Notabene is delighted to announce our new partnership with Tap, a rapidly growing fintech provider, specializes in traditional money account management and cryptocurrency settlement solutions for over 250,000 registered users, This a strategic move aimed at bolstering Tap’s compliance operations through SafeTransact's top-tier solutions for continuous adherence to the crypto Travel Rule. 

This collaboration aligns perfectly with Notabene’s mission to make crypto transactions a part of the everyday economy. Our partnership is a testament to Tap's dedication to consumer trust and proactive stance in consistently meeting pre-transaction regulatory requirements.

Enhancing Compliance in the Crypto Industry

The cryptocurrency market is rapidly evolving, increasing regulatory demands for transparency, security, and compliance with local crypto legislation. Tap's strategic decision to partner with Notabene addresses a critical industry need in this context.

Notabene's powerful SafeTransact platform and SafeGateway solution offer distinct advantages:

• SafeTransact: Strengthens identification and mitigation of high-risk activity, empowers compliance teams with data-driven decision-making tools, and seamlessly integrates the Travel Rule into compliance processes.
• SafeGateway: A standout feature that facilitates effective VASP-to-VASP interactions across protocols, positioning Notabene at the forefront of the cryptocurrency compliance solutions sector.

Tap, known for its regulatory-first approach, emphasizes the importance of consumer trust and operational transparency. This partnership with Notabene will enhance Tap's operational efficiency and maintain its competitive edge in the industry.

Leaders’ Insights on the Collaboration

Kriya Patel, CEO of Tap, expressed enthusiasm about this strategic alliance with Notabene. 

“I am delighted to be able to announce our strategic partnership with Notabene and I look forward to growing the relationship together whilst navigating through to meeting and maintaining our current and future regulatory requirements in our industry. 

The partnership with Notabene was a natural one. They share the same values as Tap by focusing on customer-driven product needs, whilst allowing us to maintain a regulated and security-first approach.” - Kriya Patel, CEO of Tap.

Pelle Braendgaard, CEO of Notabene, echoed these sentiments, noting the alignment of Tap's commitment to compliance and customer trust with Notabene’s mission.

"We are pleased to collaborate with Tap, their commitment to compliance and customer trust aligns seamlessly with our mission. Together, we can advance the industry while ensuring the highest standards of security and transparency." - Pelle Braendgaard, CEO of Notabene.

In conclusion, Tap's partnership with Notabene is a forward-thinking move, aligning with the evolving demands of cryptocurrency regulation and reinforcing its commitment to maintaining the highest standards of compliance and customer trust.

[NEW YORK, LONDON, December 5, 2023]

Notabene, the trusted leader in crypto pre-transaction decision-making, announces SafeGateway, a new solution that facilitates VASP-to-VASP interactions across various protocols. This innovative tool streamlines compliance with the Travel Rule, making it easier for virtual asset service providers (VASPs) and financial institutions to connect and transact across diverse protocols. SafeGateway is a game-changer in crypto compliance, offering unmatched ease in connecting with global counterparts and managing regulatory requirements, all through a single, user-friendly platform.

The need for SafeGateway arises from the lack of interoperability among Travel Rule compliance solutions. According to Notabene's 2023 State of Crypto Travel Rule Compliance report, 24% of surveyed VASPs identified protocol interoperability as a compliance challenge, with 20% concerned about protocol fragmentation.

Additionally, the Financial Action Task Force (FATF), the anti-money laundering watchdog that extended the Travel Rule to crypto transactions, continuously urges the industry towards interoperability. In its 2022 and 2023 Targeted Updates on Implementation of the FATF Standards on Virtual Assets and Virtual Asset Service Providers, FATF consistently urged the development of global, interoperable solutions that align with varying jurisdictional requirements, encouraging the private sector to advance interoperability through technological means or collaborative efforts.

SafeGateway emerges as Notabene’s response to this interoperability puzzle by facilitating interoperability between VASPs instead of between protocols. By offering three gateway configurations to the 5+ protocols on the market, SafeGateway provides customers with maximum reach to counterparty VASPs and institutions globally to transact safely with counterparties across disparate networks while catering to their particular security needs. This development is vital as the alternative is that companies cannot transact with counterparties who are not on their protocol. 

SafeGateway is a timely solution, considering major enforcement deadlines are approaching, such as the European Union's December 30, 2024 deadline. Starting January 1, 2025, all 27 member states will have to comply with the Travel Rule, and so will their major transaction counterparties. SafeGateway allows VASPs to bypass the complexities of integrating several protocols to reach their transaction counterparties on closed networks. 

How it works: Notabene’s in-network VASPs request access for specific protocols and, once approved, integrate the protocol access code into their server. SafeGateway automatically selects the appropriate protocol for Travel Rule data transfers to other network VASPs and manages the data flow. Transactions are completed and returned via SafeGateway. Customers can monitor and manage these data transfers using Notabene's compliance dashboard, allowing compliance officers to enforce consistent jurisdictional standards, apply unified rules, and produce detailed transaction reports. 

“By enabling different, currently isolated protocols through SafeGateway, our customers can reach new counterparties that were not interoperable previously. This innovation aligns with Notabene’s neutral view towards protocols, and we are eager to work with them as long as they meet security and Travel Rule requirements,” said Andres Junge, CTO of Notabene. “SafeGateway is just the beginning of several initiatives we are introducing as a call to action for the industry to collaborate to achieve compliance without hindering transaction flows.” 

SafeGateway represents more than just a compliance solution; it's a step towards a more interconnected and efficient future in digital asset management. By simplifying complex compliance hurdles, it opens up new possibilities for VASPs around the world. As Notabene continues to innovate, SafeGateway sets the stage for what's next in crypto compliance. Notabene continues to lead the way in creating a more seamless, compliant, and connected digital asset world.

Notabene invites the industry to connect with their Travel Rule solution that meets today's regulatory demands and anticipates and adapts to future needs and requirements.

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-ENDS-

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Media Contacts

Sacha Lowenthal, Head of Marketing

[email protected]

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About Notabene

Notabene developed the crypto industry's only pre-transaction decision-making platform, enabling customers to identify and stop high-risk activity before it occurs. With a focus on security, privacy, and user experience, Notabene's multi-source data and software enable real-time decision-making, counterparty sanctions screening, self-hosted wallet identification, and more. SOC-2 security certified and trusted by over 100 companies, Notabene operates globally with headquarters in New York with a presence in Switzerland, Singapore, Germany, and the United Kingdom.

Companies like Copper, Luno, Crypto.com, and Bitstamp leverage our  SafeTransact platform for Travel Rule compliance, tailored to their needs and aligned with global and local regulations. Our platform builds trust in virtual asset transactions to foster financial growth with minimized risk.

Get started today; sign up for our free SafeTransact Riseplan to respond to regulated transactions for free using the world's largest VASP Network of over 1,000 members. 

LinkedIn

Notabene is trusted by over 120 virtual asset service providers (VASPs), encompassing major banks, custodians, and exchanges, for seamless Travel Rule compliance. Our platform, SafeTransact, facilitates millions of regulatory-compliant transactions monthly involving more than 300 assets and has processed transfers originating from over 20 jurisdictions. Additionally, we cover a wide range of 10,000 assets, further demonstrating our comprehensive global approach to Travel Rule compliance — a primary factor in why companies worldwide choose us.

Given the rapidly evolving landscape of crypto technology and its inherently cross-border scope, we recognize the impracticality of a single, unified Travel Rule messaging system today. Insights from traditional payment systems show us that institutions often need to interact with multiple systems, each catering to unique requirements.

In the absence of an industry-wide unified messaging system, Notabene offers SafeGateway. SafeGateway is a solution that facilitates VASP-to-VASP interaction across protocols.  
Learn more below.

