In November 2023, the European Banking Authority (EBA) unveiled a Consultation Paper on the proposed Travel Rule Guidelines, marking a significant step in the evolution of EU financial regulation. This initiative addresses the growing need for clear regulatory frameworks as digital finance transforms the landscape of global transactions.

The EBA presented its proposed Travel Rule Guidelines as a direct response to the mandate outlined in Article 36 of the Transfer of Funds Regulation, which empowered the authority to issue guidelines to Crypto Asset Service Providers (CASPs), aiming to guide entities on how to comply with some of its requirements. 

This article explores the key takeaways of the EBA’s Travel Rule Guidelines and provides enriching insights from Notabene’s presentation at the EBA’s public hearing. 

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Key Takeaways from the EBA’s Consultation on Travel Rule Guidelines

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1. CASPs must consider interoperability when selecting a messaging protocol

The EBA emphasizes the need for interoperability among protocols used for transmitting Travel Rule information. The EBA advises CASPs to choose messaging protocols that are robust and interoperable, capable of seamless communication across various systems, and in line with industry standards. This approach aims to mitigate data integration challenges and enhance the efficiency of adhering to regulatory mandates.

“When choosing the messaging protocol, CASPs and ICASPs should ensure that the protocol’s architectures are sufficiently robust to enable the seamless and interoperable transmission of the required information by:
a. evaluating the protocol’s interoperability features to ensure it can seamlessly communicate with other systems, both within and outside CASPs and ICASPs;
b. considering the compatibility with existing industry standards, protocols, and blockchain networks to facilitate integration; and
c. assessing data integration and data reliability.”

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Notabene’s commentary:

During the EBA’s public hearing, we praised the EBA for recommending interoperability assessments promoting open and interoperable communication standards. This concept aligns with the FATF calling for more interoperability in tools and with surveyed VASPs calling for a global unified approach in travel rule communication and reachability in response to Notabene’s 2023 State of Travel Rule Survey. 

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2. Deposits can only be accepted if the received information allows unambiguous identification of all parties involved in the transaction

The EBA outlined the procedures CASPs should implement to manage transfers lacking the required information.

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The EBA’s Guidelines for Addressing Missing Information in a Crypto Transaction

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Let’s break this down step by step.

Step 1: First, upon detecting missing information, the beneficiary CASP can either straightaway reject/return the transfer or request missing information from the prior CASP in the chain. 
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Where the crypto-asset service provider of the beneficiary becomes aware that the information referred to in Article 14(1) or (2), or in Article 15, is missing or incomplete, that crypto-asset service provider shall, on a risk-sensitive basis and without undue delay:
(a) reject the transfer or return the transferred crypto-assets to the originator’s crypto-asset account; or
(b) request the required information on the originator and the beneficiary before making the crypto-assets available to the beneficiary.

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Decision Flowchart for Handling Missing Information in Crypto Transfers per the EBA

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Step 2: If the beneficiary CASP decides to ask for missing information, it should set a reasonable deadline by which the information should be provided. Transfers within the Union require the information to be provided within three working days, while transfers outside the Union have a deadline of 5 working days. If more than two parties are involved in the transfer flow or at least one CASP is based outside of the EU, the deadline extends to up to 5 working days. Additionally, if a CASP requests information from a prior CASP in the transfer chain, it must notify the prior CASP of the transfer’s suspension due to missing or incomplete information.

Step 3: If the beneficiary CASP asks for missing information and the previous CASP fails to provide it, the beneficiary CASP:

• may only consider accepting the deposit if both the originator and beneficiary are unambiguously identified and
• must evaluate the future treatment of the previous CASP, ICASP, or self-hosted address in the transfer chain for AML/CFT compliance purposes

Where a CASP becomes aware that required information is missing, incomplete or provided using inadmissible characters during the transfer and executes the transfer, based on all relevant risks, and provided that the condition in paragraph 50 is not met, it should document the reason for executing that transfer and, in line with its risk-based policies and procedures, consider the future treatment of the prior CASP or self-hosted address in the transfer chain for AML/ CFT compliance purposes.
Where the payer, payee, originator, or beneficiary cannot be unambiguously identified due to missing or incomplete information or information provided using inadmissible characters, the CASP should not execute the transfer.

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Decision Path for Missing Information Response in Crypto Transfers per the EBA

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Step 4: In cases where a CASP consistently fails to provide the required Travel Rule information, specific actions are mandated for the beneficiary CASP. Initially, steps such as issuing warnings and setting deadlines must be taken to address the issue. If the required information is still not provided despite these measures, the provider has the authority to reject, restrict, or terminate the transaction per established procedures. Additionally, it is required that the beneficiary CASP reports such failures and the steps taken to the competent authority responsible for monitoring compliance with AML/CTF regulations. This ensures accountability and regulatory oversight in addressing non-compliance issues within the crypto-asset service industry.

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Notabene’s commentary:

During the public hearing, Notabene challenged the strict rejection of deposits when the identity of the parties cannot be unambiguously confirmed, proposing a nuanced approach based on risk assessment, particularly in transactions with jurisdictions not yet enforcing the Travel Rule.

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3. The EBA provided guidelines for verifying ownership or control of self-hosted wallets in transactions over 1,000 EUR

As established in the TFR, if a crypto-asset transfer is made to/from a self-hosted address, the originator or beneficiary CASP must gather and retain specific information, ensuring the transfer can be tracked individually. If the transfer exceeds EUR 1,000, additional measures must be taken to verify whether the address belongs to the originator or beneficiary. These measures are further specified in the proposed EBA guidelines, which state that the verification should be conducted using at least two suitable methods:

• Advanced analytical tools
• Unattended verifications 
• Attended verification 
• Sending of a predefined amount set by the CASP from and to the self-hosted address to the CASP’s account
• Signing of a specific message in the account and wallet software, which can be done through the key associated with the transfer
• Requesting the customer to digitally sign a specific message into the account and wallet software with the key corresponding to that address
• Other suitable technical means

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The guidelines from the EBA appear to introduce the possibility of accepting transactions from third-party self-hosted wallets, a detail not explicitly outlined in the TFR text, which primarily focuses on verifying whether the CASP’s own customer maintains control over the self-hosted wallet. 

Where the self-hosted address is owned or controlled by a third person instead of the CASP customer, the CASP should, in addition to applying the verification requirement in accordance with Article 14 (5) or Article 16 (2) of Regulation (EU) 2023/1113, apply mitigating measures commensurate with the risks identified as per Article 19a of Directive (EU) 2015/849

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Notabene’s commentary:

During the public hearing, Notabene suggested that using more than one method for wallet ownership verification should not be required as a rule but recommended only for cases where it proves necessary. We also sought clarification on the treatment of third-party self-hosted wallet transactions.

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4. The status of Travel Rule enforcement in the counterparty jurisdiction is a relevant risk factor

The TFR specifies that the beneficiary CASP must establish procedures to detect whether the required Travel Rule information was provided. In turn, the proposed EBA guidelines elaborate on the monitoring process, highlighting the need for beneficiary CASPs to develop policies and procedures for determining which transfers require pre-transfer or post-transfer monitoring. This involves assessing various risk factors, including the regulatory treatment in the counterparty’s jurisdiction, in particular, the Travel Rule implementation status. 

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Notabene’s commentary:

Understanding the global status of Travel Rule requirements is thus crucial for a comprehensive Travel Rule policy. Notabene offers valuable resources in this regard, including information on our website and our annual State of Crypto Travel Rule Compliance Report, which features a detailed chart presenting a comprehensive overview of global Travel Rule adoption, including enforcement status in each jurisdiction, compliance thresholds, and obligations related to self-hosted wallets. These are valuable resources for CASPs in establishing procedures aligned with EBA guidelines.  

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What's next?

As the European Union ramps up for its Travel Rule enforcement deadline, the EBA’s proposed Travel Rule Guidelines stand as a pivotal development for CASPs and the broader digital finance ecosystem. These guidelines aim to enhance transparency and security in crypto-asset transactions and reflect a collaborative effort to adapt to the digital age’s complexities.

Notabene’s insightful contributions during the public hearing and the industry’s collective feedback underscore the importance of a unified approach to regulatory compliance. As we approach the public consultation deadline and anticipate the final guidelines, it’s crucial for stakeholders to remain engaged and proactive in shaping a regulatory environment that supports innovation while safeguarding integrity.

The EBA’s guidelines will undoubtedly play a crucial role in harmonizing practices across Europe, setting a precedent for global regulatory coherence in the digital finance realm. As we mark our calendars for the key dates leading up to the TFR enforcement, let’s continue to foster dialogue and collaboration, ensuring that the future of trusted crypto transfers is secure, transparent, and inclusive.

As we kick start the new year, we recognize that 2023 was undeniably a pivotal chapter in the ongoing narrative of crypto compliance. Last year, the space witnessed unprecedented transformations, surmounting challenges, and celebrated key milestones that underscore the industry's commitment to maturity, responsibility, and global cooperation. The challenges faced, lessons learned, and strides made in the pursuit of regulatory clarity have set the stage for a promising future. 

As Notabene's Head of Regulatory and Compliance, and with my background as a Crypto Compliance Officer, my excitement for what lies ahead is palpable. In this piece, I'll revisit some of the standout trends and milestones of 2023 and offer a glimpse into my predictions for the year ahead. 

