TFR at Six Months: How Implementation Stacks up Against the UK Earlier Rollout
Today marks the half-year anniversary of the European Union’s Transfer of Funds Regulation (TFR). As we reach the mid of 2025, it’s worth looking back at the path that shaped today's regulatory reality. The year 2023 was defined by the entry into force of the Travel Rule in the UK. In 2024, the EU followed suit. Now, six months into this new phase, the time is ripe to assess the progress of the TFR, draw comparisons with the UK’s experience, and uncover the lessons that can guide the effective implementation of Travel Rule regimes.
What the Data Tells Us
In 2023, our team at Notabene was fully mobilized to prepare the UK crypto industry for the arrival of the Travel Rule compliance, set to take effect on September 1, 2023. We engaged across multiple fronts: running testnets with cohorts of VASPs under the FCA's regulatory sandbox, co-chairing the Travel Rule working group within CryptoUK, and participating in numerous industry events, both as hosts and speakers.
By year’s end, true to our usual practice, we started examining the results of our annual State of Crypto Travel Rule Survey. It was one of those gratifying moments when the effort feels justified: the data showed that 100% of UK respondents reported being compliant with the Travel Rule, a clear signal that industry readiness had been achieved.
In 2024, with equal dedication, we turned our focus to supporting the rollout of the Travel Rule across the European Union. Our approach was similarly comprehensive: we published detailed guides, launched an in-depth certification course dedicated to EU Travel Rule requirements, delivered a three-part webinar series covering the regulations, hosted an EU-wide testnet for CASPs and regulators, and ran a series of targeted workshops for our customers.
Yet, when we reviewed the latest survey data, the results were surprising. Despite the significant groundwork, 71.2% of EU respondents indicated they were not yet compliant with the Travel Rule, with 40.4% identifying the first quarter of 2025 as their intended compliance timeline.
These figures stood in contrast to the momentum we observed within our own Network. In the months leading up to the TFR’s enforcement date of December 30th, 2024, we witnessed a marked increase in Travel Rule activation among EU CASPs. Between January 2024 and January 2025, transaction volumes originating from EU entities on the Notabene network surged by 200x, compared to the 8x growth seen in non-EU originated volumes over the same period. This contrast reflects the significant role the EU Transfer of Funds Regulation in catalyzing Travel Rule adoption within our network.
However, looking beyond our immediate ecosystem, it is clear that the UK rollout achieved a higher degree of readiness at an earlier stage. With children, we often say that each develops at their own pace and should not be compared. But with regulatory frameworks, understanding why one implementation advanced more rapidly than another can offer valuable insights.
With that in mind, the following sections explore how the UK and EU approaches diverge. We’ll examine their defining features, points of friction, and attempt to trace the root causes behind the differences in industry readiness.
The Road to Travel Rule Implementation: Centralised in the EU and Industry-led in the UK
🇬🇧 UK
When the UK implemented the Travel Rule on September 1, 2023, it followed a legislative and regulatory process that deliberately placed industry expertise at the centre.
The Money Laundering and Terrorist Financing (Amendment) (No. 2) Regulations 2022 (MLRs) introduced Travel Rule obligations for crypto firms registered with the FCA, covering both inter-cryptoasset transfers and unhosted wallet transactions.
What set the UK approach apart was the collaborative model that followed. The Joint Money Laundering Steering Group (JMLSG), a private sector body made up of UK financial trade associations, led the drafting of practical guidance for firms. To support the efforts by JMLSG, CryptoUK established a dedicated Travel Rule working group, co-chaired by Notabene, bringing together compliance officers, legal experts, and operational teams to directly work with JMLSG to shape the guidance based on day-to-day implementation realities.
This industry-developed guidance was reviewed and validated by the FCA and HM Treasury, ensuring alignment with regulatory expectations while keeping operational challenges front and centre.
Furthermore, in August 2023, just before the rule took effect, the FCA published targeted guidance to clarify issues raised during the grace period, most notably the “sunrise issue” involving transactions with jurisdictions that had not yet adopted the Travel Rule.
The result was a regulatory framework supported by practical, actionable guidance.
