, established by the Financial Action Task Force (FATF), mandates that financial institutions, including cryptocurrency exchanges and virtual asset service providers (VASPs), transmit specific information about the originator and beneficiary of transactions exceeding a certain monetary threshold.