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The Challenge of Fragmented Messaging Protocols

When the Financial Action Task Force (FATF) extended the Travel Rule to virtual assets in 2019, there was no standard or messaging layer for the secure transfer and receipt of end-user data. Now, in 2023, the situation has evolved. While standards have emerged, the industry confronts a new challenge: an overwhelming assortment of Travel Rule messaging protocols, each useful in its own way but collectively creating a fragmented landscape that complicates compliance and, more generally, transaction flows. It is impractical and resource-intensive for VASPs to connect to multiple protocols independently. However, not connecting limits VASPs' ability to comply and restricts their ability to transact with a wide reach of counterparties.

See our previous article for further information on the Interoperability Challenge of Travel Rule Compliance.

This current state of affairs is akin to the early days of email, with different protocols leading to a lack of smooth communication. Just as the email world moved towards interoperable standards like SMTP and IMAP, the crypto sector now stands at a similar juncture. 

SafeGateway emerges as Notabene’s response to this interoperability puzzle by facilitating interoperability between VASPs instead of between protocols. It is a gateway into multiple protocols empowering VASPs to reach their counterparts across disparate networks.

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Introducing SafeGateway: Enhancing Reachability to Enable Travel Rule Compliance Across the Market in a Fragmented Landscape

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We're thrilled to launch SafeGateway, a solution that facilitates VASP-to-VASP interaction across protocols. SafeGateway acts as a protocol agent, facilitating seamless connections with any compatible Travel Rule protocol. This development allows our clients to apply a unified compliance approach using Notabene’s platform while easily accessing counterparties across different protocols. 

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Fast benefits:

• Discoverability: Leverage the discoverability methods of other Travel Rule protocols.
• Connectivity: Engage with VASPs using different Travel Rule protocols.
• Efficiency: Apply jurisdiction requirements, manage uniform rules, and generate reports centrally.
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SafeGateway enables our customers to link with VASPs through integrations with various existing Travel Rule messaging systems and networks. This approach ensures maximum global reach, allowing secure and efficient transactions with all counterparty institutions, and brings transactions to SafeTransact’s all-in-one Travel Rule compliance dashboard. 

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Key Features of an Optimal Travel Rule Messaging Protocol

At Notabene, we believe that a crypto Travel Rule messaging system should ideally meet the following requirements:

• Accessibility: An open network with low or no fees to join and transact
• Business Process Integration: Ties into underlying business processes like trading, settlement, or payments
• Privacy and Security Standards: Best-in-class measures to safeguard sensitive data
• Future-Proof Technology: Simplifies scalability and increases counterparty reachability
• Regulatory Compliant flows: Flows aligned with the latest regulatory requirements

Currently, no messaging systems fully meet all five essential requirements. However, as they evolve, those that adhere to crucial security and regulatory compliance standards will be viewed neutrally and invited to integrate with SafeGateway.

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How SafeGateway Works

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The setup and operation of each gateway depends on the specific Travel Rule protocol being used. With some protocols, Notabene will build and operate agents independently, while with others, a joint effort with the protocol's developers is required. 

For Notabene clients, SafeGateway is ready for immediate use, enabling connections to supported Travel Rule protocols and for which clients have the necessary access credentials. This convenience allows our clients to seamlessly utilize these connections through the Notabene platform without dedicating their technical resources. However, it's important to note that using SafeGateway does not substitute for the process of joining each protocol's network, especially those that require separate onboarding.

Learn more about SafeGateway for VASPs.

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SafeGateway Benefits both VASPs and Protocols

For VASPs, SafeGateway and SafeTransact provide a unified hub for managing transactions and compliance reporting functions, featuring comprehensive risk analysis capabilities that operate seamlessly across protocols. VASPs can apply cohesive compliance controls without sacrificing counterpart reach. For protocols, integrating with Notabene’s SafeGateway means accelerated adoption by VASPs globally as they overcome integration challenges, compliance standardization, and shared technical collaboration.

A Call for Industry Collaboration

The FATF “urges the private sector to progress towards interoperability, whether through technological advancements that allow interoperability between tools or by developing relationships that permit transactions to be made through a chain of interoperable tools.” ^[1]

In our pursuit to make crypto transactions part of the everyday economy, we understand the necessity for transactions to be secure, efficient, and regulatory compliant. SafeGateway is our call to action for industry collaboration, aligning with the FATF's directives and contributing to setting a new standard for secure and compliant transactions.

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Interoperability in crypto Travel Rule compliance is more than a buzzword; it's a critical necessity. This term refers to the ability of various Travel Rule messaging protocols and their networks to exchange personally identifiable information (PII) effectively without compromising safety and security. Despite its importance, interoperability remains a complex, unsolved challenge, often hindering due diligence processes and restricting virtual asset service providers (VASPs) from transacting with counterparties on different networks.
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Today’s Travel Rule Compliance Landscape

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Today's landscape features two core solution types: messaging protocols for data transfer and end-to-end solutions for comprehensive compliance, such as Notabene's SafeTransact. The current market features 5+ Travel Rule messaging protocols, each bringing unique technological approaches and communication methods to the table. 

Travel Rule compliance solutions can be further broken down into open and closed networks.

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Closed vs. Open Networks

Closed networks: VASPs undergo a comprehensive vetting process to join, and often have to pay higher membership and/or transaction fees. In closed networks, VASPs often outsource the counterparty VASP diligence process to the network. VASPs can only send data transfers to other in-network VASPs on both open and closed networks. With the more rigorous enforcement of the Travel Rule happening now across jurisdictions, this often restricts VASPs from transacting with out-of-network counterparts.

Open networks: Any VASP can join, often free of cost. The counterparty due diligence and risk assessment process is carried out between VASPs, which is in accordance with the Financial Action Task Force's (FATF's) standards.

“Compliance tool providers may therefore consider that allowing information sharing only between their users (i.e., no interoperability) will prevent information being shared with unreliable counterparties (e.g., illicit users or those with insufficient data protection controls). 

The challenge with this approach is that, as set out in the FATF’s 2021 Guidance, VASPs are required to independently assess counterparty risk. While this approach may provide potential opportunities to simplify some aspects of counterparty due diligence (e.g., facilitating the identification of a counterparty VASP), it does not remove the need for VASPs to independently verify the information and ensure all relevant domestic obligations are met.” ^[1]

The FATF clarifies that the approach taken primarily by closed Travel Rule networks does not remove the need for VASPs to conduct counterparty VASP due diligence independently.

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The Industry’s Take on Protocol Fragmentation

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Nearly a quarter of VASPs surveyed identified interoperability issues as a significant hurdle to compliance, and 20% are concerned about market confusion due to the growing number of protocols. ^[2] 

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Even the FATF has emphasized the need for protocols to intercommunicate, calling for global solutions that can accommodate jurisdictional nuances. ^[3]

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Overview of Travel Rule Messaging Protocols

A Travel Rule messaging protocol allows VASPs to exchange originator and beneficiary customer information securely. However, messaging protocols address only one of the seven FATF-outlined steps that VASPs must take to be fully Travel Rule compliant. 

A comprehensive Travel Rule solution should enable businesses to:

1. Identify the type of transaction counterparty.
2. Apply relevant jurisdictional rules.
3. Screen each counterparty for sanctions.
4. Determine counterparty VASPs and assess risk scores using blockchain analytics.
5. Conduct due diligence on VASPs before transactions.
6. Store customer and beneficiary personal data in a GDPR-compliant manner.
7. Exchange customer data with VASPs via various blockchain protocols.

Businesses must still develop a complete solution to meet the remaining six criteria.

