The FATF’s Recommendation 16 on Wire Transfers, “Travel Rule,” requires virtual asset service providers (VASPs), financial institutions, and obliged entities to exchange originator and beneficiary identifying information with counterparties during crypto transfers above $1,000.* Due to the public nature of blockchain transactions, no communications methods existed to transfer and receive PII before the mandate.
*Note that different jurisdictions have different transaction threshold amounts.
This article will assess:
- What Travel Rule messaging protocols are
- Why there are multiple
- Suggested factors to consider when choosing the best-fit protocol
- How Notabene helps customers implement each Travel Rule protocol on the market.
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, SMTP (Simple Mail Transfer Protocol) and IMAP (Internet Message Access Protocol) are the two most popular internet email protocols (IMAP). SMTP and IMAP are used to send and receive email. 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. Due to their simplicity, SMTP and IMAP became the standard years later.
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 the Travel Rule.
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 e-mail 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 complete FATF’s Crypto Travel Rule solution allows crypto businesses and financial institutions 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 (provided by blockchain analytics providers)
- Perform VASP due diligence before allowing transactions with them
- Store customer and beneficiary personally identifiable information (PII) in a GDPR-compliant manner and for record-keeping / 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. Companies would still need to implement or develop a comprehensive Travel Rule solution to fulfill the six missing elements.
Which FATF Crypto Travel Rule messaging protocols are currently on the market?
Since FATF's requirements, the crypto industry has already started several initiatives to solve the technical aspect of the travel rule.These consist of protocols built by industry alliance networks, closed groups of exchanges, and private companies as commercial offerings. While addressing the same challenge, message protocols differ in implementation, discovery, governance, and membership fees.
Industry Alliance Networks:
*Please note that TRNow is not a Travel Rule messaging protocol, rather a multi-protocol switch that enables the secure exchange of Travel Rule data with any counterparty VASP.
What should be considered when choosing a Travel Rule messaging protocol provider?
Messaging protocol vs. fully-integrated software providers
- A messaging protocol constitutes 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.
- Developers’ time is a precious resource. Building, implementing, or maintaining integrations into protocols will increase work hours. Companies may choose an appropriate track based towards compliance based upon available resources and risk appetite.
Interoperability with various protocols
- Interoperability with a wide variety of messaging protocols is vital as counterparties may support a different protocol.
- Closed, strict governance models permit transactions with a small group of companies. In contrast, a more open model allows transactions with a broader number of VASPs but has fewer rules on governance.
Non-custodial wallet support
- Transactions between hosted and unhosted wallets have now started to attract increasing attention and scrutiny from authorities. Clients in certain jurisdictions would benefit from choosing a protocol with non-custodial support on their development roadmap.
- Knowing the live date and how many VASPs use a particular protocol will help companies make informed decisions and mitigate the sunrise issue.
- Choosing a messaging protocol without many companies transacting on it could hamper a VASPs transaction flow.
- Each protocol has various costs associated with joining, which affect the final purchase decision.
Does Notabene compete with Travel Rule messaging protocols?
TRP, OpenVASP, USTRWG, 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, protocol-agnostically.
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, Netki, and VerifyVASP.
We offer a turnkey SaaS solution for Travel Rule support, allowing virtual asset service providers to comply with local and global AML rules while maintaining transaction flow. Additionally, we support companies onboarding their travel rule messaging protocol of choice.
Further 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 directory 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.