This collaborative process - combining early regulatory engagement and industry ownership - played a decisive role in the UK achieving high levels of readiness by the time the Travel Rule came into force.
🇪🇺 EU
The EU set out to tackle a far more ambitious task than the UK: introducing uniform Travel Rule obligations across all 27 Member States through a single, binding regulation. This was achieved via the recast of Regulation (EU) 2015/847, better known as the Transfer of Funds Regulation (TFR), which was formally adopted on May 31, 2023 to extend the Travel Rule to crypto transfers.
The creation of detailed implementation guidelines was primarily led by the European Banking Authority (EBA).
The EBA made several efforts to incorporate industry perspectives. A public consultation on the Travel Rule Guidelines launched on November 24, 2023, alongside public hearings and the formation of Technical Expert Groups (TEGs)—which included industry representatives like Notabene.
However, unlike the UK’s process, where industry actors drafted the practical guidance with regulatory validation, in the EU it was the reverse: regulators drafted the guidelines, and the industry was invited to provide feedback along the way. While this structure provided transparency and some opportunity for dialogue, it inevitably limited the extent to which day-to-day operational challenges of CASPs could shape the final rules.
Takeaway
Guidance developed by industry practitioners and backed by regulatory oversight delivers the hands‑on, pragmatic advice firms need for readiness. In contrast, a top‑down model can miss key nuances encountered in day‑to‑day operations.
Using Grace Periods Strategically
EU CASPs were granted nearly six additional months to prepare compared to their UK counterparts. A long grace period in the EU was the right approach given the complexity of implementing uniform requirements across 27 Member States.
However, based on our experience, the length of a grace period is far less important than how that time is used. A grace period should serve as structured preparation time for both regulators and industry, particularly with the Travel Rule, which directly affects transaction flows, operational processes, and customer experience.
🇬🇧 UK
The UK offers a textbook example of this. Throughout the 13-month grace period, the FCA worked closely with the industry. This started with the acceptance of Notabene's Travel Rule testnets into the FCA regulatory sandbox. This hands-on engagement allowed the FCA to better understand the technical and operational nuances of implementing Travel Rule programs. The FCA also conducted targeted outreach to VASPs, requesting detailed implementation plans and offering feedback based on insights gained from the testnets. As a result, potential gaps were identified early and firms had time to adjust, which led to the high compliance rates we saw post-deadline.
🇪🇺 EU
It would be unrealistic to expect the same degree of coordinated engagement across the EU, where the regulation had to be rolled out simultaneously across 27 jurisdictions and regulatory bodies. However, the grace period fell short even in resolving fundamental questions - for example, when exactly do Travel Rule obligations start to apply?
Even after the Travel Rule formally entered into force on December 30, 2024, confusion persisted among industry participants:
- Some CASPs misinterpreted the transitional period outlined in the EBA Guidelines, assuming it postponed Travel Rule obligations entirely until 31 July 2025. In reality, this period only allows temporary technical limitations in solutions, but full compliance with the TFR is expected regardless of technical limitations.
- Others argued that the TFR only applies once a CASP obtains full authorisation under MiCA, meaning firms operating under transitional arrangements were exempt. The EBA explicitly rejected this interpretation in its July 2024 response to public comments, stating:
"The EBA stresses that non-compliance with Regulation (EU) 2023/1113 is not accepted."
Takeaway
The UK experience offers a clear takeaway: the success of a regulatory rollout is not defined by how long the grace period is, but by how strategically that time is used. The UK's collaborative, proactive use of its grace period - bringing together regulators and industry to stress-test real-world implementation - was instrumental in achieving early, widespread readiness.
Managing Self‑Hosted Wallets: Risk‑Based Principles or Prescriptive Rules?
🇬🇧 UK
The UK has adopted a non-prescriptive, principles-based approach to regulating interactions with self-hosted wallets, built around risk assessments and operational discretion. Under Regulation 64G(2) of the MLRs, crypto-asset businesses (CBs) are required to assess the risks associated with unhosted wallet transactions and determine whether collecting additional customer information is appropriate.