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Beyond Data Transfers: The Need for Comprehensive Compliance Solutions

A complete Travel Rule compliance solution goes beyond messaging protocols and provides support for each step of FATF’s Recommendation 16. It should include a full suite of services, from identifying counterparty types to GDPR-compliant data storage.

Notabene's Solution to the Interoperability Challenge

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Notabene tackles interoperability head-on with SafeGateway, a solution that facilitates VASP-to-VASP interaction across protocols.

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NEW YORK, September 21, 2023‍

Notabene, the pre-transaction decision-making platform, is pleased to announce a strategic partnership with Shift Markets, a leading Crypto-as-a-Service (CaaS) solutions provider. This collaboration marks a significant industry milestone as both companies unite their expertise to help businesses navigate the complexities of the crypto market safely and efficiently. 

Founded in 2009, Shift Markets has been at the forefront of the digital asset industry for over a decade, empowering businesses of all sizes to commercialize digital assets effectively. Their comprehensive suite of marketplace, payment, and exchange white-label solutions facilitates the growth of crypto-based businesses by providing them with the tools and solutions needed to succeed in today's rapidly evolving landscape.

Notabene’s SafeTransact platform enables its customers to identify and prevent high-risk activities before they occur, making crypto transactions safer and more reliable. With the SafeTransact platform, Notabene customers can automate real-time decision-making, perform counterparty sanctions screening, identify self-hosted wallets, and complete the smooth rollout of Travel Rule compliance in line with global regulation.

 "By joining forces with Shift Markets, Notabene is taking a crucial step towards enhancing the safety and reliability of crypto transactions. Our SafeTransact platform empowers businesses to make real-time, informed decisions, ensuring compliance with global regulations and mitigating risks. This partnership reaffirms our commitment to making the crypto market a safer place for all participants." - Magdiela Rivas, Partnerships Lead, Notabene

"At Shift Markets, we've always been dedicated to providing comprehensive Crypto-as-a-Service solutions to our clients. This partnership with Notabene allows us to further strengthen our commitment to secure and compliant digital asset solutions. Together, we will streamline the process of establishing and maintaining digital asset businesses, ultimately saving our clients’ time and money while increasing the safety of the broader crypto industry." – Sarina Gowland, Client Success & Partnership Manager, Shift Markets

As the crypto industry continues to evolve and gain mainstream acceptance, businesses need reliable, secure, and compliant solutions more than ever before. By coming together, Notabene and Shift Markets aim to provide increased value to their clients and strengthen their relationships within the crypto industry. Through this partnership, they will connect clients with trusted partners, ensuring that they can offer virtual asset solutions in a secure and compliant manner.

-ENDS-

For media inquiries or further information about Notabene and Shift Markets, please contact:

Notabene

Sacha Lowenthal

Head of Marketing

[email protected]

Shift Markets

Sarah Cullers

Vice President of Marketing

[email protected]

About Notabene:

Notabene developed the crypto industry's only pre-transaction decision-making platform, enabling customers to identify and stop high-risk activity before it occurs. With a focus on security, privacy, and user experience, Notabene's multi-source data and software enables real-time decision-making, counterparty sanctions screening, self-hosted wallet identification, and more. SOC-2 security certified and trusted by over 100 companies, Notabene operates globally with headquarters in New York, and presence in Switzerland, Singapore, Germany, and the United Kingdom.

Companies like Copper, Luno, Crypto.com and Bitstamp leverage our  SafeTransact platform for Travel Rule compliance, tailored to their needs and aligned with global and local regulations. Our platform builds trust in virtual asset transactions to foster financial growth with minimized risk.

Get started today; sign up for our free SafeTransact Rise plan to respond to regulated transactions for free using the world's largest VASP Network. 

LinkedIn | Twitter

About Shift Markets:

Shift Markets is a CaaS (Crypto-as-a-Service) solutions provider Founded in 2009 that enables any sized business to commercialize digital assets to grow their business. 

Shift offers a range of technological and service-based products for businesses operating within the crypto and traditional markets. To date Shift has successfully launched 200+ exchanges across our products. With offices, exchanges, and partners worldwide, Shift is a truly global company. 
As seen previously on Nasdaq, PYMNTS, Sail GP, Algorand, Hedera, & Messari

LinkedIn | Twitter

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Travel Rule compliant VASPs face several challenges in identifying their counterparties pre-transaction. The lack of a standardized way for linking blockchain addresses to counterparties and the complexity of dealing with different sorts of counterparties creates uncertainty about who is on the other side of a transaction—critical data for triggering Travel Rule compliance procedures.

Recent insights underscore this issue: a majority of surveyed VASPs have expressed a need for a universal identification method in line with existing Travel Rule protocols, and 52% of respondents reported to send Travel Rule transfers to all VASPs without applying any criteria or counterparty due diligence process. ^[1] This issue could lead to regulators imposing widespread restrictions on transacting unless a counterparty is identified.

To address this gap, Notabene releases Network Discoverability, a privacy-preserving mechanism for identifying VASPs through blockchain addresses.

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Introducing Network Discoverability 

We've recently launched the Network Discoverability, a feature that empowers in-network VASPs to securely auto-identify blockchain addresses. This addition to our product suite feature reflects our commitment to equipping Compliance Officers with robust tools, ensuring seamless interactions with counterparties while upholding stringent security and compliance standards.
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How does Notabene’s Network Discoverability help you?

With Notabene's Network Discoverability, in-network VASPs can quickly and reliably identify their counterparties in real time. This feature ensures adherence to the Travel Rule’s due diligence mandates and streamlines transactional efficiency by eliminating unnecessary redundancies in verifications.

• Efficient and Accurate Transaction with Trusted Counterparties: The Network Discoverability feature allows VASPs to automatically identify blockchain addresses on both ends, ensuring data is directed to the correct party. This enhances the speed and accuracy of transactions.
• Enhanced Security: VASPs can safely share their encrypted blockchain addresses within Notabene's Network by opting in, ensuring that hashed addresses remain confidential and irreversible.
• Reduces Transaction Friction: Removing the need for end-user input at the transaction level enables VASPs to increase reachability and reduce transaction friction and latency.

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A comparative overview: before and after Network Discoverability

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Without Network Discoverability: When an Originator VASP A sends a Travel Rule transaction, the Beneficiary VASP must repeatedly claim the blockchain address. If Originator VASP B sends a transaction to the same address, it must go through the steps to discover the VASP behind the transaction to the same address. VASPs may need to ask the end customer to identify the counterparty VASP,  and the Beneficiary VASP must claim the address again, which adds to overall transaction latency. 

With Network Discoverability: VASPs share cryptographically hashed versions of their blockchain addresses, which are stored privately in a segregated database. If any VASP sends a transaction to that address in the future, the system quickly provides the hashed address, automatically verifying it for the sender.
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Network Discoverability is a testament to Notabene's innovative approach to Travel Rule compliance, enhancing SafeTransact’s existing suite of services. VASP Discoverability accelerates and simplifies verification for all involved parties, by securely storing and disseminating encrypted blockchain addresses across a cooperative network. By opting into this feature VASPs are able to leverage the power of the Notabene Network, reduce friction for their end users, and increase the speed in which Travel Rule messages are created. 

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Stablecoins have become a critical part of the evolving cryptocurrency landscape. Given their significance, it's crucial to grasp their role concerning the Crypto Travel Rule.This final article in our three-part series compares perspectives from both the Financial Action Task Force (FATF) and the European Union's (EU) positions on decentralized finance (DeFi), Stablecoins, and non-fungible tokens (NFTs).

This article covers Stablecoins, the EU’s and FATF’s general stance on whether they are regulated virtual assets, if stablecoin issuers are regulated as VASPs, and covers noteworthy developments over 2022. 

