If you work in crypto compliance, you've probably heard about the Travel Rule. But what exactly is it, and why does it matter for your business?
The Travel Rule is one of the most significant regulatory requirements facing Virtual Asset Service Providers (VASPs) today. It requires businesses to share specific information about the senders and recipients of cryptocurrency transfers. Think of it as the crypto equivalent of the information your bank collects when you send a wire transfer.
In this article, we'll break down what the Travel Rule is, where it comes from, and what it means for your organisation.
Where Did the Travel Rule Come From?
The Travel Rule isn't new to financial services. Traditional banks have been following similar requirements for decades. The original Travel Rule was introduced by FinCEN in the United States in 1996, requiring financial institutions to pass along certain information when transferring funds.
The crypto version of the Travel Rule comes from the Financial Action Task Force (FATF), the global standard-setter for anti-money laundering regulations. In 2019, FATF updated its Recommendation 16 to explicitly include virtual assets and VASPs.
This update means that crypto businesses now need to meet the same information-sharing standards as traditional financial institutions. The goal is simple: make it harder for criminals to use cryptocurrency for money laundering, terrorist financing, and other illicit activities.
What Information Must Be Shared?
Under the Travel Rule, VASPs must collect and share specific information about both parties in a transaction. Here's what's typically required:
About the Originator (Sender):
Introduction
If you work in crypto compliance, you've probably heard about the Travel Rule. But what exactly is it, and why does it matter for your business?
The Travel Rule is one of the most significant regulatory requirements facing Virtual Asset Service Providers (VASPs) today. It requires businesses to share specific information about the senders and recipients of cryptocurrency transfers. Think of it as the crypto equivalent of the information your bank collects when you send a wire transfer.
In this article, we'll break down what the Travel Rule is, where it came from, and what it means for your organisation.
Where Did the Travel Rule Come From?
The Travel Rule isn't new to financial services. Traditional banks have been following similar requirements for decades. The original Travel Rule was introduced by FinCEN in the United States in 1996, requiring financial institutions to pass along certain information when transferring funds.
The crypto version of the Travel Rule comes from the Financial Action Task Force (FATF), the global standard-setter for anti-money laundering regulations. In 2019, FATF updated its Recommendation 16 to explicitly include virtual assets and VASPs.
This update means that crypto businesses now need to meet the same information-sharing standards as traditional financial institutions. The goal is simple: make it harder for criminals to use cryptocurrency for money laundering, terrorist financing, and other illicit activities.
What Information Must Be Shared?
Under the Travel Rule, VASPs must collect and share specific information about both parties in a transaction. Here's what's typically required:
About the Originator (Sender):
- Full name
- Account number or wallet address
- Physical address, national identity number, or date and place of birth
About the Beneficiary (Recipient):
- Full name
- Account number or wallet address
The exact requirements can vary by jurisdiction, but these are the core data points. Some countries require additional information or have lower thresholds for when the rule applies.
When Does the Travel Rule Apply?
The Travel Rule typically applies to transfers above a certain value threshold. FATF recommends a threshold of USD 1,000 or EUR 1,000, but individual countries can set their own limits.
For example:
- United States: USD 3,000
- European Union: EUR 0 (all transfers)
- Singapore: SGD 1,500
- Australia: AUD 0 (all international transfers)
It's worth noting that some jurisdictions apply the rule to all transfers regardless of value. The EU's Transfer of Funds Regulation, for instance, requires information sharing for every crypto transfer.
Why Does the Travel Rule Matter?
The Travel Rule exists for good reasons. By requiring VASPs to share sender and recipient information, regulators can:
Prevent Money Laundering
When transaction information follows the money, it's much harder for criminals to move illicit funds through the crypto ecosystem without detection.
Combat Terrorist Financing
The same transparency that deters money launderers also makes it difficult for terrorist organisations to use crypto to fund their activities.
Protect Consumers
Better information sharing helps identify fraudulent transactions and can assist in recovering stolen funds.
Legitimise the Industry
Crypto businesses that meet Travel Rule requirements demonstrate their commitment to operating responsibly, which builds trust with regulators, banks, and customers.
The Challenge for VASPs
Complying with the Travel Rule isn't straightforward. Unlike traditional banking, where institutions connect through established networks like SWIFT, the crypto industry lacks a universal infrastructure for sharing Travel Rule information.
This creates several challenges:
Finding Counterparties
When a customer sends crypto to an external wallet, how do you identify which VASP (if any) controls that address? And once identified, how do you establish a secure connection to share data?
Ensuring Security
Travel Rule data is sensitive. You need to share it with counterparties while protecting it from unauthorised access. This requires robust security measures and careful vetting of the VASPs you connect with.
Managing Multiple Protocols
Several Travel Rule messaging protocols have emerged, including TRISA, OpenVASP, and TRP. Many VASPs need to support multiple protocols to maximise their counterparty reach.
Keeping Up with Regulations
Requirements vary by jurisdiction and continue to evolve. Staying compliant means constantly monitoring regulatory changes across multiple countries.
How Cogentic Helps
This is where Cogentic comes in. We've built a compliance platform that handles the complexity of Travel Rule compliance so you can focus on growing your business.
Our platform automatically:
- Identifies which VASPs control destination addresses
- Connects you with counterparties through multiple protocols
- Securely exchanges required information
- Maintains audit trails for regulatory reporting
- Adapts to changing requirements across jurisdictions
Instead of building and maintaining Travel Rule infrastructure yourself, you can integrate once with Cogentic and let us handle the rest.
Key Takeaways
- The Travel Rule requires VASPs to share sender and recipient information for crypto transfers
- It comes from FATF Recommendation 16, updated in 2019 to include virtual assets
- Thresholds vary by jurisdiction, from zero to USD 3,000
- Compliance is challenging due to the lack of universal infrastructure in crypto
- Solutions like Cogentic can simplify compliance by handling the technical complexity
What's Next?
Ready to learn more about Travel Rule compliance? Check out our comprehensive guide for VASPs, or explore how different jurisdictions are implementing the rule.
If you're ready to simplify your Travel Rule compliance, book a demo to see Cogentic in action.