TL;DR:
- The Travel Rule requires virtual asset service providers (VASPs) to exchange identifying information about transaction parties during crypto transfers above a certain amount.
- A Travel Rule messaging protocol allows VASPs to securely exchange this information.
- A full-service Travel Rule solution should allow VASPs to determine counterparty types, apply jurisdictional requirements, perform sanctions screening, identify counterparty VASPs, perform VASP due diligence, store customer information, and exchange information using various protocols.
- Protocol-agnostic solutions like Notabene's are available to support multiple protocols while providing a full-service Travel Rule solution.
- When choosing a Travel Rule messaging protocol provider, VASPs should consider factors such as protocol adoption, fees, and interoperability.
The FATF’s Recommendation 16 on Wire Transfers, otherwise known as the “Travel Rule,” requires virtual asset service providers (VASPs), financial institutions, and other obliged entities to exchange originator and beneficiary identifying information with counterparties during crypto transfers above $1,000. (However, it is worth noting that jurisdictions have different transaction threshold amounts.)
Owing to the public nature of blockchain transactions, there were no communications methods for the transfer and receipt of PII before the mandate.
What is a Travel Rule messaging protocol?
A Travel Rule messaging protocol allows VASPs to securely exchange originator and beneficiary customer information.
As a comparison, Simple Mail Transfer Protocol (SMTP) and Internet Message Access Protocol (IMAP) are the two most popular internet email protocols. SMTP and IMAP are used to send and receive email. In the same way, VASPs need a messaging protocol to exchange originator and beneficiary information to comply with FATF's Travel Rule Recommendation.
Many electronic mail messaging protocols existed before SMTP and IMAP became the standard. In the past, in order to send an email to a recipient in another system, a gateway was required. However, because of their simplicity, SMTP and IMAP eventually became the standard.
Why are there multiple Travel Rule messaging protocols?
After FATF recommended the Travel Rule, working groups and commercial enterprises developed Travel Rule messaging protocols to solve the technical aspect of Travel Rule compliance, transmitting originator and beneficiary data between VASPs.
While it is encouraging that many protocols are becoming operational, VASPs are frequently uncertain about which to support. We believe that as time passes, some protocols may merge or become obsolete, as was the case with email protocols. Until then, we have decided to take a protocol-agnostic approach and support all main protocols so that our clients are not forced to choose between them.
What should a complete crypto Travel Rule solution entail?
A full-service Travel Rule solution should allow crypto businesses and FIs to:
- Determine the counterparty type of a transaction
- Apply appropriate jurisdictional requirements
- Sanctions screen each counterparty
- Identify counterparty VASPs and assess the risk score of an address (as provided by blockchain analytics providers)
- Perform VASP due diligence before allowing transactions with them
- Store customer and beneficiary PII in a GDPR-compliant manner for record-keeping and reporting purposes
- Send and receive customer PII to and from VASPs using various blockchain messaging protocols
A Travel Rule messaging protocol addresses only one of the seven FATF-outlined components for full compliance, however. Companies would still need to implement or develop a comprehensive Travel Rule solution to comply with the other six elements.
Which crypto Travel Rule messaging protocols are currently on the market?
Some Travel Rule messaging protocols are built by industry alliance networks, closed groups of exchanges, or private companies offering commercial solutions. Although messaging protocols address the same challenge, they differ in implementation, discovery, governance, and membership fees.
Industry Alliance Networks
Closed Networks
Commercial Solutions
*One thing to note about the commercial solutions presented in the list above is that TRNow is not a Travel Rule messaging protocol but a multi-protocol switch that enables the secure exchange of Travel Rule data with any counterparty VASP.
Considerations when choosing a Travel Rule messaging protocol provider
Messaging protocol vs. fully integrated software providers
- A messaging protocol is just one component of the Travel Rule compliance puzzle. Firms should decide if they want to build their own solution on top of a messaging protocol or opt for fully integrated Travel Rule compliance software.
Integration effort
- Developers’ time is a precious resource. Building, implementing, or maintaining integrations into protocols will increase work hours. Companies must work within their resources and risk appetite to build an appropriate plan for achieving compliance.
Interoperability with various protocols
- Interoperability with various messaging protocols is vital as counterparties may support different protocols.
Governance model
- Closed, strict governance models permit transactions within a small group of companies. In contrast, a more open model allows transactions with a broader range of VASPs but has less oversight.
Noncustodial wallet support
- Transactions between hosted and unhosted wallets have begun to attract increasing attention and scrutiny from authorities. Clients in certain jurisdictions would benefit from choosing a protocol with noncustodial support on their development roadmap.
Launch date
- Knowing the live date and the number of VASPs that use a particular protocol will help companies make informed decisions and mitigate the sunrise issue.
Industry support
- Choosing a messaging protocol that few companies use for transactions could hamper a VASP’s transaction flow.
Membership/usage fee
- Each protocol has various costs associated with joining, which affect the final purchase decision.
Does Notabene compete with Travel Rule messaging protocols?
TRP, OpenVASP, TRUST, Sygna Bridge, TRISA, Shyft, Netki, and VerifyVASP are not Notabene competitors; rather, we integrate all live protocols into our full-service Travel Rule solution. Notabene customers can choose the best-fit protocols for their resources and technology needs. We assist our clients with onboarding into the protocols, where applicable, and managing the relationship with the protocols of their choice.
From there, we provide a multi-protocol switch that abstracts the protocol layer from everyday use. Notabene clients can send and receive Travel Rule–compliant customer data to and from any VASP, regardless of the protocol in use.
Which Travel Rule messaging protocols does Notabene support?
Notabene adds a SWIFT-like trust and messaging layer to crypto transactions, allowing organizations to collaborate and identify consumers. We support TRP, OpenVASP, USTRWG, Sygna, TRISA, Shyft, TransactID/Netki, and VerifyVASP.
We offer a turnkey SaaS solution for Travel Rule support that helps VASPs comply with local and global AML rules while maintaining transaction flow. Additionally, we support companies as they onboard their Travel Rule messaging protocol of choice.
Other tools in the Notabene suite allow companies to:
- Embed proof of noncustodial wallet ownership into their product
- Discover, send, and receive fully compliant blockchain transactions to any VASP through our VASP Network and proprietary multi-protocol switch
- Set risk-based rules in the Rules Engine to automate compliance at scale
- Manage Travel Rule data transfers from our compliance platform