The Crypto Travel Rule 101 Guide intends to answer general, fundamental questions concerning best practices for compliance with new FATF regulations. It is not meant to be comprehensive and does not replace or supersede the regulations.
Our Crypto Travel Rule 101 guide covers:
The FATF, the money laundering watchdog that applied the Travel Rule to cryptocurrencies.
1. What is the Financial Action Task Force (FATF) and what does it do?
The Financial Action Task Force (FATF) is an intergovernmental policy-making body that sets international standard. The global money laundering and terrorist financing watchdog added ‘virtual assets’ to their key issues.
This article dives into the FATF, and why the organization applied the Travel Rule to virtual assets.
2. Virtual Assets and VASPs (Virtual Asset Service Providers): What are they?
The FATF established two new Glossary definitions in October 2018—"virtual asset" (VA) and "virtual asset service provider" (VASP). Since then, there has been some confusion regarding which groups qualify as VASPs. This article delves into the FATF's definition of VASPs and the types of organizations that fall under the term, and therefore subjected to the FATF's guidelines for virtual assets and VASPs.
In June 2019, the Financial Action Task Force (FATF), the world's anti-money laundering and terrorism financing watchdog, stated that The Financial Crimes Enforcement Network (FinCEN)'s 1996 Bank Secrecy Act (BSA) Travel Rule extended to virtual assets (VAs) and VASPs.
Like the sun, Travel Rule enforcement dates rise at different times worldwide. The “sunrise issue” refers to the period when the Travel Rule is not in full effect across jurisdictions, which causes various stages of implementation.
This post explains the “Sunrise Issue,” its negative impact on operations, and gives practical tips on how to take a proactive approach to mitigate those effects.
5. Travel Rule compliance challenges and opportunities for VASPs
Implementation of the Travel Rule necessitates considerable changes for VASP, including redesigning product processes, establishing new compliance frameworks, employing new personnel/training existing personnel to deploy the compliance tools, and much more.
At the same time, the new FATF global framework represents the greatest possibility for crypto to enter the mainstream.
This post examines the difficulties and opportunities that VASPs have when adopting the FATF's Crypto Travel Rule.
6. What is anti-money-laundering (AML) and how does it apply to Crypto?
To curb the financing of criminal activity, regulatory organizations have passed astringent anti-money laundering (AML) legislation that prohibits money laundering through cryptocurrency exchanges and custody services.
This article discusses cryptocurrency anti-money laundering initiatives and how Notabene's crypto compliance software enables businesses to address these novel frameworks.
7. What is Counter-Terrorism Financing (CTF), and how does it apply to Crypto?
In recent years, evidence suggests terrorist organizations are embracing cryptocurrency for fundraising and transferring funds, hindering anti-terrorism efforts. This page covers counter-terrorism financing (CTF), its requirements, its relevance to the Travel Rule, and how Notabene can help VASPs and financial institutions prevent trading with high-risk and sanctioned entities.
8. What is KYC in Crypto, and why do crypto exchanges require it?
Crypto companies are particularly exposed to unlawful criminal activity in an increasingly global economy. Know your customer (KYC) measures intend to safeguard financial institutions from fraud, corruption, money laundering, and terrorist funding. Crypto KYC intends the same outcomes for companies that custody virtual assets.
This post dives into crypto KYC practices and its benefits.
VASPs must be able to collaborate and exchange customer information on transactions over a specific level to comply with the FATF's Crypto Travel Rule fully. However, due to the public nature of blockchain transactions, there was previously no way to send or receive sensitive data concurrently with a transaction.
Since Recommendation 16, numerous companies and industry working groups have developed messaging protocols to exchange Travel Rule data.
This article introduces the nine Travel Rule messaging protocols currently available on the market and delves into crucial features such as integration complexity, benefits and downsides, and support for non-hosted wallets. Additionally, this article demonstrates how Notabene aids in implementing each protocol.
Each jurisdiction has a different application of FATF’s Crypto Travel Rule, leading to industry-wide implementation gaps.
For example, some jurisdictions have set $3000 as the threshold that triggers Travel Rule obligations, while others have set the threshold at $0. VASPs in certain jurisdictions already have to comply with the Travel Rule, while others still have an ongoing grace period.
This page dives into the four critical components of Travel Rule compliance that are being applied differently across jurisdictions and how Notabene can help VASPs comply, regardless of jurisdiction.
11. Which VASPs are currently Travel Rule compliant?
VASPs navigating Travel Rule compliance want to know which counterparty VASPs are regulated, licensed, compliant, which are sending travel rule data transfers, and other imperative information.
Each page of Notabene’s VASP & Crypto Companies Travel Rule Directory is dynamically updated in real-time to reflect the regulatory and business state of a VASP. Their travel rule messaging protocol is listed (if available.) Additionally, VASPs can share information about their AML/CFT practices and data storage policies.
Through the VASP directory, companies that do not yet have a Travel Rule solution in place can send compliant data transfers to Notabene customers.
12. The current state of Crypto Travel Rule enforcement [April 2023]
To explore the state of Crypto Travel Rule compliance across the crypto and financial services industries, we run a survey each year to gauge global compliance readiness and better understand the primary pitfalls to compliance. Read the 2023 State of Crypto Travel Rule Compliance Report to learn more.
14. FATF's Final Guidance for Virtual Assets and VASPs [Webinar]
On 28 October 2021, the Financial Action Task Force (FATF) released its revised guidance for virtual assets, introducing new and updated requirements for the industry.
In this on-demand webinar, VASPnet's COO Niel Samtani sits down with Notabene's CEO Pelle Brændgaard, Patricia Risso - Global Head of Compliance at Bitso, and Siân Jones - Senior Partner at XReg Consulting to discuss the FATF’s new guidance and its impact on AML crypto regulatory compliance compliance.
The Travel Rule presents a unique challenge for the cryptocurrency business, as blockchains aren't designed to communicate PII with a transaction. VASPs must develop communications protocols to securely share originator and beneficiary information to comply with FATF's Travel Rule Recommendation.
This post, created in partnership with Chainalysis, explains what interoperability means for the Travel Rule and how to choose a solution that operates across jurisdictions and VASPs.
16. How can VASPs ensure Travel Rule compliance during transactions with unhosted wallets?
Unhosted wallets (also known as self-hosted or non-custodial wallets) have been one of the key targets for stricter scrutiny since FinCEN first applied the Travel Rule to cryptocurrencies in 2019.
As the blockchain is a public network, revealing personal information behind an unhosted wallet will reveal the client's whole transaction history, surpassing the amount of information Travel Rule gathers from traditional banking institutions.
In order to fully comply, VASPs must integrate solutions and build processes to meet FATF requirements. This blog, created in partnership with Chainalysis, addresses FATF's expectations for VASPs while engaging with unhosted wallets and significant use trends that might aid risk assessments.
18. What is counterparty crypto wallet identification & how does it work?
Compliance with Crypto Travel Rule relies on identifying the counterparty of a transaction. This article explores the importance of identifying the counterparty's wallet in regulated crypto transactions and examines how VASPs identify and verify the owner of a self-hosted wallet.
19. VASP due diligence: Establishing trust in counterparty sanctions screening
Sanction screening counterparty customers based on insufficient and unverified information is ineffective. The Travel Rule's VASP-to-VASP due diligence obligations can provide a strong foundation for mitigating the risk.