What are Stablecoins?

Firstly, let's understand what stablecoins are. Stablecoins are a specialized type of cryptocurrency crafted to minimize price volatility. Unlike virtual currencies such as Bitcoin or Ethereum, which are known for their price fluctuations, stablecoins aim to maintain a consistent value. They achieve this stability by tying their value to a reserve asset, often a fiat currency like the US Dollar or the Euro, or other types of assets like gold. In essence, the value of a stablecoin is tied to the value of the underlying asset or group of assets to maintain a 1:1 ratio or another predetermined ratio.

Types of Stablecoins

Stablecoins can be categorized into three main types based on what backs them:

1. Fiat-Collateralized Stablecoins: These stablecoins are backed by a reserve of a specific fiat currency, kept in a bank or another regulated financial institution. In simple terms, for each stablecoin in circulation, an equivalent amount of fiat currency is held as a reserve.

2. Crypto-Collateralized Stablecoins: These are stablecoins that are backed by other cryptocurrencies. Given the volatile nature of cryptocurrencies, these stablecoins are typically over-collateralized to account for price swings.

3. Algorithmic Stablecoins: These stablecoins aren't backed by any collateral. They use smart contracts and other mechanisms to automatically tweak the stablecoin supply in reaction to demand changes, with the end goal of maintaining a stable price.

The primary uses of Stablecoins

Stablecoins serve multiple functions, including facilitating transactions, acting as a stable store of value within the cryptocurrency market, and forming a bridge between traditional fiat currencies and cryptocurrencies. Importantly, they are often used in DeFi applications for various financial activities like lending, borrowing, and earning interest on crypto assets.

The Rise and Scrutiny of Stablecoins in 2022

Stablecoin usage surged in early 2022 but faced scrutiny in the latter half of the year after the collapse of TerraUSD. TerraUSD was a popular algorithmic stablecoin whose dollar peg broke down due to massive concurrent withdrawals from Anchor and Curve crypto exchanges, causing a broader selloff that wiped off $200 billion from the market value of all crypto-assets.

The collapse of TerraUSD generated new concerns over stablecoins' safety, leading policymakers to impose rules on stablecoin issuers. Moreover, regulators and central banks became concerned about the rise of stablecoins eroding their monetary monopoly. Below we highlight relevant stablecoin events in 2022:

Stablecoin Legal & Regulatory Spotlight in 2022

• January 12, 2022 📋- The Hong Kong Monetary Authority (HKMA) released a discussion paper that provided insight into the HKMA’s plans for the future of stablecoin regulation in Hong Kong. 
• May 9, 2022 - UST's peg to USD broke, leading to the price of UST and its sister token LUNA crashing. This wiped $200 billion from the market value of all crypto assets.
• June 3, 2022 - Japan’s parliament passed a bill to ban stablecoin issuance by non-banking institutions.
• July 13, 2022 📋- The Committee on Payments and Market Infrastructures (CPMI) and International Organization of Securities Commission (IOSCO) affirmed that the Principles for Financial Market Infrastructures apply to ‘systemically important’ stablecoin arrangements and transfers. 
• July 19, 2022 - The UK Chancellor announced the planning of a bill that sets out how stablecoins may be used as a payment method.
• September 21, 2022 - Members of the U.S. Congress began working on legislation that would temporarily ban certain types of algorithmic stablecoins.
• October 5, 2022 📋- The EU’s MiCA laid out strict stipulations for stablecoin issuers due to their potential for mass adoption as a means of exchange as well as their associated market integrity risks.

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N.B. The dates that are accompanied by a clipboard icon indicate a document that was produced by a regulator.

How Does the Crypto Travel Rule Apply to Stablecoins?

Both the FATF and the EU have established significant stances regarding stablecoins. The FATF views stablecoins with concern due to their potential for anonymity, global reach, and potential misuse for illegal fund transfers. As such, it calls for a risk-based approach for identifying obliged entities. The EU's Markets in Crypto-assets (MiCA) regulation provides a more differentiated treatment, distinguishing stablecoins based on whether they qualify as significant asset-referenced or e-money tokens, each carrying distinct regulatory requirements. Notably, the FATF classifies stablecoins as securities or VAs, whereas the EU determines if a crypto-asset falls within the scope of MiCA depending on the nature of the token, including algorithmic stablecoins.

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FATF vs. EU: General Stance on Stablecoins

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FATF: Stablecoins rank high on the list of the FATF’s concerns “because of their potential for anonymity, global reach, and use to layer illicit funds.” The FATF also calls out their “greater potential for mass adoption” as stablecoins overcome the volatility issues associated with other crypto-assets and, therefore, constitute a more suitable option for payments. The FATF expects countries to “take a functional approach to identify obliged entities” and “mitigate the relevant risks based on a risk-based approach (RBA) regardless of institutional design and names.” ^[1]

EU: MiCA distinguishes the treatment of stablecoins depending on whether they qualify as significant asset-referenced tokens or significant e-money tokens, as these  “can pose greater risks to financial stability.” ^[2] Issuers of significant asset-referenced tokens or significant e-money tokens are subject to more stringent requirements including “higher capital requirements, to interoperability requirements and they should establish a liquidity management policy.” ^[3]

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FATF vs EU: Are Stablecoins considered Virtual Assets?

FATF: FATF classifies stablecoins as securities or VAs.

EU: Where a crypto-asset falls within the definition of an asset-referenced token or e-money token, it falls under MiCA’s scope, irrespective of how the issuer designed the crypto-asset, including the mechanism to maintain a stable value - this includes algorithmic stablecoins. ^[4]

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FATF vs. EU: Are Stablecoin issuers regulated as VASPs? 

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FATF: Entities involved in the governance of stablecoins, whether centralized or decentralized, could be categorized as VASPs depending on their position and the terms of the stablecoin arrangement. In situations where decentralized entities manage the stablecoin (e.g., MKR token holders who monitor Maker Protocol), it becomes more difficult to identify the entity responsible for AML/CTF. In these cases, entities that could fall within the scope for regulatory or supervisory action are the following: 

1. The initial driver of the development and launch of the arrangement that eventually becomes decentralized.
2. One that facilitates trading with stablecoins.
3. Custodial wallet services that support stablecoins. ^[1]

EU: Algorithmic stablecoins issuers that aim at maintaining a stable value in relation to an official currency of a country or to one or several assets, via protocols, are subject to the rules applicable to asset-referenced tokens or e-money issuers. Offerers or persons seeking admission to trading of algorithmic crypto-assets that do not aim at stabilizing the value of the crypto-assets by referencing one or several assets are, in any event, subject to the requirements applicable to the issuance of other crypto-assets (set in Title II of MiCA). ^[4] 

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FATF vs. EU: Noteworthy Stablecoin Developments

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FATF: In it’s Targeted Update, the FATF states, “As the liquidity of stablecoins increases in parallel with the growth of DeFi markets, FATF will continue to facilitate discussion between jurisdictions and other standard setting bodies on implementation issues.” ^[5]

EU: Stablecoin issuers should have a custody policy that ensures asset segregations, prevents tokens from being used as collateral, and provides holders with prompt access to their funds. Credit institutions, investment firms, or VASPs should custody the insulated reserves.  The credit institution, an investment firm, or a VASP that custodies the segregated reserve should be responsible for the loss of reserve assets. ^[6]

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In summary, the Crypto Travel Rule has far-reaching implications for stablecoins. Both the FATF and EU offer varied approaches in their regulations, primarily distinguishing stablecoins based on their nature, usage, and associated risks. As stablecoins continue to gain prominence in the crypto market, further evolution of regulatory stances is anticipated. Understanding these rules and how they apply to stablecoins will play a significant role in shaping the future trajectory of these digital assets.