The JMLSG provides further operational guidance, encouraging CBs to seek additional information when dealing with self-hosted wallets in higher-risk situations. Factors such as transaction size, frequency, and the overall customer relationship inform these assessments. Where higher risks are identified, CBs are expected to apply enhanced due diligence, which may include verifying control over the self-hosted wallet using mechanisms such as micro-deposits or cryptographic signatures.
Crucially, the UK’s framework avoids imposing rigid or overly prescriptive requirements. This allows CBs to adjust their controls based on risk assessments. As a result, UK market participants have largely maintained the ability to support these types of transactions while remaining compliant and adopting robust risk-mitigation policies.
🇪🇺 EU
The EU has taken a more prescriptive stance toward regulating self-hosted wallets, with obligations set out in the TFR and further operational detail provided by the EBA Travel Rule Guidelines.
Under the TFR, crypto-asset transfers involving self-hosted wallets are subject to escalating requirements based on transaction size. For transactions exceeding €1,000, CASPs must verify that their customer owns or controls the receiving self-hosted wallet. The EBA Guidelines elaborate on this obligation by providing a non-exhaustive list of acceptable verification methods, while also making clear that at least one method must be applied in all applicable cases.
A key source of market friction stems from the disconnect between the TFR’s legislative text and the EBA guidelines in what concerns third-party self-hosted wallet transfers. While the TFR does not explicitly impose verification requirements for transactions involving third-party self-hosted wallets, the EBA Guidelines extend obligations to these transactions, creating expectations for due diligence that many CASPs find impractical or disproportionate to implement.
The result has been a marked trend toward de-risking within the EU. According to Notabene's 2025 State of Crypto Travel Rule Report, VASPs in the EU are 55% more likely to prohibit transactions with self-hosted wallets compared to the global average, reflecting a significant de-risking trend driven by regulatory uncertainty. Faced with operational uncertainty and the high cost of compliance, 15.4% of EU-based VASPs have implemented complete prohibitions on such transactions, compared to a global average of 9.9%.
Takeaway
In this rapidly evolving industry, prescriptive rules often struggle to keep pace with technological change, leading to unintended consequences such as market exclusion and de-risking. The UK's principles-based, risk-driven approach to regulating self-hosted wallets demonstrates how flexible frameworks can promote compliance without stifling innovation or market participation. By contrast, the EU's more prescriptive model has amplified operational uncertainty, prompting many VASPs to restrict legitimate transactions to avoid having to navigate complex, often impractical requirements. Striking the right balance between risk mitigation and operational feasibility requires regulation that empowers firms to apply proportionate and evolving controls.
Counterparty Due Diligence Obligations: All or Nothing?
🇬🇧 UK
In the UK, Counterparty VASP Due Diligence (CVDD) is not explicitly required under the Travel Rule, nor is it addressed in the JMLSG or FCA guidance. This was a conscious decision by UK regulators, who determined that existing frameworks such as data privacy laws and sanctions compliance already provide sufficient oversight. The UK’s approach aims to avoid introducing additional, potentially duplicative obligations that could complicate compliance without clear added benefit.
While this streamlined framework reduces regulatory burden, the lack of specific CVDD guidance may create operational uncertainty for VASPs.
🇪🇺 EU
In contrast, Article 38 of the EU’s TFR amends the 4th Anti-Money Laundering Directive (AMLD4) to expand the definition of correspondent relationships and explicitly include those established for transactions or transfers in crypto-assets. Recital 60 further clarifies that relationships between CASPs and third-country entities executing crypto-asset transfers share similarities with correspondent banking relationships and should be subject to enhanced due diligence measures similar in principle to those applied in traditional banking.
The EBA further issued the EBA/GL/2024/01 Guidelines to specify firms’ obligations where the respondent or its customers are providers of services in crypto-assets, other than CASPs authorised under MiCA, or where they are deemed to present an increased ML/TF risk.
Takeaway
The UK's decision to avoid prescriptive Counterparty VASP Due Diligence (CVDD) requirements reflects a desire to avoid duplicating existing oversight mechanisms. However, the absence of explicit CVDD expectations in the Travel Rule context can create operational uncertainty for VASPs navigating cross-border interactions.
