Does ToFR apply to crypto businesses pre-MiCA?

EU Transfer of Funds Regulation

The Transfer of Funds Regulation (ToFR) is the EU’s law that implements the Financial Action Task Force’s Recommendation on wire transfers, better known as the Travel Rule. The Travel Rule requires that certain information about a payer and payee (or originator and beneficiary in relation to crypto transfers) be obtained and shared. In the EU, ToFR was recently updated to bring transfers of crypto-assets within its scope.

The updated ToFR will apply on 30 December 2024. As it relates to transfers of crypto-assets, who needs to comply with it?

Who does ToFR apply to?

ToFR applies in relation to crypto-asset transfers where at least one of the crypto-asset service providers (CASPs) involved (whether on behalf of the originator or beneficiary) is an EU CASP.

Therefore, ToFR applies to CASPs, which are defined in the Markets in Crypto-assets Regulation (MiCA) as entities that have been authorised in the EU in accordance with Article 59.  

MiCA will apply to CASPs on 30 December 2024. However, crypto businesses that provided their services under national regimes before the application date will be allowed to continue to do so for up to 18 months (until July 2026) while they are authorised as CASPs under MiCA. An EU-wide appreciation of transitional periods can be confusing, as individual countries can decide on any length of time. This can be up to 18 months or, in some cases, no transitional period at all. Are crypto businesses in the EU that are not yet authorised as CASPs subject to ToFR? Technically speaking, the answer is no. But it depends.

Neither black nor white

Strictly speaking, the application of ToFR, which as a Regulation applies directly in the 30 EEA countries, relies on MiCA. ToFR does not apply until a service provider is authorised as a CASP under MiCA.

Although ToFR will not apply to crypto businesses throughout the EU while they transition to MiCA, some crypto businesses may be subject to a version of the Travel Rule based on national regimes. National legislation in certain jurisdictions may already require firms that provide crypto-asset services to comply with similar requirements as those within ToFR or may require firms to comply with ToFR from its application date (30 December 2024). To add to the confusion, although ToFR does not allow for a transitional period, the European Banking Authority has published Guidelines which allow for a 7-month transitional period (until 30 July 2025) while CASPs get ready to comply with ToFR.

Practical considerations

As a crypto business that has applied or is planning to apply to be authorised as a CASP under MiCA, you may want to demonstrate early on that you will be in a position to comply with applicable requirements, including ToFR, as soon as these become applicable. As such, there is no downside to voluntarily applying this requirement to your crypto business, even though it is not yet strictly required. Demonstrating that you will be capable of complying with the Travel Rule the moment you become authorised (or sooner) can only position you more favourably when it comes to your application being considered.

Conclusion

ToFR only applies to CASPs authorised under MiCA unless individual national regimes mandate compliance with ToFR by crypto businesses, even if they are not authorised as CASPs. Nevertheless, service providers who continue to provide services while applying for CASP authorisation are well advised to comply with ToFR straight away. Doing so will help them through the authorisation process.

Feel free to get in touch if you would like to understand what requirements apply to you based on your particular circumstances.