Discover the link between the crypto Travel Rule and Stablecoins in Notabene's comprehensive 2023 State of Crypto Travel Rule Compliance Report.

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This article was initially produced when the "Markets in Crypto-Assets" document was still in draft form. However, the content has been updated to reflect the final regulation as published by the EU Parliament in 2023 [EU Parliament (2023). Markets in Crypto-Assets, various pages and paragraphs].

[Originally posted by FOMO Pay, see here]

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SINGAPORE, 29 Aug, 2023 – FOMO Pay, a leading digital payment and digital banking solutions provider headquartered in Singapore, announces its strategic partnership with Notabene. The implementation of Notabene’s end-to-end solution for global Travel Rule compliance enables FOMO Pay to further enhance its know-your-transaction (KYT) capabilities and highlights FOMO Pay’s commitment to compliance and customer security. In addition, through comprehensive licensing and adherence to regulatory requirements, FOMO Pay has obtained “Super VASP” status in Notabene’s Virtual Asset Service Providers (VASP) network. This milestone empowers the public with streamlined access to accurate and verified business information, aligning with FOMO Pay’s consistent efforts to foster trust in the digital payment and digital asset fields.

In 2019, the Financial Action Task Force (FATF) released crucial recommendations aimed at combating money laundering, terrorist and proliferation financing. FATF requires countries to assess and mitigate risks associated with virtual asset financial activities and providers. As part of the requirements, the Travel Rule mandates all VASPs to screen, record and communicate the information of both the sender and recipient of a digital asset transaction. In 2023, the global regulatory landscape has evolved with stricter enforcement of the Travel Rule for digital asset transactions, as governments and financial institutions worldwide take significant steps to enhance transaction integrity and overall financial ecosystem security.

In order to maintain comprehensive digital asset compliance capabilities in the ever-evolving digital asset industry, FOMO Pay adopts a proactive approach in investing in leading compliance solutions to continue to ensure strict adherence to global regulations. Integration with Notabene equips FOMO Pay to automate Travel Rule compliance in line with global regulations, allowing secure and efficient digital asset transactions.

“We are pleased to partner with Notabene and integrate their Travel Rule solution. This collaboration represents FOMO Pay’s commitment to strengthening our compliance capabilities in alignment with global regulations, enabling informed decisions to enhance our AML capabilities,” said Wee Teck Lim, Head of Compliance at FOMO Pay. “We firmly believe that our collaboration with Notabene will further enhance our ability to provide secure and reliable digital payment and digital asset solutions to our valued clients and partners.”

“We are excited to be working with FOMO Pay to enrich their compliance capabilities and ensure safer digital asset transactions for their clients. FOMO Pay’s commitment to bridging the gap between fiat and digital assets for business use cases is very aligned with our mission at Notabene. This collaboration demonstrates the significant impact of Travel Rule implementation in facilitating secure and efficient digital asset transactions to build a safer and more accessible digital asset ecosystem.” – Pelle Braendgaard, CEO of Notabene.

With this partnership, FOMO Pay demonstrates its steadfast commitment to upholding industry standards in compliance by ensuring safer transactions involving digital assets for merchants, corporates and financial institutions. FOMO Pay’s proactive approach to regulatory compliance and strategic investments in robust solutions solidify its position as a leading digital payment solutions provider.

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-ENDS

Media Contact

Sacha Lowenthal

Head of Marketing, Notabene

[email protected]

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About Notabene

Notabene developed the crypto industry’s only pre-transaction decision-making platform, enabling customers to identify and stop high-risk activity before it occurs. With a focus on security, privacy, and user experience, Notabene’s multi-source data and software enables real-time decision-making, counterparty sanctions screening, self-hosted wallet identification, and more.

SOC-2 security certified and trusted by over 100 companies, Notabene operates globally with headquarters in New York, and presence in Switzerland, Singapore, Germany, and the United Kingdom.

Companies like Copper, Luno, Crypto.com and Bitstamp leverage our SafeTransact platform for Travel Rule compliance, tailored to their needs and aligned with global and local regulations. Our platform builds trust in virtual asset transactions to foster financial growth with minimized risk.

Get started today; sign up for our free SafeTransact Rise Plan to respond to regulated transactions for free using the world’s largest VASP Network.

LinkedIn | Twitter

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About FOMO Pay

Founded in 2015, FOMO Pay Pte Ltd is a major payment institution (License No. PS20200145) regulated under the Payment Services Act in Singapore, licensed by the Monetary Authority of Singapore (MAS) to conduct Cross-border Money Transfer Services, Domestic Money Transfer Services, Digital Payment Token Services and Merchant Acquisition Services. The firm has become a leading one-stop digital payment and digital banking solution provider, and is currently building Asia’s first licensed gateway helping institutions and businesses to connect between fiat and digital currency. The company offers its three flagship products:

• FOMO Payment: a one-stop digital payment solution for merchants, corporates and financial institutions.
• FOMO iBank: facilitates businesses’ every-day requirements for transactional banking needs.
• FOMO Crypto: Asia’s first licensed gateway bridging fiat and digital currency.

Visit www.fomopay.com for more information.

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The world of crypto compliance has seen rapid changes over the past year. Since the Financial Action Task Force (FATF) extended Travel Rule compliance for crypto custodians, global events and pivotal moments have rapidly propelled Virtual Asset Service Providers (VASPs) from mere contemplation to active implementation of these AML compliance measures.

But what's genuinely fueling this accelerated adoption? Join us as we explore the primary motivations prompting VASPs to invest in Travel Rule solutions.

The Six Reasons Pushing VASPs to Find Crypto Compliance Solutions:

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1. Upcoming enforcement deadlines

As deadlines approach, VASPs run out of time to develop a cohesive compliance strategy, test direct integration into various protocols, and evaluate end-to-end solutions. Integrating and testing different protocols slows down the path toward Travel Rule compliance, with Compliance Officers spending upward of 18 months trialing protocols to fit the company’s specific needs.

Additionally, Exchanges registered in a jurisdiction where the Travel Rule is already enforced: US, Singapore, Switzerland, Philippines, South Korea, Germany, Canada, Indonesia, Malaysia, Gibraltar, Estonia, Dubai, Liechtenstein, Malta, Portugal, Japan, Hong Hong, the United Kingdom, as well as exchanges that send a large volume of transactions to VASPs in those jurisdictions, must roll out Travel Rule compliance as soon as possible.

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2. Business preservation and transaction assurance

As more and more VASPs become compliant with the Travel Rule, the expectation for their counterparty VASPs to receive travel rule information and respond reciprocally is growing. If the counterparty VASP does not participate in travel rule flows, it's becoming increasingly likely that compliant VASPs will simply stop transacting with them. Proactive compliance is paramount to avoid business and, more specifically, transaction slowdowns. Additionally, per FATF guidance, VASPs can now restrict transactions with non-compliant counterparts. 

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Our 2023 State of Crypto Travel Rule Compliance Report highlights that about 61% of respondents enforce transaction restrictions with non-cooperative counterparties: 8% need a Travel Rule message sent to the beneficiary VASP, 41% employ a risk-based approach, and 12% await a response from the Beneficiary VASP. Non-responsive counterparties risk losing transactions from compliant VASPs, making this a critical reason for VASPs to invest in compliance solutions.

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3. Stakeholder demand

VASPs are rolling out Travel Rule solutions quickly to meet the demand from their banking partners, auditors, institutional customers, and other business stakeholders.

It is now a standard expectation for VASPs to be travel rule compliant when applying for new banking partners, getting audited, or establishing other business relationships. Demonstrating compliance with the Travel Rule improves a VASP's likelihood of passing the due diligence requirements to establish solid banking relationships. By including the Travel Rule in their compliance stacks, VASPs demonstrate their risk management strategies to auditors, align with industry standards, and meet regulatory expectations, bolstering their reputation as trusted market participants.

