Travel Rule compliance is complex, and even well-intentioned VASPs make mistakes. Some of these errors result from misunderstanding requirements. Others stem from poor implementation or inadequate processes.
Learning from others' mistakes is far less painful than making them yourself. Here are the most common Travel Rule compliance pitfalls we see, along with practical advice on avoiding them.
Mistake 1: Incomplete Customer Data Collection
The Problem
Many VASPs discover they can't complete Travel Rule requirements because they never collected all the necessary customer information during onboarding. Retroactively gathering data from existing customers is painful and often unsuccessful.
Real-World Impact
When you can't provide complete originator information, your Travel Rule messages fail validation. This delays transactions, frustrates customers, and may force you to reject transfers entirely.
How to Avoid It
- Review Travel Rule data requirements for all jurisdictions where you operate
- Update your KYC process to collect all required fields upfront
- Make required fields mandatory in your onboarding systems
- Run data completeness checks on existing customers and remediate gaps
- Consider collecting extra data now that might be required in future regulations
Mistake 2: Ignoring Threshold Variations
The Problem
Some VASPs implement Travel Rule compliance based on a single threshold (often USD 1,000 or USD 3,000), forgetting that thresholds vary by jurisdiction. The EU's zero threshold and Australia's zero threshold for international transfers catch many off guard.
Real-World Impact
Transactions that should trigger Travel Rule compliance slip through without proper information exchange. When regulators audit your records, these gaps are obvious and potentially costly.
How to Avoid It
- Map threshold requirements for every jurisdiction you're exposed to
- Implement jurisdiction-aware logic that applies the correct threshold based on transaction characteristics
- When in doubt, apply the stricter requirement
- Regularly review and update thresholds as regulations evolve
- Consider treating all transfers as requiring compliance to simplify your approach
Mistake 3: Failing to Verify Counterparties
The Problem
In the rush to enable Travel Rule messaging, some VASPs share customer data with any entity claiming to be a VASP. This creates both regulatory and security risks.
10 Common Travel Rule Compliance Mistakes (and How to Avoid Them)
Travel Rule compliance is complex, and even well-intentioned VASPs make mistakes. Some errors come from misunderstanding requirements; others from poor implementation or weak processes. Learning from others’ mistakes is far less painful than making them yourself.
Below are 10 common pitfalls and practical ways to avoid them.
1. Incomplete Customer Data Collection
Problem
VASPs often discover too late that they never collected all the data needed to satisfy Travel Rule requirements. Retroactively gathering missing information from existing customers is slow, expensive, and frequently unsuccessful.
Impact
If you can’t provide complete originator information, Travel Rule messages fail validation. This leads to delayed transactions, frustrated customers, and in some cases rejected transfers.
How to avoid it
- Review Travel Rule data requirements for every jurisdiction where you operate
- Update KYC to collect all required fields during onboarding
- Make mandatory Travel Rule fields technically mandatory in your systems
- Run data completeness checks on your existing customer base and remediate gaps
- Consider collecting additional data that may be required under future rules
2. Ignoring Threshold Variations
Problem
Some VASPs implement Travel Rule logic using a single threshold (e.g., USD 1,000 or 3,000), overlooking that thresholds differ by jurisdiction. Zero thresholds in regions like the EU and for certain Australian international transfers frequently catch firms off guard.
Impact
Transfers that should trigger Travel Rule obligations can pass through without the required information exchange. During audits, these gaps are obvious and can lead to findings, fines, or remediation orders.
How to avoid it
- Map threshold requirements for each relevant jurisdiction and transaction type
- Implement jurisdiction-aware logic that selects the correct threshold per transfer
- When uncertain, default to the stricter requirement
- Review and update thresholds regularly as regulations change
- Consider treating all transfers as in-scope to simplify operations
3. Failing to Verify Counterparties
Problem
In the rush to become “Travel Rule ready,” some VASPs send customer data to any entity claiming to be a VASP, without proper verification.
Impact
Sharing sensitive data with unverified or fraudulent entities creates regulatory, privacy, and reputational risk. Supervisors expect you to exercise due diligence over who receives your customers’ information.
How to avoid it
- Establish a formal counterparty verification process before sharing data
- Check licensing/registration status in relevant jurisdictions
- Use Travel Rule solutions that include built-in counterparty verification
- Keep auditable records of verification checks and decisions
- Periodically re-verify counterparties to catch changes in status
4. Manual Processes That Don’t Scale
Problem
Many VASPs start with manual Travel Rule workflows, assuming they’ll automate later. As volumes grow, the compliance team becomes a bottleneck and “later” never arrives.
