As the crypto ecosystem continues to evolve, regulatory frameworks are becoming increasingly important in maintaining transparency, accountability, and security. Below, we take a closer look at Liechtenstein’s travel rule requirements and how TT service providers can comply accordingly.
Liechtenstein’s Travel Rule, as outlined in Article 23(b) of the DDO (Due Diligence Ordinance), requires the exchange of information for token transfers exceeding CHF 1. This rule applies to entities categorised as TT (Trustworthy Technologies) service providers, which include the following roles:
- Token Issuers
- TT token custodians
- TT Protectors
- TT exchange service providers
- TT Agents, each with distinct responsibilities under the Travel Rule
Information required and threshold
TT service providers must identify the originator TT service provider and verify its identity. Enhanced due diligence is required for transactions involving counterparties from high-risk jurisdictions. The ordering TT service provider is responsible for gathering and transmitting the following information to the beneficiary TT service provider for all transfers exceeding the CHF 1 threshold:
- Name of the originator
- Account number of the originator, when an account is used to conduct the transaction
- Address of the originator, official or personal document number, customer identification number, or date and place of birth
- Name of the beneficiary
- Account number of the beneficiary
Moreover, before executing a TT transfer, providers must:
- Establish procedures for sending required information, ensuring completeness and accuracy, and addressing missing or incomplete data
- Utilise documents, data, or information from reliable and independent sources to fulfil information requirements
- Implement ex-post or real-time monitoring to ensure necessary information regarding the originator or beneficiary is available.
Missing data
The Travel Rule requires collecting and transmitting specific information, such as names, account numbers, and addresses, for qualifying transactions. If Travel Rule data is not provided, incomplete, or delayed, the following steps must be taken:
- The beneficiary TT service provider must implement risk-based procedures to identify missing or incomplete information and suspend/reject the transfer until the required data is provided.
- If the Travel Rule information is non-compliant, the ordering TT service provider must be notified to provide the information within three working days.
- Failure to comply results in rejection or return of the transfer. If rejection is not possible, a token re-transfer is required.
A TT transfer can only proceed if a complete Travel Rule data set is provided.
The Sunrise Issue
When a domestic TT service provider conducts a transaction with a foreign TT service provider (also known as a CASP in the EU) that still needs to implement the Travel Rule, the domestic provider should try to exchange required Travel Rule information via secure channels. This interaction must be documented if the counterparty doesn't respond or rejects the information.
TT service providers must employ enhanced due diligence and risk mitigation measures if information exchange isn't possible. Such transactions are allowed until the new Wire Transfer Regulation II (VO (EU) 847/2015) is enforced in Liechtenstein.
Self-hosted wallets
TT service providers must conduct enhanced due diligence when transacting with self-hosted wallets. Which includes:
- Ensuring clear assignment of the wallet to the beneficiary using a proof of ownership method, for example, a Satoshi Test or cryptographic signature, like Address Ownership Proof Protocol (AOPP)
- Analysing transactions through a blockchain investigations tool
- Obtaining enhanced information regarding the Source of Funds on incoming transactions
- Conducting a comprehensive KYC check on the client.
MiCAR in Liechtenstein: EMTs and ARTs
Various Markets in Crypto-Assets Regulation (MiCAR) requirements will be implemented at different intervals across the EU. Titles related to the authorisation and oversight of CASPs will be implemented on 30 December 2024. Meanwhile, Titles III and IV, which cover Electronic Money Tokens (EMTs) and Asset-Referenced Tokens (ARTs), will be implemented by 30 June 2024. Currently, providers of EMTs and ARTs fall under the TVTG and Due Diligence Act.
Liechtenstein will ensure that its application of MiCAR will coincide with the rest of the EU. However, this largely depends on when the regulation gets incorporated into the EEA Agreement. The Travel Rule represents a significant step towards regulatory clarity and accountability in the crypto space. TT service providers in Liechtenstein must adhere to its requirements and implement robust compliance measures. To read this report, co-written by 21 Analytics, CLL and Nägele, in full, download the PDF here.