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Global Crypto Regulatory Developments in 2023

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Regulatory Maturity and Global Alignment

2023 marked a turning point as regulatory bodies worldwide exhibited a growing understanding of the crypto landscape. Major jurisdictions refined existing frameworks and introduced comprehensive regulations, paving the way for a more mature and structured industry that will continue to support various use cases.

Global regulatory progress in 2023: key regional developments

Commitment in Key Regions: The United Kingdom, Hong Kong, United Arab Emirates, India, Japan, and the EU demonstrated a commitment to fostering a secure and transparent crypto ecosystem.

• Hong Kong: The Securities and Futures Commission (SFC) implemented a regulatory framework for crypto exchanges, where licensed virtual asset portfolio managers are subject to the same regulatory standards as traditional securities firms.
• The UAE: The Dubai Multi Commodities Centre (DMCC) introduced a comprehensive regulatory framework for businesses engaged in crypto-related activities.
• India: Showed an increased interest in blockchain and digital assets; explored the possibilities of a central bank digital currency (CBDC) and developed crypto regulations.
• Japan: Introduced a licensing system for cryptocurrency exchanges overseen by the Financial Services Agency (FSA).

Notabene's Industry Impact: Showcased dedication to building a regulatory framework to address anti-money laundering (AML) concerns and facilitating secure cross-border transactions, with a significant increase in transaction volume in the Notabene system.

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Travel Rule Implementation Gained Traction

2023 marked a significant leap forward in Travel Rule implementation. Inspired by FATF guidelines, jurisdictions worldwide have made substantial progress enforcing this essential measure. According to a recent report by Price Waterhouse Cooper, 42 countries have engaged in discussions or enacted cryptocurrency regulations and laws in 2023. These efforts primarily concentrate on four central areas: regulating stablecoins, ensuring compliance with the travel rule, providing clear guidelines for licensing and listings, and developing comprehensive frameworks for cryptocurrency.

Global emphasis on Travel Rule

Across the globe, regulators highlighted the importance of Travel Rule. 

• The UAE: VARA and ADGM emphasize the need for policies and steps related to the Travel Rule for provisional licenses. 
• Hong Kong: the Securities and Futures Commission (SFC) adopted a descriptive approach, outlining specific due diligence requirements for Virtual Asset Service Providers (VASPs). 
• Japan: the amendment to the Act on Prevention of Transfer of Criminal Proceeds (APTCP) amendment established more straightforward Travel Rule obligations for VASPs, contributing to a more defined regulatory landscape.  
• The EU’s revised Travel Rule Framework (TFR) introduced Travel Rule requirements for Crypto Asset Service Providers (CASPs), ensuring harmonization across all 27 member states.

2023 Travel Rule enforcement dates

• February 7, 2023 —  Dubai
• June 1, 2023 — Hong Kong
• June 1, 2023 —  Japan
• September 1, 2023 — United Kingdom

Heightened transparency and cross-border collaboration

These moves have not only heightened transparency but have also laid the groundwork for effective cross-border collaboration. As the latest addition to crypto AML regulations, Travel Rule compliance uniquely offers VASPs transaction-level insights into counterparties, and sanctions. This insight enables VASPs to detect whether clients send transactions to sanctioned entities, wallets, or jurisdictions. Properly implemented, Travel Rule compliance empowers VASPs to halt potential illicit transactions before they are recorded on the blockchain, thereby reducing overall risk exposure and avoiding operational challenges.

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Interoperability Challenges Were Addressed

The industry has made significant progress in addressing the interoperability challenges obstructing seamless collaboration between disparate networks and closed systems. Standardization and collaborative initiatives bridged the gaps, fostering a more interconnected and compliant ecosystem.

Key developments in interoperability:

• IVMS102 Updates: The industry's efforts in updating the IVMS102 standard have been noteworthy. IVMS102 is crucial in standardizing messaging formats across different systems, facilitating smoother information exchange, and reducing complexities in multi-system interactions. This standard is critical in ensuring that different platforms can effectively communicate and transact with one another.
• TRP and TRISA Collaboration: The integration of TRP, a decentralized peer-to-peer Travel Rule protocol, with TRISA, is a significant stride forward. VASPs using TRP can effortlessly exchange compliant data with those using TRISA. This marks a monumental step in global compliance and security enhancement.
• Notabene's SafeGateway Solution: Notabene introduced SafeGateway, a noteworthy innovation enhancing Travel Rule compliance. It facilitates seamless interactions between VASPs across various protocols, enabling a unified compliance strategy and efficient access to counterparties, thus simplifying regulatory adherence. This development has been a focal point in Notabene's contributions to the FATF’s Virtual Asset Contact Group discussions.

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Technological Advancements in Compliance Tools‍

Did someone say AI?

The rapid evolution of compliance technologies has been a standout feature of the year. Companies have harnessed blockchain analytics, artificial intelligence, and machine learning to develop sophisticated tools. These tools are used for monitoring, reporting, and ensuring adherence to regulatory requirements and transparency for crypto compliance, as demonstrated by the cross-chain investigation tools that blockchain analytics companies can offer.

2024 Projections for Crypto Regulation: Key Trends to Watch

So, what’s on my crystal ball for 2024 projections? Here are a few themes. 

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Heightened Scrutiny on Source of Funds Controls

Recent geopolitical events, particularly the Russia-Ukraine conflict, have intensified the focus on sanctions compliance in cryptocurrency transactions. This shift has led to increased regulatory pressure on Virtual Asset Service Providers (VASPs) to monitor the sources of funds more rigorously. Compliance with the Travel Rule plays a pivotal role here, as it empowers Beneficiary VASPs with clear records of fund sources, aiding in mitigating sanctions risks.

• UK Regulations: In the UK, beneficiary VASPs must return funds to the originator if there are discrepancies or missing Travel Rule information, ensuring tighter control and transparency.
• UAE Guidelines: The UAE's Virtual Assets Regulatory Authority requires Beneficiary VASPs to collect and retain detailed information about the originator and beneficiary for transactions exceeding AED 3,500.
• Hong Kong's Approach: A similar emphasis on the verification of fund sources is also observed in Hong Kong.

However, the success of Travel Rule compliance, particularly in deposits, largely hinges on the cooperation of Originator VASPs. Challenges such as the Sunrise Issue and limitations in protocol interoperability present obstacles to effective collaboration and compliance.

Amplified Focus on Custody of Customer Funds

In response to recent fund misappropriation and mismanagement incidents, regulators worldwide are moving towards stricter rules for the custody of customer funds. This shift is particularly evident in the growing requirement for a clear separation between exchange services and the custody of funds, emphasizing the importance of safeguarding investor assets.

Examples of funds segregation regulations:

• Canadian Regulations: The Canadian Securities Administrators have mandated crypto exchanges to segregate user funds and use appropriately qualified custodians to hold them.
• US SEC's Proposal: In the United States, the Securities and Exchange Commission (SEC) has proposed expanding and enhancing the role of qualified custodians to ensure safer custody of investor funds by investment advisors.
• Taiwan's Approach: Taiwan’s financial regulators are considering similar requirements for exchanges to segregate customer funds.
• Japan's Precedent: Japan already has a requirement for the separation of customer funds, a policy that contributed to mitigating the local impact of the FTX collapse.

These examples indicate a global trend towards more robust and transparent practices in the custody of customer funds within the crypto industry, reflecting a move towards increased protection for investors and stakeholders.

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Intensified Emphasis on Stablecoin Regulation

Stablecoin regulatory action will continue to increase in 2024. In 2023, various countries and financial bodies were actively working on regulatory frameworks to address stablecoin issuance and usage within their jurisdictions. These regulations may require stablecoin issuers to adhere to specific reserve and reporting requirements. 

In 2023, several countries and organizations advanced their stablecoin regulations:

• Hong Kong Regulators Push for Stablecoin Guidelines - Regulators in Hong Kong began looking to establish guiding principles for stablecoins before the end of 2023.
• The Biden administration in the U.S. proposed stablecoin regulation and the possibility of a digital dollar⁠
• Japan passed regulations allowing investors to trade using certain stablecoins 

• The U.S. House Committee published a draft stablecoin bill⁠ 3
• The Bank of England released stablecoin regulations due to take effect in 2024⁠ 

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Widespread Adoption of the Travel Rule

In 2024, we expect a significant surge in the global adoption of the Travel Rule. As more jurisdictions recognize its importance, we anticipate a large comprehensive network of compliant VASPs that will begin seamlessly exchanging information, fostering a safer and more transparent crypto environment. 

Key movements to mobilize compliance in 2024 include the EU's Transfer of Funds regulation, which will unify Travel Rule across EU nations, and LATAM's alignment efforts, highlighted by the Central Bank of Brazil's recent crypto consultations.

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Emergence of Unified Global Regulatory Frameworks

The upcoming year is set to witness the evolution of the groundwork laid in 2023 into more extensive, globally aligned regulatory frameworks and the development of more structured and transparent regulatory approaches. This development is expected to streamline cross-border regulatory processes, simplify compliance for crypto businesses, and create a more equitable playing field.

