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Travel Rule compliance made simple

Alice Nawfal
Alice Nawfal
June 23, 2020
Alice Nawfal, with a rich background in blockchain, public policy, and consulting, leverages her extensive experience in business operations and analytics to drive Notabene's growth and operational efficiency.

Today we are launching Notabene, a new crypto compliance platform for the financial industry. Notabene combines our expertise in financial markets and privacy-preserving systems to enable the industry to solve its most pressing challenge - regulatory compliance.

Our platform enables businesses to comply with new financial reporting requirements more efficiently, broadly known as the Travel Rule. These critical requirements are part of the new worldwide regulatory framework for Virtual Assets Service Providers (VASPs) from FATF, the global anti-money laundering watchdog.

June 24th marks the deadline for national regulators to put in place this new regulation. For crypto businesses, this means increased regulatory scrutiny and a need to comply with rules at the risk of severe penalties that could include both steep fines or even the loss of operating licenses. Our new product enables businesses to more easily adhere to the Travel Rule without any interruption to existing business operations.

1. Why You Should Care About the Travel Rule

Put simply; the Travel Rule requires financial institutions participating in a transaction to exchange both relevant beneficiary and originator KYC (know-your-customer) information.

Also known as the Wire Transfer Rule, this regulation was initially created for banks transferring funds on behalf of their customers. While this worked well for traditional financial systems, modern blockchain solutions make it impossible to adequately implement this rule for three main reasons:

  • The pseudonymous and permission-less nature of existing blockchains makes direct implementation impossible
  • No standardized frameworks exist for establishing trusted relationships between industry players
  • There are no existing technical solutions that can be easily adopted and scaled to meet the requirements of the Travel Rule

Over the past year, several industry groups and bottom-up initiatives have proposed a variety of  protocols for solving the Travel Rule. This proactivity was welcomed by regulators, but the diversity of solutions creates confusion for companies looking for the best fit.

If implemented correctly, we see the Travel Rule as a competitive advantage for companies. It would optimize their revenue generation by building better relationships with a variety of partners (including banks). In contrast, failure to implement could seriously damage business operations and increase regulatory risk.

2. A Turning Point for Crypto

Cryptocurrencies and their underlying blockchains are at a turning point and ready to become more mainstream. As the technology continues to mature, use-cases are also becoming more apparent.

Fintech companies and institutional players are already building with the technology and getting ready to reap its many benefits and opportunities.

Since its infancy, our industry has had regulation and compliance hanging over us. However, some companies, operating in proactive countries like the US where regulatory systems were developed early, have used compliance as a competitive edge, and are now market leaders.

The presence of this new global regulatory framework regardless of jurisdiction is a game-changer for the industry. This framework provides a framework for existing crypto companies to become regulated and work with traditional financial institutions. At the same time, it allows traditional financial institutions to safely work with cryptocurrencies and public blockchains.

The framework still has to be translated into local law in many places around the world. But at least national regulators now know how to start applying the rules locally, instead of having to understand the technology from scratch.

If you ask banks and regulators how crypto should be regulated, they have always said just like the traditional institutions. But, crypto is very different from traditional banking systems. The underlying blockchains are permission-less and public. Traditional core-banking software and customer due diligence processes are hard to fit on top of this new technology.

3. How Notabene Solves the Travel Rule

The Travel Rule affects how your customers send or receive funds from your service. We built this product to minimize the impact of the Travel Rule on day-to-day business operations.

The primary reason for the Travel Rule is that it finally allows compliance officers to take a risk-based approach for analyzing incoming transactions and accept or decline them.

We provide compliance officers with a simple dashboard allowing them to monitor incoming and outgoing transactions and set rules for approving them automatically.

The dashboard also allows compliance officers to:

  • Set compliance rules
  • Automate transfer request handling
  • Manually accept/decline transfer requests

Notabene allows you to start integrating the Travel Rule into your compliance workflow while avoiding concerns about new protocols. We are protocol and blockchain agnostic and will support the major protocols and blockchains within the industry.

4. Notabene Helps Build Trust Between Crypto Businesses

A significant change to how you do business will be that you now need to work more closely with other crypto businesses.

When you receive an incoming transfer request from Mr. Smith at Exchange A, how do you know that Exchange A performed proper KYC on Mr. Smith? Is the exchange even a legitimate one? Are the operators on a government sanctions list?

When you send a transfer request from Mrs. Jones to Mr. Smith at Exchange A, do you trust them with your customer’s private data?

These questions are all new for an industry built on decentralized, trust-less payment systems. Traditional banks solve this through a combination of licensing and trust frameworks like within payment associations like SWIFT and Visa. To manually perform due-diligence on another institution can be an expensive, time-consuming process.

Notabene takes a decentralized identity approach to this. When you receive an incoming transfer request from an unknown business, we present you with up-to-date information about the business. Where are they incorporated, registered, and licensed?

Businesses create profiles for themselves with a mixture of self-reported information and company details verified by us and others. These profiles are continuously updated.

Notabene’s system allows compliance officers to rapidly perform due-diligence, monitor changes, and even directly ask the compliance officer on the other side for additional information required. This leads to a massive reduction in due diligence costs, making it easier to establish bilateral relationships with new business partners.

5. Simple API Based Integration for Back- and Front End Systems

We provide a straightforward REST and GraphQL API, allowing your developers to integrate it into your flow. Because your customer fronting interface might require some changes, we also provide a simple JavaScript API making implementation painless.

Most of the protocols require special nodes to be running for sending and receiving transfer requests. We manage these nodes, so you don’t have to set up and maintain them yourself.

At launch, we support the OpenVASP protocol and the InterVASP IVMS-101 messaging standard. OpenVASP is an industry-led open protocol for the transmission of transaction information between VASPs and other parties. Its founding members include Bitcoin Suisse, SEBA, Sygnum, and Lykke. OpenVASP already has a vibrant multi-vendor ecosystem, and Notabene has joined the OpenVASP Association as a technology partner

David Riegelnig, Head Risk Management of Bitcoin Suisse and President of the OpenVASP Association, says

"We are excited that Notabene is joining OpenVASP as an implementation partner. The industry is in need of a turnkey hosted solution so companies can easily comply with the new rules. In addition, Notabene's trust framework seems a promising solution to help VASPs with due diligence efforts of their counterparties."

Based on demand and readiness, we will also support the following protocols shortly: TRP, PayID, TRISA, and BIP-75

6. What about non-custodial wallets?

When the FATF guidelines were released in 2019, there was fear that a 2 class blockchain world would be created - one for regulated entities and one for users managing their own keys.

Luckily, regulators have been clear that they don’t want this to happen. Businesses will, however, have to take an extra step that wasn’t necessary before. They must now be able to prove that any transaction going to a non-Travel Rule account belongs to their customer.

We offer our customers a way of integrating account ownership proofs for non-custodial wallets into your compliance flow.

We can also help non-custodial wallet developers add a Self-sovereign Identity Verification flow to their wallets, allowing their users to easily onboard with regulated businesses.

As the first official “Identity Issuer” for the Concordium blockchain, we are already providing this solution for its users. "Concordium is designed from the ground up for regulatory compliance," says Lone Fønss Schrøder, Concordium's CEO. "Notabene helps with identity verification at the protocol level. Using zero-knowledge proofs, our users are able to verify their identity using the blockchain without sharing any private information.”

7. Our Team

The Notabene founding team consists of Pelle Braendgaard as CEO, Alice Nawfal as COO, Ania Lipinska as CPO, and Andrés Junge as CTO. Based in New York, Zug, and Santiago, the team worked previously together at uPort, ConsenSys’ Ethereum-based, decentralized identity protocol.

Pelle and Andrés were uPort co-founders as well as founders of early bitcoin startups (Kipochi, Mondome, Yaykuy, and 37coins). Several of their early bitcoin companies were affected by the lack of a proper crypto regulatory framework.

As part of our work at uPort, we pioneered many of the core concepts of user-controlled data and self-sovereign identity currently being deployed. Recent examples are the European Union’s eIDAS SSI initiative, the Inter-American Development Bank's LACChain initiative in Latin America, and Alastria in Spain.

Notabene Is built on a deep commitment to data ownership, privacy, and security.

8. Work with Notabene for Travel Rule Compliance

Over the summer, we will expand early access within Notabene. If Travel Rule compliance is critical to your business, let’s connect.

Read more about the Travel Rule and its national implementations here.