Coinbase, Robinhood, and more than a dozen other crypto firms announced a plan on Wednesday to comply with new rules recently issued by the Financial Action Task Force (FATF), an international body dedicated to fighting money laundering and terrorist financing.
The new rules concern the so-called “travel rule,” which requires financial institutions to collect information about the sender (and sometimes the receiver) of transactions worth more than $3,000 between financial institutions. FATF made clear last autumn that the travel rule applies to crypto firms.
In response, a coalition of crypto companies has been working on a plan to comply with that requirement. The result of that work is what they are calling TRUST, short for “Travel Rule Universal Solution Technology,” a set of arrangements they say will ensure compliance while also protecting customer privacy.
Notably, TRUST obliges the member companies to use end-to-end encryption when sending data to each other, and to never store customer information in a way that could be vulnerable to third-party attacks. It also establishes a set of minimum security practices.
The initial members of TRUST are: Anchorage, Avanti, Bitgo, bitFlyer, Bittrex, BlockFi, Circle, Coinbase, Fidelity Digital AssetsSM, Gemini, Kraken, Paxos, Robinhood, Standard Custody & Trust, Symbridge, Tradestation, Zero Hash, and Zodia Custody.
According to Coinbase's top lawyer, Paul Grewal, the companies consulted FinCen—the unit of the Treasury Department dedicated to financial crimes—in developing the TRUST proposal. In an interview with Coinbase, he said “the solution will work” when it comes to transfer between TRUST members.
Grewal added that the TRUST members expect more companies will join their ranks in the coming months.
There are some notable absences among the list of initial TRUST members, including crypto exchanges FTX and Binance. According to Grewal, the question of whether crypto transactions between TRUST and non-TRUST members are compliant with the travel rule will be sorted out over time.
Another major unresolved issue—and one that came up in FATF discussions over the past two years—is how to make entities within the realm of DeFi comply with the travel rule. In particular, it remains to be seen how decentralized protocols and wallets will collect the requisite travel rule information, such as the name and address of transaction participants.
Grewal acknowledged such questions are far from resolved but said that TRUST represents an important first step as the crypto industry navigates the complex task of complying with global anti-money laundering rules.
“As the proverb goes, the best way to eat an elephant is one bite at a time,” he said.