EU's regulatory advances

The EU has made significant strides with the introduction of the Regulation on Markets in Crypto-Assets (MiCA) and the revised Transfer of Funds Regulation (TFR). MiCA establishes a comprehensive framework for diverse crypto assets and service providers, aiming to balance investor protection, financial stability, and innovation. The revised TFR uniformly applies Travel Rule requirements across all EU member states, replacing the previously varied national approaches with a consistent compliance timeline.

UK's holistic approach

In a similar vein, the UK has embraced a comprehensive approach to crypto regulation. In 2023, HM Treasury issued significant updates on several regulatory fronts:

• Future financial service regime for cryptoassets, addressing the early stages of regulating DeFi activities and the regulatory treatment of staking.
• Management strategies for the failure of systemic Digital Settlement Asset firms.
• Plans to regulate fiat-backed stablecoins, with a goal to introduce related legislation by early 2024.

The UK's early and successful implementation of Travel Rule requirements, preceding the EU, highlights a growing trend towards transactional transparency. This development is leading to an increasing market preference for compliant transaction flows in the crypto sector.

These advancements in the EU and UK point to a trend towards more organized and transparent regulatory environments in the crypto industry, with a focus on protecting investors and encouraging innovation.

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Blurring Boundaries: Crypto Will Meet Traditional Finance 

The integration between the crypto industry and traditional financial sectors is projected to deepen further. 2024 is poised to be a year where we see heightened collaborative efforts leading to innovative financial products that bridge the gap between conventional and decentralized systems. This will be exciting! 

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Enhanced Privacy Measures

As the crypto industry continues to mature, a concerted focus on balancing regulatory compliance with user privacy is expected. We anticipate the  emergence of new privacy-centric technologies and protocols, offering enhanced confidentiality while maintaining adherence to regulatory standards.

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Crypto and Compliance Education: A Continuing Focus

Education and awareness programs will remain at the forefront of industry initiatives. As more users join the crypto space, understanding the importance of compliance and responsible practices will become paramount. Expect to see a surge in educational initiatives aimed at users, businesses, and regulators alike. Watch this space.

As we venture into 2024, the industry's commitment to responsible innovation, regulatory adherence, and collaborative growth will shape a future where digital assets seamlessly coexist with traditional finance, offering a dynamic and secure landscape for all stakeholders.

Here's to a year of continued evolution, progress, and positive disruption in the ever-evolving world of crypto compliance.

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P.S. When Lambo??

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Lana Schwartzman

As 2024 begins, we at Notabene reflect on a year of substantial milestones from the previous year. 2023 was a turning point, with regulatory clarity in financial hubs like the UK and Hong Kong and an industry-wide push toward trust-building key drivers to its recovery and widespread global adoption.

Of the 42 countries advancing crypto-focused regulations this year, the Financial Action Task Force’s (FATF) Travel Rule was the leading focus area, with 40 countries engaged in passing it as a requirement or having already done so. Virtual asset service providers (VASPs) globally welcome regulatory clarity as they expand their geographical operations.

This is a major inflection point for the industry, with those building trustworthy and compliant businesses best situated to succeed in 2024 and beyond. With Travel Rule compliance now a core requirement for VASP-to-VASP interactions, we have seen a substantial uptick in ‘compliant’ volumes, VASPs, asset types, and jurisdictions.

Notabene has risen to the challenge, improving transaction processing for custodial and non-custodial transactions, automating real-time transaction compliance, broadening our network and service offerings, and reinforcing our leadership in crypto pre-transaction decision-making.

Here’s a look back at some of the key highlights that defined Notabene’s 2023.

Processed Over $43 Billion in Transaction Volume Through SafeTransact

Our monthly transaction volume impressively increased by 760% year-over-year, reaching more than $9 billion. In 2023 alone, SafeTransact processed over $43 billion, significantly expanding our operational scale and impact. This remarkable volume underscores the global crypto community's trust and reliance on our platform. These figures mark a major milestone for Notabene, reflecting the growing adoption of compliant crypto transactions. Additionally, this volume originates from 70+ active VASPs, showing a diverse and non-dependent pattern on any single major VASP.

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Expanded Reach to 24 Originator Jurisdictions and More Than 63 Beneficiary Jurisdictions

Over the past year, there has been a significant surge in the number of jurisdictions involved in sending and receiving Travel Rule data transfers. The number of originator jurisdictions has soared by 118%, jumping from 11 in 2022 to 24 now. Simultaneously, beneficiary jurisdictions have increased by 16%, rising from 54 to 63. The top 5 originator jurisdictions by volume are the UK, Gibraltar, USA, Singapore, and Switzerland. This expansion signals considerable progress towards extensive global coverage and indicates an escalating urgency among counterparty responses. Importantly, it powerfully underscores the widespread, cross-global impact of cryptocurrency transactions.

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Identified Over 880,000 Self-Hosted Wallet Transactions

We've significantly expanded our services by supporting over 200 types of self-hosted wallets. Our user-friendly pop-up interface, SafeConnect, which efficiently identifies, collects, and verifies counterparty information using cryptographically signed messages, has successfully identified transactions involving more than 880,000 non-custodial wallets. This metric reinforces our commitment to managing and mitigating counterparty risk in crypto transactions beyond fulfilling Travel Rule transmission obligations in VASP-to-VASP transactions.

Supported Transactions in 350 Diverse Virtual Assets, a 162% increase

End-users transacted with 350 diverse asset types, up 162% from 2022. This growth demonstrates clients using more of our Notabene Network’s capabilities, which support over 10,000 asset types. It is also a testament to the expansion of secure crypto transactions to a broader range of crypto assets.

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Increased Customer Base to Over 120

Our customer community reached an impressive milestone of 120 members, including tier-one banks, custodians, fiat on/off ramps, and global exchanges, demonstrating the increasing trust and reliance on Notabene’s services.

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Launched Pivotal Features Like SAFE Implementation, SafeGateway, and Network Discoverability

In 2023, Notabene enhanced SafeTransact’s platform capabilities through significant features: SAFE Implementation, SafeGateway, and Network Discoverability, alongside numerous supporting enhancements. 

• SAFE Implementation streamlines Travel Rule compliance through a four-phase, rapid setup process, facilitating a smooth transition to full compliance.
• SafeGateway tackles the interoperability challenges of the Travel Rule by facilitating VASP-to-VASP interaction across protocols. 
• Network Discoverability addresses the challenge of identifying counterparties in transactions, offering a privacy-focused solution for VASPs to automatically recognize blockchain addresses, thus bolstering transaction security and efficiency.

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Achieved a 86% Transfer Match Rate

SafeTransact demonstrated remarkable efficiency, with 86% of transfers successfully reaching counterparties. This achievement highlights the platform’s noteworthy reachability rates despite the persistent fragmentation on the protocol level.

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Continued Our Award-Winning streak 

We continued our award-winning streak, receiving multiple accolades, including Regulation Asia’s “Best Travel Rule Compliance Solution” award for the second consecutive year. Further, several of our teammates—Lana Schwarzman, Alice Nawfal, Catarina Veloso, and Abi Bryant Spolar, were longlisted for Wirex’s 2023 Women in Crypto Power List.

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Introduced a Fully Integrated Solution to Process Travel Rule-Compliant Transactions with Fireblocks

This year, Notabene and Fireblocks launched a fully integrated solution for Travel Rule compliance in crypto transactions. This collaboration combines Notabene’s pre-transaction decision-making and Fireblocks’ platform for real-time compliance and adherence to global standards. Integrated into Fireblocks’ Compliance Suite, alongside Chainalysis and Elliptic partnerships, our joint offering delivers holistic pre-transaction risk management and close alignment between Travel Rule flows and transaction settlement. Learn more.

Surpassed All Six of FATF’s Travel Rule Solution Guidelines

In June 2023, the Financial Action Task Force (FATF) released an updated framework for Travel Rule compliance. Notabene’s SafeTransact meets these standards, offering advanced pre-transaction information sharing, thorough counterparty identification and due diligence, and handling varying Travel Rule requirements (i.e., compliance thresholds and scope of required information) across multiple jurisdictions. Notabene’s detailed guide highlights its commitment to surpassing regulatory requirements in the crypto sector. Download the guide for more insights. 

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Presented at the FATF Virtual Asset Contact Group

In December, Notabene made a third appearance at the FATF Virtual Asset Contact Group. This year, our Regulatory and Compliance team discussed challenges in meeting FATF standards, positive policy changes, and critical focuses for Travel Rule implementation. The team urged swift adoption of Travel Rule requirements, stressed phased implementation for VASPs, and called for private sector collaboration to tackle interoperability challenges.

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Completed Two Successful Test Rounds in the UK FCA’s Regulatory Sandbox

Notabene participated in the UK Financial Conduct Authority’s (FCA) Regulatory Sandbox, conducting two testnet rounds with firms like Ramp Network, Bitstamp, Wirex, CoinPass, Altalix, Hidden Road, Bitpanda Custody, Uphold and Zodia Markets. These testnets addressed new Travel Rule regulations effective in the region and offered insights into compliance challenges and solutions.

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Successfully Guided 12 UK Clients to Meet the September 1st Travel Rule Compliance Deadline

Notabene assisted 12 UK customers in successfully implementing the Travel Rule. This milestone event acknowledged the considerable efforts in preparing for the UK Travel Rule Go-Live. It was a chance for customers and industry leaders to connect, building a solid community among VASPs in the UK. 