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4. Increased regulatory scrutiny due to sanctions

The Russia-Ukraine war accelerated crypto Travel Rule compliance.  Financial regulators have implemented fresh sanctions against Russian organizations and persons in response to the crisis between Russia and Ukraine. Although it is unknown to what extent sanctioned parties may turn to crypto, VASPs worldwide have acted upon the increased imperative to comply with sanctions obligations. Without crypto Travel Rule compliance, VASPs can—often unknowingly—facilitate transactions with sanctioned counterparties. Transactions associated with entities like Garantex, Bizlatzo, or any other sanctioned crypto service pose a substantial compliance risk for businesses in the U.S. and other jurisdictions, with potential fines and criminal charges as consequences.

Therefore, it's crucial for VASPs to be able to discern whether their clients are sending transactions to sanctioned entities, wallets, or jurisdictions. This can only be achieved by diligently implementing Travel Rule compliance, which enables transaction-level counterparty and sanction insight.

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5. To benefit from an incremental Travel Rule adoption

Forward-thinking VASPs are strategically using a phased rollout to their advantage. Ahead of their regulatory timelines, they are getting started with collecting the necessary counterparty data, putting in place the systems, and easing into the travel rule. This puts them in a great place to be ready without excessive strain on resources and with minimized impact on their customers.

Thanks to industry advocacy, some regulators are warming up to this staged approach to compliance. Recent surveys highlight an increasing preference for this phased approach: 31% in the current year, up from 18% in 2022.

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6. To gain a competitive edge

It goes without saying: regulated financial products distinctly outshine their unregulated counterparts by offering numerous advantages. Advantages include crucial investor protection, stringent legal compliance, unwavering financial stability, improved market confidence, effective dispute resolution mechanisms, and indispensable consumer safeguards. Additionally, crypto compliance ensures safer transactions, strengthens trust, and strategically positions VASPs as reputable market players for enhanced growth and reach.

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How Notabene Addresses the Six Reasons VASPs Are Considering Travel Rule Solutions

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1. Notabene’s multi-jurisdictional approach facilitates seamless onboarding for VASPs across various jurisdictions

With imminent deadlines, globally-operating VASPs confront the challenge of staggered Travel Rule enforcement across their jurisdictions. This leaves them scrambling to craft a unified compliance strategy in each location, integrate protocols for each entity, and assess comprehensive solutions. 

For example, a VASP located across three jurisdictions may need a Money Services Business (MSB) license in the United States in Canada, a Digital Payment Token (DPT) license in Singapore, and a license from the Federal Financial Supervisory Authority (BaFin) in Germany—each with distinct compliance requirements.

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Notabene's SafeTransact provides a streamlined solution tailored for global businesses, offering support across 20+ jurisdictions and counting. VASPs choose us to expedite their Travel Rule compliance with multiple regions. Additionally, VASPs can leverage our SAFE Implementation program; VASPs can seamlessly integrate and fast-track their regulatory adherence, ensuring business continuity and regulatory alignment. Learn more below.

2. SafeTransact Rise: Notabene’s answer to business preservation and transaction assurance

Our customers’ success is our primary goal, and we understand that without responses to their Travel Rule transactions, our VASPs may not be able to achieve full compliance. Recognizing that many businesses may not have the tools to handle these responses, we offer SafeTransact Rise - a complimentary Sunrise Plan that provides transaction beneficiaries access to our comprehensive Travel Rule compliance dashboard to respond to unlimited inbound messages, as well as and send up to USD 10k in outgoing transactions. While on our platform, Compliance Officers can test out setting up safe, automated compliance workflows and utilize award-winning partnerships with blockchain analytics and sanctions screening providers.

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3. Demonstrating Travel Rule compliance readiness with Notabene's SafeTransact

When implemented correctly—pre-transaction settlement— Travel Rule compliance equips VASPs with detailed insights into transactional counterparties and allows VASPs to ascertain if clients transact with sanctioned entities, wallets, or regions.

As the industry’s only pre-transaction decision-making platform, Notabene's SafeTransact preemptively identifies and halts high-risk activity before reaching the exchange. Our platform offers a comprehensive view of crypto transactions, allowing users to automate real-time decisions, screen counterparties for sanctions, recognize self-hosted wallets, and ensure seamless global Travel Rule compliance following international regulations.

Additionally, VASPs use our reporting tools to demonstrate their Travel Rule compliance programs, including verified data about their transactions, counterparties, and VASPs’ steps to build robust compliance measures.

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4. Set rules to automatically stop transactions to sanctioned actors

Our customers can effectively identify sanctioned counterparties and block ensuing transactions by performing the following checks before the transaction occurs: 

1. Identifying counterparty VASP
2. Performing VASP due diligence
3. Identifying and sanction screening counterparty customers 
4. Monitoring wallet risk scores

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To automate this process, customers head to the Rules Engine to encode their risk-based rules to restrict incoming or outgoing Travel Rule data transfers with VASPs that do not meet their diligence criteria. This step also allows them to identify and block suspicious transactions at scale. By tying this mechanism into the transaction flow, this functionality boosts transaction efficiency and provides Compliance Officers with robust tools to mitigate AML-related risks effectively.

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5. SAFE Implementation phases: benefit from a comfortable Travel Rule adoption

We advocate for a phased, data-driven approach to Travel Rule implementation. Our SAFE Implementation process offers Notabene clients a tailored pathway to compliance based on their business needs. Customers can meet regulatory guidelines and evolve their own risk-based approach and needs over time - with the first phase requiring less than a week with only minimal technical integration. Furthermore, as part of the implementation phases, Notabene's SafeTransact platform provides industry-unique support for multiple legal entities, allowing VASPs to easily expand into multiple jurisdictions without worrying about complex legal and compliance issues. Our goal with SAFE Implementation is to make a comfortable Travel Rule technical rollout so VASPs can focus on other matters, such as incorporating new compliance requirements into their business workflows.

Learn more about SAFE Implementation

6. Notabene: competitive edge through specialized Travel Rule training & solutions

Due to its novelty and operational intricacies, fully harnessing the advantages of Travel Rule compliance requires learning a new set of rules. For the latest training on this regulation, Notabene offers a Travel Rule Compliance Certification, equipping Compliance Officers with the tools they need to succeed in 2023 and beyond.

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As the Travel Rule deadline approaches, UK has made significant strides that directly impact UK VASPs’ compliance programs. In this article will highlight the key milestones and takeaways from recent regulatory publications and how Notabene is responding to these developments. Stay informed and engaged with the most relevant regulatory developments concerning Travel Rule compliance in the UK with Notabene.

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Relevant Travel Rule regulatory milestones in the UK 

The timeline below gives a brief overview of the most relevant milestones for Travel Rule compliance in the UK:

Key Travel Rule Takeaways from the JMLSG Guidance

On July 28, 2023, the Joint Money Laundering Steering Group (JMLSG) published a draft Travel Rule guidance that is now up for public consultation. CryptoUK’s Travel Rule Working Group, co-chaired by Notabene’s Senior Regulatory and Compliance Associate Catarina Veloso, shared insights and feedback with regulators and the JMLSG ahead of the publication of this draft. Both Notabene and CryptoUK will submit a response to the public consultation, by August 25, 2023. 