Impact
Transactions queue for manual review, processing times increase, staff burn out, and pressure builds to cut corners. Customer experience and compliance quality both suffer.
How to avoid it
- Implement automation from day one, even at low volumes
- Choose solutions that can scale with projected growth
- Reserve manual review for true exceptions, not routine cases
- Track automation rates and investigate why items fall out for manual handling
- Set and monitor targets for reducing manual intervention over time
5. Inadequate Record-Keeping
Problem
Some VASPs focus on exchanging Travel Rule data but neglect to keep robust records of what was sent, received, and decided.
Impact
During audits, you must prove not only that you have processes, but that you consistently follow them. Without reliable records, you may be unable to demonstrate compliance even if you behaved correctly.
How to avoid it
- Log every Travel Rule message sent and received
- Record timestamps, transaction identifiers, and counterparty details
- Retain records for the required period (often 5–7 years, depending on jurisdiction)
- Regularly test your ability to search, retrieve, and report on historical data
- Implement tamper-evident or immutable logging where feasible
6. Treating All Transfers the Same
Problem
Applying identical Travel Rule treatment to every transfer ignores risk-based principles. This wastes resources on low-risk activity and can under-scrutinise high-risk transfers.
Impact
Regulators expect a risk-based approach. Treating a small, low-risk transfer the same as a large, high-risk cross-border transfer signals a box-ticking mentality rather than genuine risk management.
How to avoid it
- Define risk-based policies that scale controls with transaction risk
- Consider value, jurisdictions, counterparty status, and customer risk profile
- Apply enhanced due diligence to higher-risk transfers
- Document your risk methodology and rationale for supervisors
- Periodically review and refine risk criteria based on experience and new threats
7. Neglecting Self-Hosted Wallets
Problem
Rules for transfers involving self-hosted (unhosted) wallets are evolving and differ across jurisdictions. Some VASPs ignore these requirements or apply them inconsistently.
Impact
Regions such as the EU have specific obligations for self-hosted wallet transfers. Ignoring them creates visible compliance gaps that are increasingly a focus for regulators.
How to avoid it
- Understand self-hosted wallet requirements in each jurisdiction where you operate
- Implement reliable methods to identify transfers to/from self-hosted wallets
- Define verification, documentation, or risk checks appropriate to these transfers
- Use blockchain analytics to support risk assessment and monitoring
- Stay current as guidance and rules for self-hosted wallets continue to develop
8. Poor Communication with Counterparties
Problem
Travel Rule compliance depends on cooperation between VASPs. Slow, incomplete, or dismissive responses to counterparty requests create friction and failures.
Impact
If you’re difficult to work with, counterparties may delay or block transfers involving your customers. Your reputation among VASPs directly affects your ability to complete compliant transactions.
How to avoid it
- Respond promptly to Travel Rule-related requests
- Provide complete, accurate data in your messages
- Set clear escalation paths for resolving problematic cases
- Build working relationships with frequent counterparties
- Treat counterparties’ compliance needs as seriously as your own
9. Set-and-Forget Implementation
Problem
Some VASPs treat Travel Rule as a one-time project. Regulations, thresholds, and expectations change, but their implementation doesn’t.
Impact
What was compliant last year may be non-compliant today. New jurisdictions adopt rules, thresholds shift, and data requirements expand. A static programme quickly becomes outdated.
How to avoid it
- Assign clear responsibility for monitoring regulatory developments
- Schedule periodic reviews of your Travel Rule framework and controls
- Work with solution providers that actively track and implement regulatory changes
- Participate in industry groups and forums to stay informed
- Design processes and systems with flexibility and change in mind
10. Underestimating Implementation Complexity
Problem
Travel Rule is often underestimated as a simple technical integration instead of an ongoing, cross-functional operational programme.
Impact
Projects overrun budgets and timelines, compliance deadlines are missed, and teams under pressure may cut corners or accept fragile workarounds.
How to avoid it
- Involve compliance, legal, operations, and technology teams from the outset
- Plan for ongoing operational workload, not just initial go-live
- Choose solutions that minimise integration and maintenance complexity
- Build buffer time and resources for unexpected issues
- Learn from peers and case studies of prior implementations
Key Takeaways
- Collect complete customer data during onboarding, not after
- Implement jurisdiction-aware threshold logic
- Verify counterparties before sharing customer information
- Automate from day one to avoid scaling problems
- Maintain comprehensive, auditable records of Travel Rule activity
- Apply a risk-based approach to different transaction types
- Address self-hosted wallet requirements explicitly
- Communicate effectively with counterparties
- Continuously update your programme as regulations evolve
- Treat Travel Rule as an ongoing operational discipline, not a one-off project