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More than 65 Companies Participated in Our Second Annual Analysis of Private Sector Compliance 

Over 65 financial institutions and crypto companies participated in our second State of Crypto Travel Rule Compliance survey. We had the opportunity to share the outcomes with FATF members during the plenary session, providing key insights on Travel Rule compliance and regulatory developments from the industry's only private-sector study on Travel Rule compliance. 

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Shipped 4 Consultation Responses; 50+ Educational Pieces

In 2023, Notabene's Regulatory and Compliance team was instrumental in shaping the cryptocurrency regulatory landscape. They actively engaged in four significant public consultations across various regions, focusing on critical aspects of crypto regulation:

• In Hong Kong, they advocated for updates to the SFC Travel Rule Guidelines.
• In the United Kingdom, they collaborated CryptoUK to provide feedback on the JMLSG Guidelines' sunrise issue.
• In Australia, they submitted comprehensive responses to the Attorney General on the national crypto regulatory framework.
• For the European Union, they addressed the Anti-Money Laundering Regulation (AMLR) through INATBA, concentrating on resolving over-compliance in VASP due diligence and the conflict between the Transfer of Funds Regulation (TFR) and AMLR.

Additionally, the team attended 7 webinars and created over 50 informative pieces, including blogs, articles, and web pages. They also developed more than 15 jurisdiction-specific resources, with a keen focus on key areas like the UK and Hong Kong, with relevant changes and updates. Complementing these efforts, the Notabene team participated in over 40 industry events in 2023. 

As we bid farewell to a transformative year, we at Notabene are grateful for the opportunities and challenges that we encountered on our journey. Each milestone and innovation has reinforced our commitment to driving the crypto regulatory landscape forward. We eagerly anticipate what 2024 holds, ready to embrace new possibilities and continue our mission of providing secure, compliant, and innovative crypto transaction solutions. Here’s to a promising future and continued success!

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Yours,

The Notabene team. 

Notabene is delighted to announce our new partnership with Tap, a rapidly growing fintech provider, specializes in traditional money account management and cryptocurrency settlement solutions for over 250,000 registered users, This a strategic move aimed at bolstering Tap’s compliance operations through SafeTransact's top-tier solutions for continuous adherence to the crypto Travel Rule. 

This collaboration aligns perfectly with Notabene’s mission to make crypto transactions a part of the everyday economy. Our partnership is a testament to Tap's dedication to consumer trust and proactive stance in consistently meeting pre-transaction regulatory requirements.

Enhancing Compliance in the Crypto Industry

The cryptocurrency market is rapidly evolving, increasing regulatory demands for transparency, security, and compliance with local crypto legislation. Tap's strategic decision to partner with Notabene addresses a critical industry need in this context.

Notabene's powerful SafeTransact platform and SafeGateway solution offer distinct advantages:

• SafeTransact: Strengthens identification and mitigation of high-risk activity, empowers compliance teams with data-driven decision-making tools, and seamlessly integrates the Travel Rule into compliance processes.
• SafeGateway: A standout feature that facilitates effective VASP-to-VASP interactions across protocols, positioning Notabene at the forefront of the cryptocurrency compliance solutions sector.

Tap, known for its regulatory-first approach, emphasizes the importance of consumer trust and operational transparency. This partnership with Notabene will enhance Tap's operational efficiency and maintain its competitive edge in the industry.

Leaders’ Insights on the Collaboration

Kriya Patel, CEO of Tap, expressed enthusiasm about this strategic alliance with Notabene. 

“I am delighted to be able to announce our strategic partnership with Notabene and I look forward to growing the relationship together whilst navigating through to meeting and maintaining our current and future regulatory requirements in our industry. 

The partnership with Notabene was a natural one. They share the same values as Tap by focusing on customer-driven product needs, whilst allowing us to maintain a regulated and security-first approach.” - Kriya Patel, CEO of Tap.

Pelle Braendgaard, CEO of Notabene, echoed these sentiments, noting the alignment of Tap's commitment to compliance and customer trust with Notabene’s mission.

"We are pleased to collaborate with Tap, their commitment to compliance and customer trust aligns seamlessly with our mission. Together, we can advance the industry while ensuring the highest standards of security and transparency." - Pelle Braendgaard, CEO of Notabene.

In conclusion, Tap's partnership with Notabene is a forward-thinking move, aligning with the evolving demands of cryptocurrency regulation and reinforcing its commitment to maintaining the highest standards of compliance and customer trust.

[NEW YORK, LONDON, December 5, 2023]

Notabene, the trusted leader in crypto pre-transaction decision-making, announces SafeGateway, a new solution that facilitates VASP-to-VASP interactions across various protocols. This innovative tool streamlines compliance with the Travel Rule, making it easier for virtual asset service providers (VASPs) and financial institutions to connect and transact across diverse protocols. SafeGateway is a game-changer in crypto compliance, offering unmatched ease in connecting with global counterparts and managing regulatory requirements, all through a single, user-friendly platform.

The need for SafeGateway arises from the lack of interoperability among Travel Rule compliance solutions. According to Notabene's 2023 State of Crypto Travel Rule Compliance report, 24% of surveyed VASPs identified protocol interoperability as a compliance challenge, with 20% concerned about protocol fragmentation.

Additionally, the Financial Action Task Force (FATF), the anti-money laundering watchdog that extended the Travel Rule to crypto transactions, continuously urges the industry towards interoperability. In its 2022 and 2023 Targeted Updates on Implementation of the FATF Standards on Virtual Assets and Virtual Asset Service Providers, FATF consistently urged the development of global, interoperable solutions that align with varying jurisdictional requirements, encouraging the private sector to advance interoperability through technological means or collaborative efforts.

SafeGateway emerges as Notabene’s response to this interoperability puzzle by facilitating interoperability between VASPs instead of between protocols. By offering three gateway configurations to the 5+ protocols on the market, SafeGateway provides customers with maximum reach to counterparty VASPs and institutions globally to transact safely with counterparties across disparate networks while catering to their particular security needs. This development is vital as the alternative is that companies cannot transact with counterparties who are not on their protocol. 

SafeGateway is a timely solution, considering major enforcement deadlines are approaching, such as the European Union's December 30, 2024 deadline. Starting January 1, 2025, all 27 member states will have to comply with the Travel Rule, and so will their major transaction counterparties. SafeGateway allows VASPs to bypass the complexities of integrating several protocols to reach their transaction counterparties on closed networks. 

How it works: Notabene’s in-network VASPs request access for specific protocols and, once approved, integrate the protocol access code into their server. SafeGateway automatically selects the appropriate protocol for Travel Rule data transfers to other network VASPs and manages the data flow. Transactions are completed and returned via SafeGateway. Customers can monitor and manage these data transfers using Notabene's compliance dashboard, allowing compliance officers to enforce consistent jurisdictional standards, apply unified rules, and produce detailed transaction reports. 

“By enabling different, currently isolated protocols through SafeGateway, our customers can reach new counterparties that were not interoperable previously. This innovation aligns with Notabene’s neutral view towards protocols, and we are eager to work with them as long as they meet security and Travel Rule requirements,” said Andres Junge, CTO of Notabene. “SafeGateway is just the beginning of several initiatives we are introducing as a call to action for the industry to collaborate to achieve compliance without hindering transaction flows.” 

SafeGateway represents more than just a compliance solution; it's a step towards a more interconnected and efficient future in digital asset management. By simplifying complex compliance hurdles, it opens up new possibilities for VASPs around the world. As Notabene continues to innovate, SafeGateway sets the stage for what's next in crypto compliance. Notabene continues to lead the way in creating a more seamless, compliant, and connected digital asset world.

Notabene invites the industry to connect with their Travel Rule solution that meets today's regulatory demands and anticipates and adapts to future needs and requirements.

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-ENDS-

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Media Contacts

Sacha Lowenthal, Head of Marketing

[email protected]

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About Notabene

Notabene developed the crypto industry's only pre-transaction decision-making platform, enabling customers to identify and stop high-risk activity before it occurs. With a focus on security, privacy, and user experience, Notabene's multi-source data and software enable real-time decision-making, counterparty sanctions screening, self-hosted wallet identification, and more. SOC-2 security certified and trusted by over 100 companies, Notabene operates globally with headquarters in New York with a presence in Switzerland, Singapore, Germany, and the United Kingdom.

Companies like Copper, Luno, Crypto.com, and Bitstamp leverage our  SafeTransact platform for Travel Rule compliance, tailored to their needs and aligned with global and local regulations. Our platform builds trust in virtual asset transactions to foster financial growth with minimized risk.

Get started today; sign up for our free SafeTransact Riseplan to respond to regulated transactions for free using the world's largest VASP Network of over 1,000 members. 

LinkedIn

Notabene is trusted by over 120 virtual asset service providers (VASPs), encompassing major banks, custodians, and exchanges, for seamless Travel Rule compliance. Our platform, SafeTransact, facilitates millions of regulatory-compliant transactions monthly involving more than 300 assets and has processed transfers originating from over 20 jurisdictions. Additionally, we cover a wide range of 10,000 assets, further demonstrating our comprehensive global approach to Travel Rule compliance — a primary factor in why companies worldwide choose us.

Given the rapidly evolving landscape of crypto technology and its inherently cross-border scope, we recognize the impracticality of a single, unified Travel Rule messaging system today. Insights from traditional payment systems show us that institutions often need to interact with multiple systems, each catering to unique requirements.