Find the key takeaways below: 

1. ‍Sunrise Issue: The current draft of the JMLSG Guidance acknowledges the Sunrise period as presenting “challenges for CBs dealing with counterparties in jurisdictions where the travel rule has not yet been implemented”. The current draft guidance advises Crypto Businesses (CBs) to take account of any FCA communications on this matter. Learn the FCA’s specific expectations for UK VASPs transacting during the sunrise period below. 
2. Cross-border Transactions: The Guidance clarifies that UK VASPs must follow UK Travel Rule requirements, regardless of whether their counterparty is subject to a different scope of requirements.‍
3. Self-hosted Wallet Transactions: The guidance offers VASPs detailed advice on risk assessment and appropriate actions for self-hosted wallet transactions.‍
4. Counterparty Discoverability: With no global VASP identifiers, the guidance suggests steps VASPs can take to identify counterparties and ascertain wallet hosting status.‍
5. Lightning Network: The draft discusses Travel Rule application within the Lightning Network, stating intermediate parts of a transfer are not subject to the rule, even if nodes are CBs.

Dive deeper into the takeaways on our recent blog post.

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FCA Statement: How UK VASPs should proceed with transactions during the sunrise period

On August 17, 2023, the FCA published its expectations for UK cryptoasset businesses complying with the Travel rule. The publication outlined how UK VASPs are required to comply with the Travel Rule when sending or receiving a transaction from a counterparty based in a jurisdiction where Travel Rule does not yet apply.

• ‍When sending a transaction to a jurisdiction without the Travel Rule, if the counterparty VASP cannot receive the necessary information, the Originator UK VASP must still collect and verify the information as required by the Money Laundering Regulations (MLRs) and should store that information before making the cryptoasset transfer.

📌 Notabene clients can monitor the transfers sent to VASPs that are not able to receive Travel Rule information within their compliance dashboard.

• ‍When receiving a transaction without the required Travel Rule information, UK Beneficiary VASPs must make a risk-based assessment of whether to make the cryptoassets available to the beneficiary customer taking into account the status of Travel Rule regulations in the jurisdiction where the counterparty operates.

📌 Notabene clients are able to detect and monitor incoming transactions with missing Travel Rule information via API. These transactions will appear in their compliance dashboard.

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SAFE Implementation: The Importance of a Phased Implementation when Rolling out a Travel Rule Program

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As the Global Head of Customer Success at Notabene, I regularly consult with Compliance leaders at the start of their Travel Rule implementation journey. 

While many understand the importance of complying with the Travel Rule, they often feel overwhelmed regarding how to get started, especially during the sunrise period and when dealing with multiple jurisdictions or areas needing more regulatory clarity. The technical work for a successful integration only compounds these concerns.

In this article, I'll explore the top Travel Rule compliance challenges experienced by the Compliance Officers I have worked with, explain why Notabene devised the SAFE Implementation phases, and present the advantages of the adoption program based on commentary directly from VASPs. 

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Understanding the Technical Challenges of Travel Rule Implementation

Many VASPs find it challenging to comprehend the extent of technical work required for integration. They also struggle to figure out how they can effectively collaborate with stakeholders from various departments in their business to ensure that the Travel Rule solution is implemented successfully.

As VASPs progress through the implementation, they often find it beneficial to opt for API integration to automate their Travel Rule processes instead of hiring additional teammates to manually carry out Travel Rule compliance checks. However, Without having insight into the specific actions the technical team needs to complete or alignment between how the implementation might look based on a VASPs risk appetite,  Compliance leaders are often at a loss for where to begin to ensure they are meeting regulatory deadlines. 

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Notabene's 2023 State of Crypto Travel Rule Compliance Report affirms this, with 27% of VASPs and 45% of Financial institutions citing 'a lack of technical resources’ as their main obstacle to adoption.

SAFE Implementation: A Guided Approach to Travel Rule Compliance

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"The secret of getting ahead is getting started. The secret of getting started is breaking your complex overwhelming tasks into small manageable tasks and then starting on the first one." - Mark Twain

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With these challenges in mind, we recently launched the SAFE Implementation phases. This step-by-step onboarding program is designed to help our clients navigate the intricacies of Travel Rule compliance efficiently while ensuring seamless collaboration between compliance and technical teams.

SAFE Implementation delivers a well-structured, step-by-step approach to achieving compliance, streamlining operational risk management, and providing valuable analytics to steer our customers through their Travel Rule implementation. By making subtle technical modifications, VASPs can effortlessly link their internal systems to Notabene, enabling the generation of proprietary data.

This rich data resource furnishes invaluable insights into the potential impact of compliance on existing transaction flows, equipping VASPs with the foresight to plan the initiation and response to transactions strategically. Additionally, this information empowers them with a clear roadmap for their journey toward achieving full compliance.

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How does SAFE Implementation support VASPs?

1. Step-by-Step Implementation and Testing: SAFE Implementation enables customers to gradually integrate the necessary technical infrastructure, validate data accuracy, and test functionality, all before they impact their end users. By breaking down the implementation process into manageable stages, customers can identify and address issues early, ensuring a smoother transition and reducing non-compliance risk.

2. Navigate Complex Regulatory Requirements: Compliance with the Travel Rule requires significant technical, operational, and procedural adjustments. By adopting a phased implementation approach, we ensure that our customers have adequate time and support to comprehend the requirements and implications of the Travel Rule fully. Notabene’s SafeTransact product manages each Jurisdictional data requirement, supporting VASPs in understanding what data they must provide to comply in their region. It also ensures that VASPs can handle the requirements of their counterparty's jurisdictions. 

3. Tailored Solutions for Diverse Customer Needs: Every business has unique operational models, technical capabilities, and customer bases. By utilizing our SAFE Implementation process, VASPs can design and implement tailored solutions based on their specific requirements. This ensures a more seamless integration of Travel Rule compliance processes into VASPs' existing systems, minimizing disruptions to their day-to-day operations.
   
   
4. Guidance and Training from the Customer Success team:  Successfully implementing the Travel Rule requires technical integration, adequate coaching, and ongoing support. VASPs can also choose to add a Customer Success Package, ensuring that they get custom training and white glove support from our team of subject matter experts. The Notabene Customer Success team is on hand through each milestone to provide comprehensive training sessions, resources, and dedicated customer support throughout the implementation journey. This empowers our customers to develop an in-depth understanding of the Travel Rule requirements and equips them with the necessary knowledge and skills to maintain compliance in the long term.
   
   
5. Compliance Readiness and Regulatory Confidence: By adopting a phased onboarding approach, our customers can demonstrate their commitment to regulatory compliance with relevant authorities. This proactive approach ensures adherence to the Travel Rule, helps build trust with regulators, and enhances the reputation of the crypto business. Furthermore, early compliance readiness positions our customers favorably in the rapidly evolving regulatory landscape, reducing the risk of potential penalties or disruptions to their operations.

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Far from being a mere regulatory checklist, achieving Travel Rule compliance involves understanding the regulatory landscape, strategic planning, and data-informed pre-transaction decision-making, all facilitated through our SAFE Implementation approach.

Notabene's SAFE Implementation program is not just a tool—it's a strategic ally that guides VASPs through the intricate terrain of crypto regulation. With the aid of crucial data and a tailored approach, VASPs can execute their compliance plans with heightened precision and assurance. This seamless and effective integration results in regulatory adherence and fosters trust with regulators, strengthening the business's reputation. 

The rest of Notabene’s Customer Success team and I are dedicated to helping our customers turn regulatory compliance from a daunting challenge into a competitive advantage, effectively driving the future of the crypto industry.

This setup provides a systematic, step-by-step roadmap to ensure synchrony between technical and compliance teams, transforming an overwhelming task into achievable milestones. 