Conversely, the EU’s approach imposes comprehensive CVDD obligations rooted in correspondent banking standards. As the FATF itself acknowledges, Travel Rule compliance requires a more proportionate approach. Unlike in the banking sector, many cross-border VASP-to-VASP transfers happen without an established, ongoing relationship, making traditional correspondent banking due diligence ill-suited in this context.
Neither extreme - a complete absence of guidance nor rigid, banking-style obligations - proves effective. Instead, CVDD requirements should be proportionate and aligned with the realities of the crypto-asset sector.
Reporting Non-compliant Counterparties
🇬🇧 UK
Beneficiary and intermediary CBs are required to report repeated failures by counterparties to provide required Travel Rule information to the FCA. Reporting must include details of both the non-compliance and the remedial steps taken. The UK applies a risk-based approach, allowing firms to determine what constitutes “repeated failure” based on transaction volumes, size, or frequency.
By the time the Travel Rule regulations came into force, formal processes for reporting non-compliant counterparties had not yet been established by the FCA. These procedures are currently being rolled out in the UK.
🇪🇺 EU
In the EU, Article 17(2) of the TFR mandates that CASPs assess whether non-compliance is repeated, using both quantitative criteria (e.g., percentage of missing data transfers, unanswered follow-ups) and qualitative criteria (e.g., cooperation level, reasons for non-provision).
If repeated non-compliance is identified, CASPs must report repeatedly non-compliant counterparties to the relevant AML/CTF authority within three months. Reports should include details on the VASP’s identity, the nature and frequency of breaches, explanations given, and actions taken.
Similarly to the UK, EU CASPs faced uncertainty as the Travel Rule entered into force without clear reporting processes fully established by regulators. The operationalization of these requirements is now underway in key markets like Germany.
Takeaway
Both the UK and EU frameworks mandate reporting non-compliant counterparties as a key enforcement mechanism. However, the absence of established reporting processes at the regulation’s start created uncertainty for VASPs in both regions. While the UK is now actively rolling out clearer reporting protocols, EU jurisdictions still face fragmented implementation.
According to the Notabene State of Travel Rule Report, only 32.7% of EU respondents are prepared to report non-compliant counterparties, including 26.9% who have set up reporting processes but have yet to use them. Actual reporting is low, at just 5.8%, likely reflecting regulatory ambiguity and operational challenges. Additionally, 15.4% of respondents indicate a lack of clear guidance in their jurisdiction.
This highlights the need for streamlined procedures to enable VASPs to fulfil reporting obligations effectively.
Lessons Learned
As we mark six months since the Travel Rule came into force in the EU and reflect on the UK’s earlier experience, several clear lessons emerge from the comparative rollout of these pivotal regulations:
- Industry‑Led Operational Guidance Drives Readiness
Regulatory frameworks grounded in operational realities succeed. Industry practitioners are well positioned to lead the drafting of practical implementation guidelines, with regulators providing validation and oversight. This collaborative model yields actionable, context-sensitive rules that help firms achieve compliance more effectively.
- Grace Periods Work Only When Used Strategically
The duration of a grace period is far less important than how the time is utilised. Structured, ongoing engagement between regulators and industry is critical to turning a grace period into a true window of preparation rather than merely a delay.
- Principles-Based, Risk-Driven Approaches Outperform Rigid Prescription
In fast-evolving sectors like crypto-assets, flexible, risk-based frameworks outperform one-size-fits-all mandates. Such principles-led approaches enable firms to calibrate controls proportionate to risks, fostering compliance without stifling innovation or excluding legitimate market participants.
- Feasibility of Implementation Is Key to Compliance
Regulatory mandates that are operationally impractical—such as overly stringent obligations for third-party self-hosted wallets or unclear procedures for reporting non-compliant counterparties—drive firms toward non-compliance or excessive de-risking. Clear, feasible requirements and well-established processes are essential to avoid unintended consequences that undermine regulatory goals.
A combination of principle-based legislative mandates, industry-crafted operational playbooks, and purposeful, collaborative transition periods is key to building effective frameworks that serve both regulatory goals and industry realities, turning compliance from a challenge into a foundation for sustainable innovation and trust.