In the absence of an industry-wide unified messaging system, Notabene offers SafeGateway. SafeGateway is a solution that facilitates VASP-to-VASP interaction across protocols.  
Learn more below.

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The Challenge of Fragmented Messaging Protocols

When the Financial Action Task Force (FATF) extended the Travel Rule to virtual assets in 2019, there was no standard or messaging layer for the secure transfer and receipt of end-user data. Now, in 2023, the situation has evolved. While standards have emerged, the industry confronts a new challenge: an overwhelming assortment of Travel Rule messaging protocols, each useful in its own way but collectively creating a fragmented landscape that complicates compliance and, more generally, transaction flows. It is impractical and resource-intensive for VASPs to connect to multiple protocols independently. However, not connecting limits VASPs' ability to comply and restricts their ability to transact with a wide reach of counterparties.

See our previous article for further information on the Interoperability Challenge of Travel Rule Compliance.

This current state of affairs is akin to the early days of email, with different protocols leading to a lack of smooth communication. Just as the email world moved towards interoperable standards like SMTP and IMAP, the crypto sector now stands at a similar juncture. 

SafeGateway emerges as Notabene’s response to this interoperability puzzle by facilitating interoperability between VASPs instead of between protocols. It is a gateway into multiple protocols empowering VASPs to reach their counterparts across disparate networks.

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Introducing SafeGateway: Enhancing Reachability to Enable Travel Rule Compliance Across the Market in a Fragmented Landscape

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We're thrilled to launch SafeGateway, a solution that facilitates VASP-to-VASP interaction across protocols. SafeGateway acts as a protocol agent, facilitating seamless connections with any compatible Travel Rule protocol. This development allows our clients to apply a unified compliance approach using Notabene’s platform while easily accessing counterparties across different protocols. 

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Fast benefits:

• Discoverability: Leverage the discoverability methods of other Travel Rule protocols.
• Connectivity: Engage with VASPs using different Travel Rule protocols.
• Efficiency: Apply jurisdiction requirements, manage uniform rules, and generate reports centrally.
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SafeGateway enables our customers to link with VASPs through integrations with various existing Travel Rule messaging systems and networks. This approach ensures maximum global reach, allowing secure and efficient transactions with all counterparty institutions, and brings transactions to SafeTransact’s all-in-one Travel Rule compliance dashboard. 

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Key Features of an Optimal Travel Rule Messaging Protocol

At Notabene, we believe that a crypto Travel Rule messaging system should ideally meet the following requirements:

• Accessibility: An open network with low or no fees to join and transact
• Business Process Integration: Ties into underlying business processes like trading, settlement, or payments
• Privacy and Security Standards: Best-in-class measures to safeguard sensitive data
• Future-Proof Technology: Simplifies scalability and increases counterparty reachability
• Regulatory Compliant flows: Flows aligned with the latest regulatory requirements

Currently, no messaging systems fully meet all five essential requirements. However, as they evolve, those that adhere to crucial security and regulatory compliance standards will be viewed neutrally and invited to integrate with SafeGateway.

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How SafeGateway Works

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The setup and operation of each gateway depends on the specific Travel Rule protocol being used. With some protocols, Notabene will build and operate agents independently, while with others, a joint effort with the protocol's developers is required. 

For Notabene clients, SafeGateway is ready for immediate use, enabling connections to supported Travel Rule protocols and for which clients have the necessary access credentials. This convenience allows our clients to seamlessly utilize these connections through the Notabene platform without dedicating their technical resources. However, it's important to note that using SafeGateway does not substitute for the process of joining each protocol's network, especially those that require separate onboarding.

Learn more about SafeGateway for VASPs.

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SafeGateway Benefits both VASPs and Protocols

For VASPs, SafeGateway and SafeTransact provide a unified hub for managing transactions and compliance reporting functions, featuring comprehensive risk analysis capabilities that operate seamlessly across protocols. VASPs can apply cohesive compliance controls without sacrificing counterpart reach. For protocols, integrating with Notabene’s SafeGateway means accelerated adoption by VASPs globally as they overcome integration challenges, compliance standardization, and shared technical collaboration.

A Call for Industry Collaboration

The FATF “urges the private sector to progress towards interoperability, whether through technological advancements that allow interoperability between tools or by developing relationships that permit transactions to be made through a chain of interoperable tools.” ^[1]

In our pursuit to make crypto transactions part of the everyday economy, we understand the necessity for transactions to be secure, efficient, and regulatory compliant. SafeGateway is our call to action for industry collaboration, aligning with the FATF's directives and contributing to setting a new standard for secure and compliant transactions.

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Interoperability in crypto Travel Rule compliance is more than a buzzword; it's a critical necessity. This term refers to the ability of various Travel Rule messaging protocols and their networks to exchange personally identifiable information (PII) effectively without compromising safety and security. Despite its importance, interoperability remains a complex, unsolved challenge, often hindering due diligence processes and restricting virtual asset service providers (VASPs) from transacting with counterparties on different networks.
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Today’s Travel Rule Compliance Landscape

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Today's landscape features two core solution types: messaging protocols for data transfer and end-to-end solutions for comprehensive compliance, such as Notabene's SafeTransact. The current market features 5+ Travel Rule messaging protocols, each bringing unique technological approaches and communication methods to the table. 

Travel Rule compliance solutions can be further broken down into open and closed networks.

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Closed vs. Open Networks

Closed networks: VASPs undergo a comprehensive vetting process to join, and often have to pay higher membership and/or transaction fees. In closed networks, VASPs often outsource the counterparty VASP diligence process to the network. VASPs can only send data transfers to other in-network VASPs on both open and closed networks. With the more rigorous enforcement of the Travel Rule happening now across jurisdictions, this often restricts VASPs from transacting with out-of-network counterparts.

Open networks: Any VASP can join, often free of cost. The counterparty due diligence and risk assessment process is carried out between VASPs, which is in accordance with the Financial Action Task Force's (FATF's) standards.

“Compliance tool providers may therefore consider that allowing information sharing only between their users (i.e., no interoperability) will prevent information being shared with unreliable counterparties (e.g., illicit users or those with insufficient data protection controls). 

The challenge with this approach is that, as set out in the FATF’s 2021 Guidance, VASPs are required to independently assess counterparty risk. While this approach may provide potential opportunities to simplify some aspects of counterparty due diligence (e.g., facilitating the identification of a counterparty VASP), it does not remove the need for VASPs to independently verify the information and ensure all relevant domestic obligations are met.” ^[1]

The FATF clarifies that the approach taken primarily by closed Travel Rule networks does not remove the need for VASPs to conduct counterparty VASP due diligence independently.

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The Industry’s Take on Protocol Fragmentation

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Nearly a quarter of VASPs surveyed identified interoperability issues as a significant hurdle to compliance, and 20% are concerned about market confusion due to the growing number of protocols. ^[2] 

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Even the FATF has emphasized the need for protocols to intercommunicate, calling for global solutions that can accommodate jurisdictional nuances. ^[3]

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Overview of Travel Rule Messaging Protocols

A Travel Rule messaging protocol allows VASPs to exchange originator and beneficiary customer information securely. However, messaging protocols address only one of the seven FATF-outlined steps that VASPs must take to be fully Travel Rule compliant. 

A comprehensive Travel Rule solution should enable businesses to:

1. Identify the type of transaction counterparty.
2. Apply relevant jurisdictional rules.
3. Screen each counterparty for sanctions.
4. Determine counterparty VASPs and assess risk scores using blockchain analytics.
5. Conduct due diligence on VASPs before transactions.
6. Store customer and beneficiary personal data in a GDPR-compliant manner.
7. Exchange customer data with VASPs via various blockchain protocols.

Businesses must still develop a complete solution to meet the remaining six criteria.

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Beyond Data Transfers: The Need for Comprehensive Compliance Solutions

A complete Travel Rule compliance solution goes beyond messaging protocols and provides support for each step of FATF’s Recommendation 16. It should include a full suite of services, from identifying counterparty types to GDPR-compliant data storage.

Notabene's Solution to the Interoperability Challenge

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Notabene tackles interoperability head-on with SafeGateway, a solution that facilitates VASP-to-VASP interaction across protocols.

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NEW YORK, September 21, 2023‍

Notabene, the pre-transaction decision-making platform, is pleased to announce a strategic partnership with Shift Markets, a leading Crypto-as-a-Service (CaaS) solutions provider. This collaboration marks a significant industry milestone as both companies unite their expertise to help businesses navigate the complexities of the crypto market safely and efficiently. 

Founded in 2009, Shift Markets has been at the forefront of the digital asset industry for over a decade, empowering businesses of all sizes to commercialize digital assets effectively. Their comprehensive suite of marketplace, payment, and exchange white-label solutions facilitates the growth of crypto-based businesses by providing them with the tools and solutions needed to succeed in today's rapidly evolving landscape.

Notabene’s SafeTransact platform enables its customers to identify and prevent high-risk activities before they occur, making crypto transactions safer and more reliable. With the SafeTransact platform, Notabene customers can automate real-time decision-making, perform counterparty sanctions screening, identify self-hosted wallets, and complete the smooth rollout of Travel Rule compliance in line with global regulation.

