State of Crypto Travel Rule Compliance Report 2022
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With non-custodial crypto wallets, users have complete control over their funds and the associated private key. It is important to note that the terms “non-custodial” and “unhosted “are used interchangeably in the industry.
A custodial wallet is a wallet hosted by a virtual asset service provider (VASP) like Binance or Coinbase. The VASP owns the private key to the wallet and holds the virtual assets in custody.
KYC is the process of one VASP identifying their customer and verifying their details to comply with global regulations before allowing them to utilize their platform. Travel Rule takes it a step further–requiring two VASPs that have already KYC’d their customers to exchange and store customer PII on transactions over a certain threshold.
It is imperative to identify the wallet type (custodial or non-custodial) and the beneficial owner of a crypto wallet during Travel Rule transactions. Different rules will apply depending upon the findings. Learn more on our Regulations page.
The FATF and local regulators have generally focused on enforcing AML/CFT controls on transactions that involve intermediaries, such as VASPs or other obliged entities. Thus, crypto transfers between unhosted wallets, so-called peer-to-peer transactions, are not explicitly covered by AML/CFT rules.
The FATF opens the door to a future change of paradigm in case there is a distinct trend toward P2P transactions, as this would necessarily hurt the effectiveness of the AML/CFT frameworks as they exist today.
Yes. In our recent State of Crypto Travel Rule Compliance Report 2022, we were able to identify four distinct approaches to transactions between VASPs and unhosted wallets by national regulators.
- Enhanced Due Diligence: Some countries, like Liechtenstein, require VASPs to apply enhanced due diligence measures when transacting with unhosted wallets.
- Information Collection from VASP's Customer: In the UK and Gibraltar, VASPs must collect from their customer the needed information about the owner of the originating or beneficiary unhosted wallet.
- Verifying Non-Custodial Wallet Owner’s Identity: Singapore and Germany require VASPs to identify and verify the owner’s identity of the originating or beneficiary unhosted wallet.
- Identity Verification and Proof of Ownership: The Travel Rule requirements are the same in Switzerland, regardless of whether the transaction is with a VASP or an unhosted wallet.
Learn more on our Regulations page.