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The Rising Trend of a Phased Approach to Crypto Travel Rule Compliance: Insights from Notabene's 2023 Report

Notabene's 2023 State of Crypto Travel Rule Compliance Report revealed a trend: Virtual Asset Service Providers (VASPs) are adopting a phased approach to fulfilling Travel Rule compliance obligations. This means they are gradually transitioning from non-compliance to compliance, taking measured steps toward ‘full compliance.’ [1] This nuanced insight is often missed in industry surveys, yet deserves attention as it reflects VASPs' practical and mindful strategy to adhere to the Travel Rule.

What is a Phased Approach to Travel Rule Compliance?  

A “phased approach” is a strategy that VASPs used to progressively meet their full compliance obligations, taking into account the impact on their users and business. To become regulatory compliant, VASPs must carry out several processes simultaneously. These range from modifying product offerings, implementing new compliance frameworks, updating the user interfaces and APIs their customers interact with, and much more. The situation gets even more complex if the VASP operates in multiple jurisdictions. 

Results from our compliance survey showed that rather than making a sudden leap from non-compliance to full compliance, VASPs are progressively rolling out their compliance initiatives in phases. This year, the adoption of a phased compliance strategy has risen to 31%, up from 18% in 2022 (Figure 2). This indicates an increasing acceptance of the phased compliance methodology among VASPs. Further details can be found in the sections below.

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Why are VASPs Embracing a Phased Approach to Travel Rule Compliance?  

Reported reasons VASPs opt for a phased approach to Travel Rule compliance include: 

• The Sunrise period: Fully complying with the Travel Rule during sunrise is particularly difficult for VASPs, as crypto is inherently borderless and international. VASPs based in countries where the Travel Rule is already being enforced will have a hard time being fully compliant; in some instances, they may not be able to send or get a response to a Travel Rule transfer from their counterparty VASP because this counterparty may be based in a jurisdiction where the Travel Rule is not yet enforced.
• Signaling compliance to regulators: Having a clear and well-structured Travel Rule implementation program is appreciated by financial regulators. This approach allows VASPs to refine their processes on their path to full compliance. 
• Meeting local Travel Rule enforcement dates: If a VASP is registered in a jurisdiction with upcoming deadlines, they have to prove compliance whether or not their counterparties are compliant. 

Diving into the staged approach to Travel Rule compliance 

Notabene's yearly State of Crypto Travel Rule report shows a growing intent to adopt the Travel Rule in the cryptocurrency industry, with most VASPs targeting complete compliance by 2023, as evidenced by the data in Figure 1. 

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Understanding the meaning of ‘Full Compliance’

The industry's ambition to comply by the end of 2023 underscores its commitment to regulatory alignment and sets 2023 to become the year of Travel Rule adoption. Interestingly, the survey exposes a stark 109% rise in compliance claims, with 20% of respondents now identifying as 'fully compliant,' a significant increase from 13% in 2022. (Figure 1) However, pre-transaction fulfillment has only seen a 50% increase, suggesting some confusion around the interpretation of 'full compliance.' (Figure 1)

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The Phased Approach to Compliance Gains Traction

The survey highlights that 19% of VASPs are responding to inbound Travel Rule transfers, even if they aren't initiating their own, and 12% are fulfilling Travel Rule obligations post-settlement. (Figure 2) These actions are viewed as early compliance stages. Moreover, when asked to describe their company's current stance on Travel Rule requirements, only 3% selected "Idle" as their response. This response signifies a substantial 75% decrease from the 2022 survey, pointing to a progressive demystification of Travel Rule compliance within the industry.

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Financial Institutions vs. Crypto Businesses Staged Compliance Approach

Survey data reveals a significant contrast between financial institutions (FIs) and crypto businesses in their compliance strategies for the Travel Rule. The approach taken by FIs appears more binary: they are predominantly either fully compliant (36%) or not complying at all (36%). A noteworthy 27% of FIs are at an intermediate stage, only responding to inbound Travel Rule transfers. (Figure 3) This may be attributed to their support for crypto deposits without accommodating crypto withdrawals. 

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Crypto businesses, on the other hand, present a more diverse spectrum of compliance stages, with 48% opting for a phased approach. (Figure 3) This could stem from many of these businesses being operational before FATF’s Recommendation 16 extended its reach to their sector.

FI’s, having likely operated under FinCEN’s original Travel Rule, mandated in 1996, may only need to implement the technology to support Travel Rule compliance for their crypto transactions. This stark difference in approach underscores the unique challenges VASPs and FIs face in their compliance journey. Consider reading about the top Travel Rule compliance hindrances in 2023 for more on these challenges.

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Notabene's Phased Approach to Travel Rule Compliance: The SAFE Implementation Phases 

To aid VASPs and FIs in their compliance journey, Notabene recently introduced the SAFE Implementation phases. This tiered, customizable approach simplifies compliance, equips customers with valuable analytics, and creates a tailored path based on specific business needs.

The SAFE phases offer the following benefits:

• Minimized Disruption: This phased integration of technical infrastructure mitigates risks and reduces disruption
• Regulatory Navigation: It allows sufficient time to understand the technical, operational, and procedural aspects of the Travel Rule.
• Continuous Improvement: The iterative nature of our method encourages constant learning and adaptation.
• Comprehensive Support: Notabene's Customer Success team provides extensive training and dedicated support.
• Regulatory Confidence: This gradual strategy demonstrates a commitment to regulatory compliance, cultivating trust with regulators.

The SAFE Implementation paves a reliable route toward Travel Rule compliance by emphasizing regulatory deadlines and leveraging data for informed decisions, risk mitigation, and user experience enhancement.

A Breakdown of the SAFE Implementation Phases

Notabene's phased approach for VASPs' Travel Rule compliance comprises four distinct stages, each addressing specific aspects of the adoption process. The phases are:

• Spark: VASPs prepare to send transactions by collecting counterparty VASP data through due diligence, assessing the degree of customer input required for a comprehensive Travel Rule message.
• Amplify: VASPs commence compliance to the greatest extent possible without customer collaboration, sharing originator information with counterparts, and responding to incoming Travel Rule transfers.
• Foundation: VASPs expand compliance by acquiring beneficiary information, conducting sanctions screening, and applying proper AML/CTF controls before transmission to the beneficiary VASP. This stage is standard during the sunrise period.
• Elevate: VASPs utilize verified originator and beneficiary data for informed pre-transaction decisions on both withdrawals and deposits. This phase is fully achievable in a post-sunrise period.

Mapping the 2023 State of Crypto Travel Rule Compliance Survey Data to the Safe Implementation Phases

Data from figure 2 suggests that most VASPs are still in the early stages of compliance, like the Spark and Amplify phases. A considerable number are complying to the best of their ability within the constraints of the sunrise period, aligning with the Foundation stage. Only a minority have achieved full Travel Rule compliance (Elevate.) 

Here's a more detailed breakdown:  

1. VASPs that reported non-compliance with travel rule obligations (34.8%) or post-settlement compliance (11.6%) and those allowing transactions without a Travel Rule message sent to the beneficiary VASP (37.3%) are in compliance stages akin to the Spark or Amplify phases.
2. VASPs fulfilling Travel Rule obligations before blockchain transaction settlement (20.3%) but not awaiting a beneficiary VASP response to process the transaction (22%) or proceeding if no response is received within a specific timeframe (14%) are likely in a compliance stage similar to the Foundation phase.
3. A small portion of VASPs (12% that reported disallowing a transaction unless a beneficiary VASP response is received) would qualify as being in the Elevate stage.
   
   

For a unique look into the Travel Rule compliance journey from the perspective of Notabene’s Customer Success team, head over to our next blog post. In "Overcoming Crypto Compliance Challenges: Notabene's SAFE Implementation Phases in Action," Notabene’s Global Head of Customer Success, Abigail Bryant Spolar, offers valuable insights drawn from her extensive experience guiding VASPs 

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