 "By joining forces with Shift Markets, Notabene is taking a crucial step towards enhancing the safety and reliability of crypto transactions. Our SafeTransact platform empowers businesses to make real-time, informed decisions, ensuring compliance with global regulations and mitigating risks. This partnership reaffirms our commitment to making the crypto market a safer place for all participants." - Magdiela Rivas, Partnerships Lead, Notabene

"At Shift Markets, we've always been dedicated to providing comprehensive Crypto-as-a-Service solutions to our clients. This partnership with Notabene allows us to further strengthen our commitment to secure and compliant digital asset solutions. Together, we will streamline the process of establishing and maintaining digital asset businesses, ultimately saving our clients’ time and money while increasing the safety of the broader crypto industry." – Sarina Gowland, Client Success & Partnership Manager, Shift Markets

As the crypto industry continues to evolve and gain mainstream acceptance, businesses need reliable, secure, and compliant solutions more than ever before. By coming together, Notabene and Shift Markets aim to provide increased value to their clients and strengthen their relationships within the crypto industry. Through this partnership, they will connect clients with trusted partners, ensuring that they can offer virtual asset solutions in a secure and compliant manner.

-ENDS-

For media inquiries or further information about Notabene and Shift Markets, please contact:

Notabene

Sacha Lowenthal

Head of Marketing

[email protected]

Shift Markets

Sarah Cullers

Vice President of Marketing

[email protected]

About Notabene:

Notabene developed the crypto industry's only pre-transaction decision-making platform, enabling customers to identify and stop high-risk activity before it occurs. With a focus on security, privacy, and user experience, Notabene's multi-source data and software enables real-time decision-making, counterparty sanctions screening, self-hosted wallet identification, and more. SOC-2 security certified and trusted by over 100 companies, Notabene operates globally with headquarters in New York, and presence in Switzerland, Singapore, Germany, and the United Kingdom.

Companies like Copper, Luno, Crypto.com and Bitstamp leverage our  SafeTransact platform for Travel Rule compliance, tailored to their needs and aligned with global and local regulations. Our platform builds trust in virtual asset transactions to foster financial growth with minimized risk.

Get started today; sign up for our free SafeTransact Rise plan to respond to regulated transactions for free using the world's largest VASP Network. 

LinkedIn | Twitter

About Shift Markets:

Shift Markets is a CaaS (Crypto-as-a-Service) solutions provider Founded in 2009 that enables any sized business to commercialize digital assets to grow their business. 

Shift offers a range of technological and service-based products for businesses operating within the crypto and traditional markets. To date Shift has successfully launched 200+ exchanges across our products. With offices, exchanges, and partners worldwide, Shift is a truly global company. 
As seen previously on Nasdaq, PYMNTS, Sail GP, Algorand, Hedera, & Messari

LinkedIn | Twitter

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Travel Rule compliant VASPs face several challenges in identifying their counterparties pre-transaction. The lack of a standardized way for linking blockchain addresses to counterparties and the complexity of dealing with different sorts of counterparties creates uncertainty about who is on the other side of a transaction—critical data for triggering Travel Rule compliance procedures.

Recent insights underscore this issue: a majority of surveyed VASPs have expressed a need for a universal identification method in line with existing Travel Rule protocols, and 52% of respondents reported to send Travel Rule transfers to all VASPs without applying any criteria or counterparty due diligence process. ^[1] This issue could lead to regulators imposing widespread restrictions on transacting unless a counterparty is identified.

To address this gap, Notabene releases Network Discoverability, a privacy-preserving mechanism for identifying VASPs through blockchain addresses.

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Introducing Network Discoverability 

We've recently launched the Network Discoverability, a feature that empowers in-network VASPs to securely auto-identify blockchain addresses. This addition to our product suite feature reflects our commitment to equipping Compliance Officers with robust tools, ensuring seamless interactions with counterparties while upholding stringent security and compliance standards.
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How does Notabene’s Network Discoverability help you?

With Notabene's Network Discoverability, in-network VASPs can quickly and reliably identify their counterparties in real time. This feature ensures adherence to the Travel Rule’s due diligence mandates and streamlines transactional efficiency by eliminating unnecessary redundancies in verifications.

• Efficient and Accurate Transaction with Trusted Counterparties: The Network Discoverability feature allows VASPs to automatically identify blockchain addresses on both ends, ensuring data is directed to the correct party. This enhances the speed and accuracy of transactions.
• Enhanced Security: VASPs can safely share their encrypted blockchain addresses within Notabene's Network by opting in, ensuring that hashed addresses remain confidential and irreversible.
• Reduces Transaction Friction: Removing the need for end-user input at the transaction level enables VASPs to increase reachability and reduce transaction friction and latency.

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A comparative overview: before and after Network Discoverability

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Without Network Discoverability: When an Originator VASP A sends a Travel Rule transaction, the Beneficiary VASP must repeatedly claim the blockchain address. If Originator VASP B sends a transaction to the same address, it must go through the steps to discover the VASP behind the transaction to the same address. VASPs may need to ask the end customer to identify the counterparty VASP,  and the Beneficiary VASP must claim the address again, which adds to overall transaction latency. 

With Network Discoverability: VASPs share cryptographically hashed versions of their blockchain addresses, which are stored privately in a segregated database. If any VASP sends a transaction to that address in the future, the system quickly provides the hashed address, automatically verifying it for the sender.
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Network Discoverability is a testament to Notabene's innovative approach to Travel Rule compliance, enhancing SafeTransact’s existing suite of services. VASP Discoverability accelerates and simplifies verification for all involved parties, by securely storing and disseminating encrypted blockchain addresses across a cooperative network. By opting into this feature VASPs are able to leverage the power of the Notabene Network, reduce friction for their end users, and increase the speed in which Travel Rule messages are created. 

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Stablecoins have become a critical part of the evolving cryptocurrency landscape. Given their significance, it's crucial to grasp their role concerning the Crypto Travel Rule.This final article in our three-part series compares perspectives from both the Financial Action Task Force (FATF) and the European Union's (EU) positions on decentralized finance (DeFi), Stablecoins, and non-fungible tokens (NFTs).

This article covers Stablecoins, the EU’s and FATF’s general stance on whether they are regulated virtual assets, if stablecoin issuers are regulated as VASPs, and covers noteworthy developments over 2022. 

What are Stablecoins?

Firstly, let's understand what stablecoins are. Stablecoins are a specialized type of cryptocurrency crafted to minimize price volatility. Unlike virtual currencies such as Bitcoin or Ethereum, which are known for their price fluctuations, stablecoins aim to maintain a consistent value. They achieve this stability by tying their value to a reserve asset, often a fiat currency like the US Dollar or the Euro, or other types of assets like gold. In essence, the value of a stablecoin is tied to the value of the underlying asset or group of assets to maintain a 1:1 ratio or another predetermined ratio.

Types of Stablecoins

Stablecoins can be categorized into three main types based on what backs them:

1. Fiat-Collateralized Stablecoins: These stablecoins are backed by a reserve of a specific fiat currency, kept in a bank or another regulated financial institution. In simple terms, for each stablecoin in circulation, an equivalent amount of fiat currency is held as a reserve.

2. Crypto-Collateralized Stablecoins: These are stablecoins that are backed by other cryptocurrencies. Given the volatile nature of cryptocurrencies, these stablecoins are typically over-collateralized to account for price swings.

3. Algorithmic Stablecoins: These stablecoins aren't backed by any collateral. They use smart contracts and other mechanisms to automatically tweak the stablecoin supply in reaction to demand changes, with the end goal of maintaining a stable price.

The primary uses of Stablecoins

Stablecoins serve multiple functions, including facilitating transactions, acting as a stable store of value within the cryptocurrency market, and forming a bridge between traditional fiat currencies and cryptocurrencies. Importantly, they are often used in DeFi applications for various financial activities like lending, borrowing, and earning interest on crypto assets.

The Rise and Scrutiny of Stablecoins in 2022

Stablecoin usage surged in early 2022 but faced scrutiny in the latter half of the year after the collapse of TerraUSD. TerraUSD was a popular algorithmic stablecoin whose dollar peg broke down due to massive concurrent withdrawals from Anchor and Curve crypto exchanges, causing a broader selloff that wiped off $200 billion from the market value of all crypto-assets.

The collapse of TerraUSD generated new concerns over stablecoins' safety, leading policymakers to impose rules on stablecoin issuers. Moreover, regulators and central banks became concerned about the rise of stablecoins eroding their monetary monopoly. Below we highlight relevant stablecoin events in 2022:

Stablecoin Legal & Regulatory Spotlight in 2022

• January 12, 2022 📋- The Hong Kong Monetary Authority (HKMA) released a discussion paper that provided insight into the HKMA’s plans for the future of stablecoin regulation in Hong Kong. 
• May 9, 2022 - UST's peg to USD broke, leading to the price of UST and its sister token LUNA crashing. This wiped $200 billion from the market value of all crypto assets.
• June 3, 2022 - Japan’s parliament passed a bill to ban stablecoin issuance by non-banking institutions.
• July 13, 2022 📋- The Committee on Payments and Market Infrastructures (CPMI) and International Organization of Securities Commission (IOSCO) affirmed that the Principles for Financial Market Infrastructures apply to ‘systemically important’ stablecoin arrangements and transfers. 
• July 19, 2022 - The UK Chancellor announced the planning of a bill that sets out how stablecoins may be used as a payment method.
• September 21, 2022 - Members of the U.S. Congress began working on legislation that would temporarily ban certain types of algorithmic stablecoins.
• October 5, 2022 📋- The EU’s MiCA laid out strict stipulations for stablecoin issuers due to their potential for mass adoption as a means of exchange as well as their associated market integrity risks.

