Exchanges registered in South Korea, Canada, Japan, Estonia, and virtual asset service providers (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 near globally, Compliance Officers are tasked with choosing a Travel Rule compliance solution in a short period.

There are many moving parts to consider, including incorporating differing jurisdictional requirements, safe data management, choosing protocols with the widest reach, and whether to roll out a fully-integrated solution or build a custom Travel Rule compliance solution on top of a messaging protocol

Learn what the Crypto Travel Rule requires companies to do.

6 Reasons VASPs are considering Travel Rule solutions right now.  

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 unaware of 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 upwards 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 on the market nor complete solutions.

2. Counterparty deadlines urge earlier compliance dates

VASPs must also account for earlier deadlines in their counterparty’s jurisdiction to comply with the Crypto Travel Rule. For example, if a US VASP routes a significant portion of transactions to beneficiaries in Estonia, the US VASP would need to comply by June 15, 2022, accounting for specific approaches to compliance laid out by Estonia’s Ministry of Finance.

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

In response to the crisis between Russia and Ukraine, fresh sanctions have been implemented against Russian organizations and persons. While 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 today will mitigate business slowdowns.

As per FATF guidance and local regulations across jurisdictions, going forward, VASPs are allowed to restrict transactions with non-compliant VASPs, which could carry a negative business impact for both parties. As more VASPs go live with Travel Rule, they expect their counterparty VASPs to 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 beginning to introduce the idea of a phased approach to compliance–deploying a solution with a tiered integration track guides VASPs on a comfortable 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 the first-to-market fully-integrated Travel Rule solution

It’s personal for us. Regulatory compliance has been our north star since before the FATF Crypto Travel Rule mandate–two of our founders previously founded early Bitcoin firms that were shut down due to a lack of effective regulation.

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

In 2020, we began constructing a trusted data layer on top of blockchain transactions to address compliance challenges from A to Z 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, assuring the widest possible reach in the market.

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

The success of our customers is crucial, and they cannot succeed if their counterparts lack the tools necessary to respond to them. As a result, we have introduced a complimentary plan for businesses to respond safely and privately to impending Travel Rule data transfers. This package offers 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 block ensuing transactions effectively today by using the following features:

To turn this operational and at scale, customers can set risk-based rules in our rules engine to restrict incoming or outgoing Travel Rule data transfers with VASPs that do not meet their diligence criteria or with sanctioned parties. AML-related counterparty risk mitigation can be effectively performed by Compliance Officers by tying this mechanism into the transaction flow.

(Risk rules on Notabene's Compliance Dashboard)

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 could focus on more pressing needs: 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, allowing our clients to roll out compliance according to their business needs.

Additionally, we advocate for a phased Travel Rule compliance rollout with regulators. We work to help regulators figure out ways of making crypto safer without sacrificing its creative and permission-less nature. Counterparty verification through both implementation of the Travel Rule and bringing cryptographic wallet proofs together with blockchain analytics and sanction screening tools will help alleviate many of the regulator's concerns. 

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

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. The IPA allows Luno to provide digital payment token services under the Major Payment Institution (MPI) license.