Exchanges registered in South Korea, Canada, Japan, Estonia, and VASPs that send a large volume of transactions to VASPs in those jurisdictions must roll out Travel Rule compliance as soon as possible. As compliance deadlines loom almost globally, Compliance Officers are tasked with choosing a Travel Rule compliance solution in a short period.

Travel Rule enforcement timeline (non-exhaustive) (Source: Notabene).


Exchanges must consider many elements when it comes to building a compliant framework: incorporating differing jurisdictional requirements, ensuring safe data management, choosing protocols with the broadest reach, and deciding whether to roll out a fully integrated solution or build a custom Travel Rule compliance solution on top of a messaging protocol

The six reasons  

1. Enforcement deadlines are approaching and VASPs need a proven solution to help them comply quickly.

As deadlines approach, VASPs are losing time to trial the many messaging protocols and fully integrated Travel Rule solutions on the market. Our recent State of Crypto Travel Rule Compliance Report shows that although companies are looking to comply soon, most respondents (46%) are undecided on the protocol(s) they intend to use (Takeaway 9, page 25). Testing various 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. As compliance deadlines loom, VASPs may not have the time to test each protocol or complete solution available on the market.

2. Counterparty deadlines urge earlier compliance dates.

VASPs must also account for earlier deadlines in their counterparty jurisdictions. For example, if a U.S. VASP routes a significant portion of transactions to beneficiaries in the British Virgin Islands, the U.S. VASP needs to comply by 1 December 2022, to account for specific approaches to compliance laid out by Estonia’s Ministry of Finance.

3. Recent sanction lists have brought crypto transactions under heightened regulatory focus.

In response to the crisis between Russia and Ukraine, fresh sanctions have been implemented against Russian organizations and persons. Although it is unknown to what extent sanctioned parties may turn to crypto, VASPs worldwide are preparing to comply with sanctions obligations. 

4. Having a solution in place earlier will mitigate business slowdowns.

As per FATF guidance and local regulations across jurisdictions, going forward, VASPs are allowed to restrict transactions with noncompliant VASPs, which could have a negative business impact on both parties. As more VASPs go live with Travel Rule compliance, there is increasing expectation that their counterparty VASPs will respond to them, or they will no longer transact with them.

5. Forward-thinking VASPs are taking advantage of a phased rollout.

With the help of industry advocacy, more regulators are introducing the idea of a phased approach to compliance: by deploying a solution with a tiered integration track, VASPs can begin a comfortable, guided journey to full compliance. 

6. VASPs are beginning to see Travel Rule compliance as a competitive advantage.

Travel Rule compliance constitutes an integral component of VASPs' securing operational licenses in regulated jurisdictions. Securing operating licenses could lead to VASPs joining new markets and/or unlocking business opportunities. 

How Notabene addresses the six reasons VASPs are considering Travel Rule solutions

1. We offer a first-to-market fully integrated Travel Rule solution.

It’s personal for us. Regulatory compliance has been our north star since before the FATF rolled out the crypto Travel Rule mandate —in fact, two of our founders established early Bitcoin firms that were shut down because of a lack of effective regulation.

As crypto native founders, we began with the vision of creating a comprehensive solution to solve each required component of compliance. Notabene is on a mission to reduce the regulatory burden on crypto transactions and pave the way for widespread adoption.

In 2020, we began building a trusted data layer on top of blockchain transactions to address crypto compliance challenges for the entire financial services industry. Late that year, we shipped the industry’s first fully integrated Travel Rule solution that integrates each Travel Rule messaging protocol, ensuring the broadest possible market reach.

2. VASPs can leverage our free Sunrise Plan to respond to transactions.

Our customers’ success is our primary goal. VASPs are only considered fully compliant if their transactions are responded to, and often, our clients’ counterparties lack the tools necessary to respond to them. As a result, we have introduced a complementary plan for businesses to respond safely and privately to impending Travel Rule data transfers. This plan gives our customers access to our robust Travel Rule Compliance Dashboard, enabling Compliance Officers to set up safe, automated compliance workflows and utilize award-winning partnerships with blockchain analytics and sanctions screening providers. Additionally, we offer counterparty outreach to our clients. When our clients hand us a list of their counterparties, we offer them the chance to sign up for our free Sunrise Plan to respond to inbound transactions.

3. Our software incorporates counterparty risk management tools to implement sanction requirements. 

A comprehensive Travel Rule solution will aid VASPs in identifying and preventing transactions with sanctioned parties. Our customers can identify sanctioned counterparties and effectively block ensuing transactions effectively by using the features noted in the graphic below.

Features clients can use to block transactions with sanctioned parties (Source: Notabene).

To identify counterparty VASPs, perform VASP due diligence, identify counterparty customers, monitor wallet risk scores, and sanction screen at scale, customers can set risk-based rules in our Rule Engine to restrict incoming or outgoing Travel Rule data transfers with VASPs that do not meet their diligence criteria.

By defining these risk-based rules in our Rule Engine to prevent incoming or outgoing Travel Rule data transfers with VASPs that don't fulfill their diligence standards, Compliance Officers can effectively mitigate AML-related counterparty risk by tying this mechanism into the transaction flow.

Risk rules on Notabene's Compliance Dashboard (Source: Notabene).

4. We offer an easy-to-use product with smooth UI elements.

We created an easy-to-use, minimal integration regulatory technology solution so VASPs can focus on more pressing needs, such as incorporating new compliance requirements into their business workflows.

5. We offer a phased approach to implementation.

We offer a phased approach to Travel Rule implementation, which allows our clients to roll out compliance according to their business needs.

Steps to Travel Rule compliance with Notabene (Source: Notabene).

Additionally, we advocate for a phased Travel Rule compliance rollout with regulators. With our background in privacy and identity, we advise authorities in ways that make crypto safer without compromising creativity and the unique permissionless nature of blockchain technology. Implementing the Travel Rule and combining cryptographic wallet proofs with blockchain analytics and sanction screening tools stand to alleviate many of the regulator's concerns. 

We’ve spent considerable time educating both regulators and the wider industry on the difficulties of abruptly requiring the Travel Rule overnight. These efforts are paying off—many regulators are beginning to support the idea of a phased rollout, which will help the industry comply, minimizing heavy requirements and costs to companies’ transaction volumes.

6. Our clients have obtained licenses in strict jurisdictions.

Our client's success is our only goal. Recently, Luno received an in-principle approval (IPA) from the Monetary Authority of Singapore to operate fully regulated cryptocurrency services in the Republic. This IPA allows Luno to provide digital payment token services under the Major Payment Institution license.

Learn how Luno Singapore met Travel Rule Regulations using Notabene.