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N.B. The dates that are accompanied by a clipboard icon indicate a document that was produced by a regulator.

How Does the Crypto Travel Rule Apply to Stablecoins?

Both the FATF and the EU have established significant stances regarding stablecoins. The FATF views stablecoins with concern due to their potential for anonymity, global reach, and potential misuse for illegal fund transfers. As such, it calls for a risk-based approach for identifying obliged entities. The EU's Markets in Crypto-assets (MiCA) regulation provides a more differentiated treatment, distinguishing stablecoins based on whether they qualify as significant asset-referenced or e-money tokens, each carrying distinct regulatory requirements. Notably, the FATF classifies stablecoins as securities or VAs, whereas the EU determines if a crypto-asset falls within the scope of MiCA depending on the nature of the token, including algorithmic stablecoins.

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FATF vs. EU: General Stance on Stablecoins

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FATF: Stablecoins rank high on the list of the FATF’s concerns “because of their potential for anonymity, global reach, and use to layer illicit funds.” The FATF also calls out their “greater potential for mass adoption” as stablecoins overcome the volatility issues associated with other crypto-assets and, therefore, constitute a more suitable option for payments. The FATF expects countries to “take a functional approach to identify obliged entities” and “mitigate the relevant risks based on a risk-based approach (RBA) regardless of institutional design and names.” ^[1]

EU: MiCA distinguishes the treatment of stablecoins depending on whether they qualify as significant asset-referenced tokens or significant e-money tokens, as these  “can pose greater risks to financial stability.” ^[2] Issuers of significant asset-referenced tokens or significant e-money tokens are subject to more stringent requirements including “higher capital requirements, to interoperability requirements and they should establish a liquidity management policy.” ^[3]

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FATF vs EU: Are Stablecoins considered Virtual Assets?

FATF: FATF classifies stablecoins as securities or VAs.

EU: Where a crypto-asset falls within the definition of an asset-referenced token or e-money token, it falls under MiCA’s scope, irrespective of how the issuer designed the crypto-asset, including the mechanism to maintain a stable value - this includes algorithmic stablecoins. ^[4]

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FATF vs. EU: Are Stablecoin issuers regulated as VASPs? 

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FATF: Entities involved in the governance of stablecoins, whether centralized or decentralized, could be categorized as VASPs depending on their position and the terms of the stablecoin arrangement. In situations where decentralized entities manage the stablecoin (e.g., MKR token holders who monitor Maker Protocol), it becomes more difficult to identify the entity responsible for AML/CTF. In these cases, entities that could fall within the scope for regulatory or supervisory action are the following: 

1. The initial driver of the development and launch of the arrangement that eventually becomes decentralized.
2. One that facilitates trading with stablecoins.
3. Custodial wallet services that support stablecoins. ^[1]

EU: Algorithmic stablecoins issuers that aim at maintaining a stable value in relation to an official currency of a country or to one or several assets, via protocols, are subject to the rules applicable to asset-referenced tokens or e-money issuers. Offerers or persons seeking admission to trading of algorithmic crypto-assets that do not aim at stabilizing the value of the crypto-assets by referencing one or several assets are, in any event, subject to the requirements applicable to the issuance of other crypto-assets (set in Title II of MiCA). ^[4] 

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FATF vs. EU: Noteworthy Stablecoin Developments

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FATF: In it’s Targeted Update, the FATF states, “As the liquidity of stablecoins increases in parallel with the growth of DeFi markets, FATF will continue to facilitate discussion between jurisdictions and other standard setting bodies on implementation issues.” ^[5]

EU: Stablecoin issuers should have a custody policy that ensures asset segregations, prevents tokens from being used as collateral, and provides holders with prompt access to their funds. Credit institutions, investment firms, or VASPs should custody the insulated reserves.  The credit institution, an investment firm, or a VASP that custodies the segregated reserve should be responsible for the loss of reserve assets. ^[6]

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In summary, the Crypto Travel Rule has far-reaching implications for stablecoins. Both the FATF and EU offer varied approaches in their regulations, primarily distinguishing stablecoins based on their nature, usage, and associated risks. As stablecoins continue to gain prominence in the crypto market, further evolution of regulatory stances is anticipated. Understanding these rules and how they apply to stablecoins will play a significant role in shaping the future trajectory of these digital assets.

Discover the link between the crypto Travel Rule and Stablecoins in Notabene's comprehensive 2023 State of Crypto Travel Rule Compliance Report.

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This article was initially produced when the "Markets in Crypto-Assets" document was still in draft form. However, the content has been updated to reflect the final regulation as published by the EU Parliament in 2023 [EU Parliament (2023). Markets in Crypto-Assets, various pages and paragraphs].

[Originally posted by FOMO Pay, see here]

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SINGAPORE, 29 Aug, 2023 – FOMO Pay, a leading digital payment and digital banking solutions provider headquartered in Singapore, announces its strategic partnership with Notabene. The implementation of Notabene’s end-to-end solution for global Travel Rule compliance enables FOMO Pay to further enhance its know-your-transaction (KYT) capabilities and highlights FOMO Pay’s commitment to compliance and customer security. In addition, through comprehensive licensing and adherence to regulatory requirements, FOMO Pay has obtained “Super VASP” status in Notabene’s Virtual Asset Service Providers (VASP) network. This milestone empowers the public with streamlined access to accurate and verified business information, aligning with FOMO Pay’s consistent efforts to foster trust in the digital payment and digital asset fields.

In 2019, the Financial Action Task Force (FATF) released crucial recommendations aimed at combating money laundering, terrorist and proliferation financing. FATF requires countries to assess and mitigate risks associated with virtual asset financial activities and providers. As part of the requirements, the Travel Rule mandates all VASPs to screen, record and communicate the information of both the sender and recipient of a digital asset transaction. In 2023, the global regulatory landscape has evolved with stricter enforcement of the Travel Rule for digital asset transactions, as governments and financial institutions worldwide take significant steps to enhance transaction integrity and overall financial ecosystem security.

In order to maintain comprehensive digital asset compliance capabilities in the ever-evolving digital asset industry, FOMO Pay adopts a proactive approach in investing in leading compliance solutions to continue to ensure strict adherence to global regulations. Integration with Notabene equips FOMO Pay to automate Travel Rule compliance in line with global regulations, allowing secure and efficient digital asset transactions.

“We are pleased to partner with Notabene and integrate their Travel Rule solution. This collaboration represents FOMO Pay’s commitment to strengthening our compliance capabilities in alignment with global regulations, enabling informed decisions to enhance our AML capabilities,” said Wee Teck Lim, Head of Compliance at FOMO Pay. “We firmly believe that our collaboration with Notabene will further enhance our ability to provide secure and reliable digital payment and digital asset solutions to our valued clients and partners.”

“We are excited to be working with FOMO Pay to enrich their compliance capabilities and ensure safer digital asset transactions for their clients. FOMO Pay’s commitment to bridging the gap between fiat and digital assets for business use cases is very aligned with our mission at Notabene. This collaboration demonstrates the significant impact of Travel Rule implementation in facilitating secure and efficient digital asset transactions to build a safer and more accessible digital asset ecosystem.” – Pelle Braendgaard, CEO of Notabene.

With this partnership, FOMO Pay demonstrates its steadfast commitment to upholding industry standards in compliance by ensuring safer transactions involving digital assets for merchants, corporates and financial institutions. FOMO Pay’s proactive approach to regulatory compliance and strategic investments in robust solutions solidify its position as a leading digital payment solutions provider.

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-ENDS

Media Contact

Sacha Lowenthal

Head of Marketing, Notabene

[email protected]

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About Notabene

Notabene developed the crypto industry’s only pre-transaction decision-making platform, enabling customers to identify and stop high-risk activity before it occurs. With a focus on security, privacy, and user experience, Notabene’s multi-source data and software enables real-time decision-making, counterparty sanctions screening, self-hosted wallet identification, and more.

SOC-2 security certified and trusted by over 100 companies, Notabene operates globally with headquarters in New York, and presence in Switzerland, Singapore, Germany, and the United Kingdom.

Companies like Copper, Luno, Crypto.com and Bitstamp leverage our SafeTransact platform for Travel Rule compliance, tailored to their needs and aligned with global and local regulations. Our platform builds trust in virtual asset transactions to foster financial growth with minimized risk.

Get started today; sign up for our free SafeTransact Rise Plan to respond to regulated transactions for free using the world’s largest VASP Network.

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About FOMO Pay

Founded in 2015, FOMO Pay Pte Ltd is a major payment institution (License No. PS20200145) regulated under the Payment Services Act in Singapore, licensed by the Monetary Authority of Singapore (MAS) to conduct Cross-border Money Transfer Services, Domestic Money Transfer Services, Digital Payment Token Services and Merchant Acquisition Services. The firm has become a leading one-stop digital payment and digital banking solution provider, and is currently building Asia’s first licensed gateway helping institutions and businesses to connect between fiat and digital currency. The company offers its three flagship products:

• FOMO Payment: a one-stop digital payment solution for merchants, corporates and financial institutions.
• FOMO iBank: facilitates businesses’ every-day requirements for transactional banking needs.
• FOMO Crypto: Asia’s first licensed gateway bridging fiat and digital currency.

Visit www.fomopay.com for more information.

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The world of crypto compliance has seen rapid changes over the past year. Since the Financial Action Task Force (FATF) extended Travel Rule compliance for crypto custodians, global events and pivotal moments have rapidly propelled Virtual Asset Service Providers (VASPs) from mere contemplation to active implementation of these AML compliance measures.

But what's genuinely fueling this accelerated adoption? Join us as we explore the primary motivations prompting VASPs to invest in Travel Rule solutions.

The Six Reasons Pushing VASPs to Find Crypto Compliance Solutions:

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1. Upcoming enforcement deadlines

As deadlines approach, VASPs run out of time to develop a cohesive compliance strategy, test direct integration into various protocols, and evaluate end-to-end solutions. Integrating and testing different 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.

Additionally, Exchanges registered in a jurisdiction where the Travel Rule is already enforced: US, Singapore, Switzerland, Philippines, South Korea, Germany, Canada, Indonesia, Malaysia, Gibraltar, Estonia, Dubai, Liechtenstein, Malta, Portugal, Japan, Hong Hong, the United Kingdom, as well as exchanges that send a large volume of transactions to VASPs in those jurisdictions, must roll out Travel Rule compliance as soon as possible.

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2. Business preservation and transaction assurance

As more and more VASPs become compliant with the Travel Rule, the expectation for their counterparty VASPs to receive travel rule information and respond reciprocally is growing. If the counterparty VASP does not participate in travel rule flows, it's becoming increasingly likely that compliant VASPs will simply stop transacting with them. Proactive compliance is paramount to avoid business and, more specifically, transaction slowdowns. Additionally, per FATF guidance, VASPs can now restrict transactions with non-compliant counterparts. 

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Our 2023 State of Crypto Travel Rule Compliance Report highlights that about 61% of respondents enforce transaction restrictions with non-cooperative counterparties: 8% need a Travel Rule message sent to the beneficiary VASP, 41% employ a risk-based approach, and 12% await a response from the Beneficiary VASP. Non-responsive counterparties risk losing transactions from compliant VASPs, making this a critical reason for VASPs to invest in compliance solutions.

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3. Stakeholder demand

VASPs are rolling out Travel Rule solutions quickly to meet the demand from their banking partners, auditors, institutional customers, and other business stakeholders.

It is now a standard expectation for VASPs to be travel rule compliant when applying for new banking partners, getting audited, or establishing other business relationships. Demonstrating compliance with the Travel Rule improves a VASP's likelihood of passing the due diligence requirements to establish solid banking relationships. By including the Travel Rule in their compliance stacks, VASPs demonstrate their risk management strategies to auditors, align with industry standards, and meet regulatory expectations, bolstering their reputation as trusted market participants.

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4. Increased regulatory scrutiny due to sanctions

The Russia-Ukraine war accelerated crypto Travel Rule compliance.  Financial regulators have implemented fresh sanctions against Russian organizations and persons in response to the crisis between Russia and Ukraine. Although it is unknown to what extent sanctioned parties may turn to crypto, VASPs worldwide have acted upon the increased imperative to comply with sanctions obligations. Without crypto Travel Rule compliance, VASPs can—often unknowingly—facilitate transactions with sanctioned counterparties. Transactions associated with entities like Garantex, Bizlatzo, or any other sanctioned crypto service pose a substantial compliance risk for businesses in the U.S. and other jurisdictions, with potential fines and criminal charges as consequences.

Therefore, it's crucial for VASPs to be able to discern whether their clients are sending transactions to sanctioned entities, wallets, or jurisdictions. This can only be achieved by diligently implementing Travel Rule compliance, which enables transaction-level counterparty and sanction insight.

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5. To benefit from an incremental Travel Rule adoption

Forward-thinking VASPs are strategically using a phased rollout to their advantage. Ahead of their regulatory timelines, they are getting started with collecting the necessary counterparty data, putting in place the systems, and easing into the travel rule. This puts them in a great place to be ready without excessive strain on resources and with minimized impact on their customers.

Thanks to industry advocacy, some regulators are warming up to this staged approach to compliance. Recent surveys highlight an increasing preference for this phased approach: 31% in the current year, up from 18% in 2022.

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6. To gain a competitive edge

It goes without saying: regulated financial products distinctly outshine their unregulated counterparts by offering numerous advantages. Advantages include crucial investor protection, stringent legal compliance, unwavering financial stability, improved market confidence, effective dispute resolution mechanisms, and indispensable consumer safeguards. Additionally, crypto compliance ensures safer transactions, strengthens trust, and strategically positions VASPs as reputable market players for enhanced growth and reach.

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How Notabene Addresses the Six Reasons VASPs Are Considering Travel Rule Solutions

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1. Notabene’s multi-jurisdictional approach facilitates seamless onboarding for VASPs across various jurisdictions

With imminent deadlines, globally-operating VASPs confront the challenge of staggered Travel Rule enforcement across their jurisdictions. This leaves them scrambling to craft a unified compliance strategy in each location, integrate protocols for each entity, and assess comprehensive solutions. 

For example, a VASP located across three jurisdictions may need a Money Services Business (MSB) license in the United States in Canada, a Digital Payment Token (DPT) license in Singapore, and a license from the Federal Financial Supervisory Authority (BaFin) in Germany—each with distinct compliance requirements.

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Notabene's SafeTransact provides a streamlined solution tailored for global businesses, offering support across 20+ jurisdictions and counting. VASPs choose us to expedite their Travel Rule compliance with multiple regions. Additionally, VASPs can leverage our SAFE Implementation program; VASPs can seamlessly integrate and fast-track their regulatory adherence, ensuring business continuity and regulatory alignment. Learn more below.

2. SafeTransact Rise: Notabene’s answer to business preservation and transaction assurance

Our customers’ success is our primary goal, and we understand that without responses to their Travel Rule transactions, our VASPs may not be able to achieve full compliance. Recognizing that many businesses may not have the tools to handle these responses, we offer SafeTransact Rise - a complimentary Sunrise Plan that provides transaction beneficiaries access to our comprehensive Travel Rule compliance dashboard to respond to unlimited inbound messages, as well as and send up to USD 10k in outgoing transactions. While on our platform, Compliance Officers can test out setting up safe, automated compliance workflows and utilize award-winning partnerships with blockchain analytics and sanctions screening providers.

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3. Demonstrating Travel Rule compliance readiness with Notabene's SafeTransact

When implemented correctly—pre-transaction settlement— Travel Rule compliance equips VASPs with detailed insights into transactional counterparties and allows VASPs to ascertain if clients transact with sanctioned entities, wallets, or regions.

As the industry’s only pre-transaction decision-making platform, Notabene's SafeTransact preemptively identifies and halts high-risk activity before reaching the exchange. Our platform offers a comprehensive view of crypto transactions, allowing users to automate real-time decisions, screen counterparties for sanctions, recognize self-hosted wallets, and ensure seamless global Travel Rule compliance following international regulations.

Additionally, VASPs use our reporting tools to demonstrate their Travel Rule compliance programs, including verified data about their transactions, counterparties, and VASPs’ steps to build robust compliance measures.

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4. Set rules to automatically stop transactions to sanctioned actors

Our customers can effectively identify sanctioned counterparties and block ensuing transactions by performing the following checks before the transaction occurs: 

1. Identifying counterparty VASP
2. Performing VASP due diligence
3. Identifying and sanction screening counterparty customers 
4. Monitoring wallet risk scores

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To automate this process, customers head to the Rules Engine to encode their risk-based rules to restrict incoming or outgoing Travel Rule data transfers with VASPs that do not meet their diligence criteria. This step also allows them to identify and block suspicious transactions at scale. By tying this mechanism into the transaction flow, this functionality boosts transaction efficiency and provides Compliance Officers with robust tools to mitigate AML-related risks effectively.

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5. SAFE Implementation phases: benefit from a comfortable Travel Rule adoption

We advocate for a phased, data-driven approach to Travel Rule implementation. Our SAFE Implementation process offers Notabene clients a tailored pathway to compliance based on their business needs. Customers can meet regulatory guidelines and evolve their own risk-based approach and needs over time - with the first phase requiring less than a week with only minimal technical integration. Furthermore, as part of the implementation phases, Notabene's SafeTransact platform provides industry-unique support for multiple legal entities, allowing VASPs to easily expand into multiple jurisdictions without worrying about complex legal and compliance issues. Our goal with SAFE Implementation is to make a comfortable Travel Rule technical rollout so VASPs can focus on other matters, such as incorporating new compliance requirements into their business workflows.

Learn more about SAFE Implementation

6. Notabene: competitive edge through specialized Travel Rule training & solutions

Due to its novelty and operational intricacies, fully harnessing the advantages of Travel Rule compliance requires learning a new set of rules. For the latest training on this regulation, Notabene offers a Travel Rule Compliance Certification, equipping Compliance Officers with the tools they need to succeed in 2023 and beyond.

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