2024 Insights: VASPs Ensure Compliance Where the Travel Rule Is a Licensing Deal-Breaker
This article provides an in-depth look at virtual asset service providers' (VASPs) current compliance status and future planning as they navigate the Travel Rule. Based on the results from Notabene's 2024 State of Crypto Travel Rule Compliance survey, we explore how crypto businesses and financial institutions are preparing to meet these regulatory requirements.
96% of VASPs Are Travel Rule Compliant or Plan To Be in 2024
The Travel Rule has become a fundamental aspect of the crypto compliance landscape. According to the survey, 96% of respondents are either already compliant or plan to be by Q4 2024. This marks a significant milestone, with over half (52%) of respondents already adhering to the Travel Rule in 2023—a substantial increase from 23% the previous year, indicating a 123% growth in compliance.
A mere 4% of respondents indicated a stance of non-compliance until 2025. This highlights that compliance with the Travel Rule is not only an immediate necessity due to increased regulatory urgency but also a strategic imperative for entities aiming to operate and transact globally in a compliant manner. For a comprehensive analysis and detailed statistics, download the full report.
Team Sizes and Automation
A notable 80% of firms have dedicated Travel Rule compliance teams, reflecting the industry's commitment to meeting these stringent requirements and recognizing the importance of working with specialized personnel to successfully navigate the intricacies of Travel Rule compliance and stay abreast of increased scrutiny and regulatory demands.
The survey also investigated team sizes and the automation of pre-transaction checks, which revealed respondents’ efforts to ensure the efficient operation of their compliance teams.
A large portion of respondents (46%) have significantly automated their systems, with less than 25% of transactions flagged for manual review. Another 24% partially automate, flagging over 25% for manual review. However, 17% manually approve every transaction, and 13% automate without pre-transaction checks.
Nearly half of respondents (47%) had to demonstrate Travel Rule compliance during license applications, indicating its importance in gaining market access.
Additionally, more than half of the respondents (53%) have had their AML and sanctions programs evaluated by local regulators, examiners, or independent reviewers, explicitly focusing on Travel Rule compliance. This standardized assessment process highlights Travel Rule adherence's integral role in the AML framework and its strategic importance within the overarching compliance framework.
The industry's commitment to Travel Rule compliance is evident through dedicated teams, integration into licensing processes, and comprehensive AML assessments, making it a strategic imperative for operational excellence and market credibility.
VASPs Ensure Compliance Where the Travel Rule Is a Licensing Deal-Breaker
A commendable 52% of companies, spanning diverse primary jurisdictions are already complying with Travel Rule requirements. However, a closer examination of survey responses on primary jurisdiction and implementation timelines reveals a clear pattern: VASPs prioritize compliance where Travel Rule compliance is a license “deal breaker.”
EMEA
The EMEA region as a whole, in particular, demonstrates a high compliance rate, with 59% of respondents claiming to be already complying in this region.
In the EMEA region, the U.K. stood out as the primary jurisdiction with the highest percentage of compliant respondents, boasting an exceptional 100% compliance rate among those surveyed. Of these, 89% were already compliant, and the remaining 11% planned to be by the end of 2023 when the survey was issued. This remarkable compliance rate can be attributed to the U.K.’s robust standards since the country began enforcing the Travel Rule on September 1, 2023.
UAE
When looking deeper into the UAE respondents, where Travel Rule compliance is a licensing prerequisite, 60% of companies have already achieved compliance, and an additional 20% anticipate reaching compliance by the second quarter of 2024. These statistics demonstrate that having Travel Rule compliance as a license deal-breaker fosters a proactive commitment to adoption from the industry.
The trend of enforcing strict licensing regimes is positive. An analysis conducted by TRM Labs (2024) found that VASPs in countries with full licensing and supervision regimes have lower rates of illicit activity than those in less regulated jurisdictions.
APAC
It’s crucial to highlight that the rest of the world is keeping pace. Among respondents with primary jurisdictions in APAC, an impressive 86% are already in compliance with the Travel Rule. This includes vital APAC jurisdictions such as Singapore, Hong Kong, India, Japan, and Malaysia.
Of the 39% of APAC respondents that listed Singapore as their primary jurisdiction, 63% are already compliant, while an additional 25% aim for compliance by Q1 of 2024.
U.S.
The U.S. is trailing behind compared to other key jurisdictions. Despite the Travel Rule requirements in the U.S. since 2013, only 50% of companies claim compliance, with an additional 30% expecting compliance by Q1 of 2024. These numbers are particularly striking compared to the 100% compliance rate observed in the U.K., where the measures were implemented only recently, just four months before the survey was issued. This trend may be attributed to regulatory ambiguity and limited enforcement action in the U.S., contrasting with the proactive commitment to adoption seen in other jurisdictions.
However, the increasing counterparty urgency is expected to drive global adoption, particularly in the United States. Our survey data indicated that fewer VASPs are willing to send withdrawals or receive deposits without the ability to transmit or receive relevant Travel Rule information, which means a potential increase in business loss. Such pressure to adapt will hopefully drive industry stakeholders and regulators to take action, especially those in the U.S.
The Number of VASPs Not Implementing Counterparty Due Diligence Processes Has Nearly Halved
Trend Shift
The survey indicates a significant decrease in the proportion of companies willing to send Travel Rule transfers to counterparties without specific criteria, dropping from 52% in 2023 to 29% in 2024. This reflects a growing emphasis on rigorous counterparty due diligence. Another notable trend is the growing emphasis on assessing the regulatory status of counterparties, a number that has seen doubled growth, from 4% to 9%.
Due Diligence Practices
Sixty-four percent of companies perform due diligence pre-transaction. The survey question, “What checks do you perform, if any, on your counterparties prior to initiating Travel Rule transactions?” highlights the industry's maturing commitment to Travel Rule compliance. The majority of respondents conduct:
- Wallet sanction screening (87%)
- Counterparty name sanction screening (77%)
- Evaluation of wallet risk scores (74%)
- VASP due diligence (64%)
Only a minority (6%) reported conducting no checks, underscoring a holistic approach to risk management. However, despite the positive trend, VASP due diligence is still the least adopted measure.
The trends indicate a clear shift toward more rigorous counterparty due diligence, a preference for regulated counterparties, and a strategic move away from indiscriminate transfers to all VASPs. Despite this progress, challenges remain. As outlined in Chapter 5, Section 3, issues such as the least performed measure of VASP due diligence continue to hinder the counterparty due diligence process.
The industry’s growing commitment to Travel Rule compliance is evident with the existence of dedicated teams, integration into regulatory licensing processes, and the core fabric of AML compliance assessments. This trend positions Travel Rule compliance not merely as a regulatory necessity but as a strategic imperative that drives operational excellence and market credibility.
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