Starting from June 1st, Japan requires exchanges to comply with "travel rules," and non-custodial wallets are also subject to investigation.

The Japanese government decided on 5/23 to implement the "Amendment to the Act on Prevention of Transfer of Criminal Proceeds" on June 1, in order to strengthen the "travel rule" for combating money laundering of cryptocurrencies. This move is in response to the Financial Action Task Force (FATF) guidelines, and the Japan Virtual Currency Exchange Association (JVCEA) has also responded by preparing to comply.

What is the Travel Rule?

The Travel Rule is a financial regulatory policy aimed at preventing money laundering and terrorist financing activities. It requires financial institutions to provide identity information about the sender and receiver when transferring funds.

The Travel Rule was initially proposed by the Financial Action Task Force (FATF) in 1996 and detailed in its "Recommendation 40." Under the Travel Rule, when conducting cross-border fund transfers above a certain amount, financial institutions are required to record and report information about the transfer, including the identities of the sender and receiver, account information, and transfer amount.

The purpose of the Travel Rule is to increase transparency in financial transactions so that regulatory authorities can better track and investigate suspicious fund flows. This way, if there are risks of money laundering, terrorist financing, or other illegal activities, regulatory authorities can more easily detect and prevent these activities.

The Travel Rule typically applies to financial institutions, including banks, securities exchanges, payment institutions, and virtual asset service providers. Different countries and regions may have different requirements for the Travel Rule, but the basic goals and principles are similar.

In recent years, with the rise of cryptocurrencies, the Travel Rule has also begun to be applied to cryptocurrency transactions. Some countries and regions have already required cryptocurrency exchanges and wallet providers to comply with the Travel Rule and ensure the recording and reporting of relevant identity and transaction information when applicable.

The Travel Rule is a financial regulatory policy aimed at preventing money laundering and terrorist financing by requiring financial institutions to provide relevant identity information when transferring funds to increase transparency and security in financial transactions.

How Japanese Exchanges Comply with the Travel Rule

According to an announcement by the Japan Virtual Currency Exchange Association (JVCEA), within the jurisdiction designated by the Japanese Financial Services Agency, Japanese exchanges are obligated to inform the destination exchange of the legally required information when users transfer assets to other exchanges, including overseas exchanges.

Usually, the Travel Rule requires the identification of the identities of both the sending parties and the purpose of the transfer.

In the past, there has been much controversy over whether the Travel Rule applies to non-custodial wallets, such as MetaMask, as identifying non-custodial wallets by exchanges was considered challenging.

In this amendment, there is also a requirement to investigate and analyze the attributes of non-custodial wallets, assess money laundering risks, etc.

Enforcement Cases of the Travel Rule

South Korea: The South Korean exchange Coinone is prohibited from transferring funds to addresses without KYC, and MetaMask addresses may not be able to receive funds.

United States: Starting on April 1st, Coinbase requires users from Japan, Canada, and Singapore to submit specific information about withdrawal addresses. In the past, the U.S. also caused a stir by considering expanding the implementation of the Travel Rule, but ultimately decided against it.

Taiwan: Currently, Taiwan's anti-money laundering regulations for virtual currencies are temporarily not enforced. However, exchanges in Taiwan that provide fiat currency trading almost all provide the information required by the Travel Rule as shown below: