With the European Union’s Transfer of Funds Regulation (TFR) taking effect on December 30, 2024, virtually all Crypto/Virtual Asset Service Providers (CASPs/VASPs) transacting with European customers must ensure compliance or face operational halts. Reachability and responsiveness are crucial for regulated VASPs, as non-responsiveness will prevent future transactions. We’re now at a critical juncture, as this regulation marks the end of the sunrise period and shifts the focus from protocol interoperability to compliant counterparty responsiveness.
At Notabene, we’re thrilled to announce a major milestone in our mission to integrate crypto transactions into the everyday economy. Our latest innovation, SafeTransact for Networks, aims to enhance counterparty responsiveness and bring Travel Rule compliance to existing ecosystems where transactions are already occurring today.
Notabene is uniquely positioned to deliver on this vision, as our extensive network already spans 27 countries, enabling us to process $71 billion worth of transactions in May 2024 alone. With 143 companies actively transacting daily, our clients have successfully integrated with us, setting up robust compliance processes and collaborating effectively with regulators.
Shifting Focus: From Interoperability to Reachability
It is widely understood that the fragmented nature of Travel Rule protocols has impeded widespread adoption. Initially, the industry thought solving protocol interoperability would boost Travel Rule adoption rates. This hypothesis seemed reasonable enough at the time, but it became evident that building a new network from scratch was very difficult. With many protocols with restricted access, low activity, or too few users, VASPs constantly struggle to reach all of their counterparties and achieve full compliance. We have since learned from experience in real-world applications from customers and regulators that the value of protocol interoperability is only as strong as the user adoption that protocols are able to achieve.
Despite the impressive logos associated with various initiatives, we recognized that many of the biggest names in Travel Rule protocols had little to no activity occurring. To solve this, we shifted our focus from interoperability to reachability. This meant rethinking our approach entirely and not falling into the same trap of inventing yet another competing protocol, but instead solving our customers' core business needs – reaching and receiving responses from transaction counterparties.
Introducing SafeTransact for Networks
Instead of creating a new Travel Rule messaging network from scratch, SafeTransact for Networks integrates a compliance layer into existing networks, where millions of transactions already occur daily. This allows institutional custodians, settlement networks, multi-party computation (MPC) wallets, service providers, and stablecoin issuer ecosystems to seamlessly offer Travel Rule compliance. Networks can now integrate SafeTransact and offer Travel Compliance on top of their transactions. Members can perform checks and screen transactions to make automated authorization decisions without pure technical integration. SafeTransact for Networks helps businesses become compliant faster and seamlessly transact within the ecosystem.
Addressing Activation with SafeTransact for Networks
SafeTransact for Networks directly tackles the reachability challenge by bringing Travel Rule compliance where crypto businesses already transact with their counterparties today. To make SafeTransact for Networks work and reflect real-world transactions, we expanded the rigid Travel Rule, Alice-to-Bob flow, to transaction intermediaries, like custodians. We introduced flexibility and modularity into SafeTransact's transaction flow, which allows you to add as many transaction participants as real-world use cases require.
Our solution uniquely operates at scale, managing Personally Identifiable Information (PII) in a compliant, risk-based manner, where only authorized businesses receive PII information. SafeTransact remains the only Travel Rule solution that offers this capability.
How it Works
Here’s a clear example of one multi-party transaction:
1. Initiating the Transaction
- Alice, a customer of BerlinEx, initiates a Bitcoin transfer to Bob.
- BerlinEx initiates the transaction by calling their wallet provider, SIGTrust, registered on the Seychelles.
- SIGTrust, being a network partner at SafeTransact, acts as the initiator for the Transaction authorization flow between the participants.
2. Chain of Intermediaries
- SIGTrust initiates the transfer in SafeTransact for Networks.
- Through our discovery methods, SIGTrust identifies that the recipient’s address belongs to TexEx. A first transfer initiation message is exchanged.
- TexEX responds and adds CryptoTrust, their custodian, to the transaction chain.
Once TexEx responds with adding their Custodian CryptoTrust:
3. Transparency and Policy Implementation
- All parties involved recognize that this is a four-party transfer.
- TexEx establishes policies that require a Travel Rule exchange and flags the Seychelles jurisdiction from SIGTrust.
- The transfer appears in TexEx’s platform, listing all participants and their respective roles.
4. Compliance and Authorization
- The compliance team reviews and authorizes the transfer.
- Responses are sent to all participants to ensure everyone is informed.
- A request for a Travel Rule transfer is sent to the Originators about the Originator.
5. Completion and Notification
- All participants send and receive notifications detailing their roles and authorization policies in the transaction.
- Personally Identifiable Information (PII) is shared only with parties that require it.
- Once policies are fulfilled and the transfer is authorized, the transfer is completed and settled on-chain.
6. Policy Setup and Management
- BerlinEx has the option to apply for a profile with Notabene.
- This profile allows them to set up specific policies, including the ability to authorize or reject future transfers.
- The moment they onboard, they see all the historic transfers that they initiated via SIGTrust.
SafeTransact for Networks ensures that even complex multi-party transactions are handled smoothly and securely, with careful management of PII and compliance with all necessary regulations.
Why Choose SafeTransact for Networks?
- Network Providers (e.g. institutional custodians, settlement networks, MPC wallet providers) deliver incremental value to their customers by offering network members a layer of compliance on top of their existing service.
- Network members (e.g. exchanges, banks, lending desks) quickly and easily achieve Travel Rule compliance without the need for additional development resources by joining the SafeTransact ecosystem.
- The Entire Ecosystem benefits from the network effects of expanding compliance reachability from individual networks across all integrated networks. This interconnected approach ensures that businesses can transact safely and compliantly within their existing ecosystems without needing to adjust to new frameworks.
Bringing the Power of SafeTransact to Established Networks
- Comprehensive Travel Rule Compliance: SafeTransact is designed to meet the stringent requirements of the Travel Rule and other regulatory frameworks. By facilitating the exchange of travel rule information and automating compliance processes, SafeTransact helps businesses stay ahead of regulatory demands. This is particularly important as more jurisdictions globally implement these compliance requirements.
- Pre-Transaction Authorization: SafeTransact enables businesses to make informed authorization decisions before a transaction is completed. This feature allows for instantaneous approvals, flags transactions for review, or rejects them based on predefined criteria. By identifying and screening all counterparties, SafeTransact performs thorough due diligence and risk assessments, ensuring that only legitimate transactions are processed.
- Real-Time Decision Making: One of SafeTransact’s standout features is its ability to make authorization decisions in real-time. This capability is crucial for businesses that need to operate at the speed of digital transactions without compromising security. With SafeTransact, businesses can automate their transaction flows and analyze insights, making the entire process seamless and efficient.
We’re excited to present SafeTransact for Networks as an innovative way of increasing Travel Rule adoption globally by meeting crypto businesses where they transact with their counterparties today. We allow existing networks, like institutional custodians and MPC wallet providers, to offer their customers a layer of compliance on top of their ecosystems. All of this is possible with Notabene’s new transaction flow expanding to intermediary and more complex, real-world use cases.
We believe that reachability, activation, and responsiveness are the most pressing issues facing our industry, which is why we are doubling down on expanding the Notabene Network to give our customers truly global reach. We understand that our industry cannot thrive with a one-size-fits-all approach to regulatory compliance, so we have invested in tools like our new PolicyEngine to enable customers to easily manage their unique workflows.
We are approaching a global tipping point for Travel Rule compliance, driven largely by the December 30 implementation deadline for the EU. We are here to help you prepare for that deadline in any way possible. Whether you are a customer participating in our Travel Rule certification programs or seeking a trusted resource for industry updates and education, please consider us a valuable resource. Our team are experts on these issues and is here to assist you with any questions you might have.
To learn more about how SafeTransact can benefit your business and ensure compliance, contact our team for a custom demo.
