A group of Canadian cryptocurrency companies have joined a universal standard developed by American crypto leaders earlier this year as a way to address anti-money laundering regulations.
Nine Canadian companies have joined the group, including Wealthsimple, Coinsmart, Netcoins, Shakepay, Tetra Trust, Coinsquare, VirgoCX, BlocPal, and Balance.
The Travel Rule Universal Solution Technology (TRUST), as it is called, was launched in February by leading American crypto companies like Coinbase, Gemini, Kraken, and Robinhood.
The goal of TRUST is to offer crypto exchanges and digital asset companies a standard to combat money laundering, allowing the industry to get ahead of impending regulation in the space. It represents a unique collaboration in the private market of crypto firms joining forces to address a regulatory pain point.
Alongside the Canadian members, TRUST has added companies from Singapore and is actively working to expand to other global jurisdictions, including Germany and other countries in the European Union.
TRUST was launched in February by leading American crypto companies like Coinbase, Gemini, Kraken, and Robinhood.
TRUST is focused on addressing the Travel Rule, which differs slightly from country to country, but generally requires financial institutions to store information that travels between payers and recipients, and make that information available to authorities for several years. The goal is to help law enforcement agencies detect, investigate, and prosecute money laundering and other financial crimes.
The issue of money laundering in the crypto space is newly relevant. Anchorage Digital, the first federally-chartered digital asset bank, and a member of TRUST, was accused last month of violating rules for monitoring money laundering.
The timing of TRUST also follows updated guidance put out by the Financial Action Task Force (FATF) in October that recommended virtual asset service providers (VASPs), including exchanges, banks, over-the-counter desks, hosted wallets and other financial institutions, to share certain identifying information about the recipient and receiver for cryptocurrency transactions over USD/EUR 1000. FATF is an intergovernmental organization founded by the G7 nations to combat money laundering and terrorism financing.
The guidance has led to various governments discussing the application of Travel Rule regulations to VASPs. In some countries, like Canada, crypto exchanges, which are considered money services businesses (MSBs), already fall under Travel Rule laws.
Ada Vaughan, a serial entrepreneur in the crypto and blockchain space, highlighted to BetaKit the importance of a universal standard for addressing anti-money laundering regulations. Having worked in the sector for nearly half a decade, Vaughan noted that before crypto companies began addressing security concerns that apply to fiat currency institutions, there was significant opportunity for fraud and illicit activity in the space.
Now serving as head of marketing and business development for DeFi startup Conduit, Vaughan called the type of infrastructure TRUST creates a positive move for the sector that creates a unified front and allows exchanges to be seen as compliant and regulation friendly.
As crypto and blockchain technologies have emerged and become more mainstream, regulators around the world have struggled to fit them into existing legal frameworks. In Canada, regulators in recent years have both handed down new compliance rules and worked with companies to test out innovations. The United States’ SEC, on the other hand, has taken a piecemeal approach to creating rules through crackdowns on crypto companies. In March, however, President Joe Biden put out an executive order to examine the risks and benefits of cryptocurrencies.
As it stands, crypto exchanges in many regions don’t have a legal or technological framework to obtain, hold, and transmit identifying information of transactions that would fall under the Travel Rule. There is certainly no global consensus or cross-border clarity, and exchanges operating in different countries or exchanging currency between countries could have widely different regulatory expectations.
Binance, whose US division is a TRUST member, has seen this issue firsthand. Last year, Binance began working towards its own compliance efforts with a tool developed by crypto intelligence firm CipherTrace after facing bans in Ontario, Japan, and the United Kingdom.
When it comes to TRUST, the companies taking part have done so with the goal of creating an industry-driven solution that shows their willingness to comply with regulation. The standard also allows private firms to create something that protects the security and privacy of customers, which is integral to blockchain technology.
“The core goal in designing TRUST was to achieve top-tier compliance with the Travel Rule, while fully honoring customers’ expectations over how their information is handled,” Coinbaise wrote in February.
Feature image courtesy Wealthsimple.